The concept of the metaverse, which describes the integration of digital worlds with our reality, has piqued the interest of tech giants such as Microsoft and Meta. Nonetheless, recent events have brought attention to the challenges these companies face in sustaining their ambitious metaverse ventures, highlighting financial pressures in this constantly evolving digital domain.

Microsoft's Shift from Metaverse to AI

In the latest development, Microsoft decided to shut down Project AirSim, an AI-driven drone simulation software, a key component of its "industrial metaverse" vision. This abrupt decision was accompanied by the layoffs of the entire team responsible for the project, with Project AirSim set to be discontinued on December 15. This move was preceded by the discontinuation of Project Bonsai, an AI development platform aimed at industrial autonomous systems that had resulted in the 100-person team being let go just months after its formation, which further underscores Microsoft's shift in focus.

Originally, Microsoft saw these projects as a means to compete with Amazon Web Services and attract industrial app developers. However, as Microsoft's partnership with OpenAI took centre stage, the company altered its course, with early 2023 witnessing a heightened emphasis on its vision for the industrial metaverse. The ultimate abandonment of Project AirSim and Project Bonsai highlights Microsoft's strategy to concentrate its resources on AI-related initiatives, at the expense of experimental products.

Meta's Ongoing Losses in the Metaverse

The metaverse, once a central focus, now receives less attention from Meta's CEO, Mark Zuckerberg, as the company shifts its primary focus to artificial intelligence (AI). Last year, building the metaverse was a top priority for Zuckerberg, but the company's financial performance and efficiency improvements are now the primary goals. Reality Labs, responsible for metaverse projects, faced significant losses, and the company aims to slim down its outlook. However, it's essential to note that this shift in focus does not imply that Meta is giving up on the metaverse entirely.

In Meta's Metaverse division, Reality Labs, the Q3 operating report paints a bleak picture, with a loss of US$3.74 billion.

(Source: Meta Q3 report)

This loss comes on top of an accumulated loss of nearly US$25 billion since 2022. Despite the financial haemorrhage, Meta's report suggests that operating losses are expected to soar due to ongoing investments in VR/AR-related products and ecosystem expansion.

With Reality Labs recording cumulative losses of nearly US$24 billion in 2021 and 2022, including a staggering US$13.7 billion in just the last year, questions arise regarding the financial viability of Meta's metaverse pursuits.

Adding to the already significant loss, the company anticipates further losses in the upcoming year. (Source: Meta Q3 report)

Other Failed Metaverse Projects

The struggles in the metaverse realm are not limited to tech giants. Diverse players in the metaverse landscapes are also facing challenges with many having ceased the projects, such as Neopets and Disney.

Neopets, a 24-year-old virtual pet website, initiated a crypto experiment with Neopets Meta, a web3 version that featured NFTs and play-to-earn metaverse elements. However, this endeavour was abruptly terminated on July 17. The Neopets Meta team cited in their Medium post:

The resources available to us simply weren’t substantial enough to sustain the level of growth and development that the site needed to keep up with the times, resulting in bugs, unconverted pages, broken games, and a lack of new content.

Disney, the entertainment giant, also felt the heat of metaverse challenges, opting to shut down its metaverse division, affecting approximately 50 employees. Disney's initial foray into the metaverse aimed to create interactive storytelling experiences using its extensive intellectual property library, including Pixar, Marvel Studios, Studio Ghibli, and Star Wars. However, economic uncertainties have led to a reevaluation of their metaverse strategies, symbolising the shifting sands of the metaverse industry.

In conclusion, the metaverse, despite its alluring potential, poses significant challenges in terms of sustainability and profitability, even for industry giants like Microsoft and Meta. The cases of Neopets and Disney further illustrate the turbulent nature of this digital frontier. Whether the metaverse can evolve into a financially viable and sustainable ecosystem remains an open question.