Explained: Why Tech Giants Are Shifting Funding From Metaverse To Artificial Intelligence

Back in 2021, Metaverse was a popular buzzword, with multiple media and technology companies entering the space with large investments. 

Several technology giants sought to capture parts of the metaverse value chain, including Google, Apple, Facebook, and several others. 

Facebook even changed its name to Meta to highlight its meta-verse ambitions. However, the environment has changed drastically over the last two years, especially with the recent rise of artificial intelligence, which offers more immediate benefits for companies and shareholders.

Tech Giants Are Shifting Focus From Metaverse to AI

Meta, whose arm Reality Labs is working on developing its Metaverse, has been cutting jobs, including cuts at Zuckerberg’s pet project Reality Labs. The company had changed its name just a year and a half earlier, and its metaverse arm was burnt through nearly $ 14 billion last year. However, the company appears to have changed tack, with artificial intelligence now being the “ single largest investment”, according to Meta’s recent investor conference calls. 

The company’s recent call was also more focused on the artificial intelligence aspect compared to previous calls, with Zuckerberg mentioning the words ‘artificial intelligence’ more than 25 times. In comparison, the ‘metaverse’ was mentioned less than ten times. His language, too, was peppered with several mentions of driving increased efficiency rather than about growing the metaverse business. 

The company’s app, Horizon Worlds, has not enjoyed any of the success enjoyed by the other apps owned by the company and has performed even worse than other less deep-pocketed “online worlds”. 

The shift is not limited to Meta but has been seen across the board at companies like Disney, Google, Microsoft, and others. 

Microsoft, for instance, shut down its virtual reality platform and laid-off its industrial Metaverse team, and appears to have dropped its focus on the Metaverse for now. 

A few months later, after scaling down its metaverse-focused business, Microsoft stepped up its focus on AI with a $ 10 billion investment in open AI. Other non-tech companies, like Disney that had set up teams focused on Metaverse opportunities have laid off entire teams. 

At the peak of the boom, reports by prominent banks had estimated the Metaverse market size would reach $ 1 trillion within a decade. However, these estimates look far off in the current scenario, where profitability is valued higher than unprofitable growth.

Why is the Focus Shifting to AI?

The shifting of funds from the Metaverse to AI is mainly due to the immediacy of returns from AI, compared to the Metaverse. The latter is still in its infancy with several bottlenecks, such as the cost of the equipment that customers would need to buy, investments on the technology side, and interoperability issues, among others. 

Public market investors have been selling off unprofitable businesses or excessively focused on growth rather than profitability. 

Venture capitalists, too, are more gung-ho about the AI sector, with investments in the sector jumping fivefold between 2020 and 2022. On the other hand, the technology for artificial intelligence is relatively advanced and offers scope for relatively more immediate application for both internal and external purposes. 

“The two major technological waves driving our road map are AI today and, over the longer term, the Metaverse,” Zuckerberg recently said. 

Companies have already found immediate applications for AI, which is expected to help boost productivity.

It Isn’t Over for the Metaverse Yet

While some companies may have shunned the Metaverse for more immediate rewards, there are several fronts on which the Metaverse space is progressing. 

Firstly, Zuckerberg’s idea of a metaverse seems to be quite different from the idea that the average crypto-currency enthusiast has regarding the Metaverse. It is unlikely that his Metaverse would be decentralized and would have much to do with blockchain, as is often cited. 

Unfortunately, the Metaverse’s intention of improving the digital experience was sidelined by the obsession to force crypto and blockchain into the ecosystem. With the hype around blockchain-based Metaverse dying away, the focus can return to creating high-quality virtual spaces. 

Secondly, the virtual and augmented reality space is growing steadily, with companies trying to find the best technology to make wearables lightweight while enhancing the user experience. The price of such technology is quite high currently, putting it out of reach for a major part of the population – and a lack of access to the right technology would mean that a widely populated metaverse remains a dream. 

Further, while Microsoft has shut down its industrial Metaverse, analysts estimate that the industrial metaverse space is doing quite well, especially on the digital twin project side. In addition, the Metaverse is ultimately a confluence of several different technological trends. Even if it doesn’t succeed as a whole, it can help fast-track the growth of the technologies in the process.