The Metaverse – Volatile times

Weak markets don’t matter that much.

• Life is not great in The Metaverse at the moment as shipments are expected to almost halve in 2024 but in the grand scheme of things, this is irrelevant as RFM Research does not expect any real traction in this market much before 2028 or 2029.
• According to Counterpoint Research (see here), shipments declined by 33% YoY in Q1 2023 and RFM Research thinks that this has deepened in Q2 2023 to more than 40% YoY.
• Meta has also given up a lot of market share as the new Oculus Quest 3 came too late allowing new products from others to get a foothold in the market.
• The real problem is both the economy and the inflation that was triggered by money printing during the pandemic.
• When the money supply increases faster than the economy, inflation results as there is too much money chasing too few goods.
• The pandemic saw the money supply in the USA (and elsewhere) increase by 40% while economies contracted heavily explaining why inflation started to be a problem in 2021.
• The problem now is that the pandemic is being paid for by reducing the purchasing power of fiat currency which in turn has triggered the “cost of living crisis” that is hitting many countries across the world.
• This has meant that while consumers are paying the bill for the pandemic, they don’t have much purchasing power left over to buy a new smartphone let alone a new VR/AR device.
• A smartphone is a must-have for many people while a Metaverse stage is a nice to-have for some people while the vast majority don’t care one way or the other.
• This is why the nascent market for Metaverse devices has been hammered especially hard and the outlook remains very weak until at least the middle of next year.
• At this point, I expect that the money supply and GDP will return to a state of balance and inflation can come down of its own accord.
• Interest rates can then begin to come down which in turn should allow the economy to see better growth.
• Usage of Metaverse devices globally is around 0.01% of smartphones and market volumes would have to double for the next 8 years to reach volumes equivalent to 20% of the smartphone market underlining just how small this market is.
• This sounds pretty bad, but the reality is that it doesn’t really matter one way or the other because the technology that has the potential to drive the Metaverse is a good 3 or 4 years away from being available.
• This is why Apple has been forced to implement its Vision Pro device backwards as well as make horrible compromises (see here) as the technology to make it correctly (in my opinion) is currently not available.
• Furthermore, this device is so expensive that almost nobody will buy it, not even the hardcore Apple fans that I speak to.
• However, none of this means that the Metaverse won’t take off as the market is so tiny, that this kind of volatility and bumpiness is well within the realm of expectations.
• Hence, I continue to think that 2025 / 2026 is the time when Metaverse devices that users actually want to spend time with will emerge which in turn could lead to mass market take-off in 2028 or 2029.
• This will require devices to interoperate fully with one another which in this climate is a big ask and I see very little evidence that anyone is opening up their platforms to allow others to come in with devices from other manufacturers or platform providers.
• This remains by far the biggest risk to the take-off of The Metaverse but fortunately, these players have plenty of time to sort it out.
• The Metaverse remains uninvestable at the moment as all of the cited players currently earn most of their revenues doing something else which is unlikely to change any time soon.
• I am keeping an eye on Roblox and Unity as potential plays for the Metaverse, but both of them remain too expensive and their shares look set to stagnate or decline for a while yet.