Isn’t it time for the “trough of disillusionment” in the Metaverse?

What stage is the Metaverse concept at now? Apparently “peak expectations”.

Gartner, the most famous consulting firm in the information technology industry, has proposed a “Hype Cycle”, also known as the “Technology Hype Cycle”. Any new technology, as well as a technology-based business model, goes through the following five stages: 

Innovation germination stage: After the initial results of technology research and development, the first batch of startups get venture capital, and then produce the first batch of products – these products are often very expensive and very immature. Early customers are beginning to evaluate the feasibility of adopting the technology, and companies in other industries are beginning to consider crossovers into the space.

The peak of expectations: The mass media began touting the technology, and a large number of startups and even established companies entered the industry. The number of products based on this technology has increased and the application scope has been broadened, investors have unrealistic optimism, and investment bubbles have emerged. At the peak of expectations, negative media coverage begins to emerge.

The trough of disillusionment: companies in the field begin to go bankrupt or restructure, and the few remaining companies have received the second and third rounds of venture capital. In the process, the results of the technology have been fully adopted by a small number of customers, generating real economic value. More mature replacement products have begun to appear, and supporting services have become increasingly perfect.

Recovery Climb: Now, the demand for this segment is increasing, but the number of suppliers is no longer increasing (and even continuing to decrease). Most companies can make reasonable profits and begin to summarize the methodology and improve production efficiency. On this basis, more mature products have emerged, and even product suites with very low thresholds for use.

Mature and stable period: The real high growth period begins. Among all potential users, 20-30% have already used this innovative technology, while the remaining 70-80% have to be developed in the long years to come. The golden age of venture capital around the technology is over, and the rush for companies to go public is just beginning.

Isn't it time for the "trough of disillusionment" in the Metaverse?

If the Metaverse is viewed as a complete technological concept, where is it now? Obviously, it should be “expectation peak”. Especially in 2021, with the financing of Epic, the listing of Robles, and the renaming of Facebook, almost everyone in the entire Internet and technology industries is discussing the Metaverse. From technology companies to content companies, as long as they can link themselves to the concept of the Metaverse, it is not difficult to get investment; the media is full of good visions for the Metaverse, but there are few negative reports. The funny thing is that the “first Metaverse products” haven’t even come out yet, and all we’ve seen so far are just prototypes of the various Metaverses. 

As long as the laws of history remain unchanged, we will surely see the “trough of disillusionment” of the Metaverse at home and abroad in the not too distant future. Almost six years ago, the pioneer of the Metaverse, VR technology, also experienced such a big ups and downs: 

In the first half of 2015, Baofeng Yingyin ‘s parent company, Baofeng Group, was listed on the A-share market, setting a myth of 37 consecutive daily trading limits. In order to maintain a high valuation, Baofeng Group fully embraces the concept of VR and promotes the ” Baofeng Magic Mirror ” as its own VR hardware fist product. In fact, the Storm Magic Mirror is only the lowest-level “VR mobile phone stand” and cannot provide an immersive experience at all. But the sentiment in the A-share market at that time was so high that it didn’t matter at all.

In the second half of 2015, the A-share ChiNext bubble began to burst, but investors have not completely lost confidence. Baofeng Group announced that the next-generation “Baofeng Magic Mirror” will have higher technical content and be bound to its own smart TV products. LeTV, known as the leader of the GEM, has also joined the VR battle. By the end of 2015, more than a dozen “VR mobile phone stand” products appeared on the market, and everyone said that they had the core technology.

In 2016, the valuation of the Growth Enterprise Market continued to decline, the CSRC strictly investigated the concept speculation, and the stock prices of Baofeng Group and LeTV continued to fall. At the beginning of 2017, market attention shifted to emerging fields such as mobile games, short videos, and live broadcasts, and VR technology was no longer regarded as the future development direction. This low ebb period will last until 2021, and the concept of “Metaverse” has once again detonated the VR industry. Many VR equipment and content companies have received investment as “Metaverse” companies.

It can be seen that the evolution of the VR concept in China at that time can be described as “success is a storm, failure is a storm”. In 2015, Feng Xin, the chairman of Baofeng Group, was once regarded by A-share investors as a model of Internet entrepreneurship. His touts on VR technology caused a large number of other companies to follow suit, thus hyping up VR hardware in just a few months. market. With the complete burst of the GEM bubble in 2016, Baofeng Group was gradually marginalized by the capital market, and the concept of VR disappeared. 

In the field of Metaverse, there is no such “benchmark company” in China. The vast majority of A-share game companies claim to be building the Metaverse. Internet giants such as Tencent, NetEase, and ByteDance are adding to the Metaverse . Video platforms such as BilibIli and Mango Supermedia are building the Metaverse. “Consumer goods companies are also claiming to be entering the Metaverse – but who is the leader of the Metaverse? There are faucets everywhere, which means there are no faucets. In this case, the “trough of disillusionment” in the Metaverse will certainly not be shattered by the failure of a certain domestic company’s product. 

In foreign countries, we can find at least two “benchmark companies” in the Metaverse: Meta Platforms in platform companies, and Robles in content companies. The common feature of the two companies is that they use the Metaverse as a long-term slogan, but do not rely on the real “Metaverse” to make money in the short term. As long as they can sustain revenue and profit growth while convincing the market that they are on the right path in the Metaverse, their drama can continue. 

In our view, the power to burst the current “Metaverse bubble” is likely to come from the regulatory side —both domestic and foreign. Among the advocates and entrepreneurs of the Metaverse, there are many people in the currency circle, and many applications claiming to be the Metaverse also use cryptocurrency or NFT as their main function. Under the increasingly harsh conditions of the taxation departments and financial regulatory authorities of various countries, the Metaverse has become a “paradise” in the currency circle. It seems that as long as the Metaverse is used, the pressure on currency speculation can be alleviated. However, the regulators are not fools, and after realizing the inextricable relationship between the Metaverse and the currency circle, it is only a matter of time before they impose strict management on the Metaverse. 

Domestically, the protection of minors is also a potential regulatory issue. Starting from the end of August 2021, my country will fully implement the most stringent anti-addiction system for minors in history. Users under the age of 18 can only play games for three hours a week, and it is limited to weekend nights. As we have analyzed above, the Metaverse is essentially a “large-scale open world game”, so it will inevitably face the problem of anti-addiction for minors. In fact, many offline VR venues are now deliberately avoiding their “game” attributes, and only emphasizing their own “room escape”, “immersive experience” and “multiplayer competition” attributes. However, just by changing the name, it is impossible to evade supervision. The horror, suspense, and thriller content that exists in a large number of offline VR venues is likely to be rectified to some extent at a certain point in the future, just like what happened in the script killing industry in the second half of 2021. 

There is also a possibility that after the global epidemic subsides, the prototype products of the Metaverse temporarily lose their attractiveness, and the user base and income drop sharply, thus causing investors to question the concept of the Metaverse. It can be seen that all the currently popular products related to the Metaverse have, to a certain extent, received the “stay-at-home bonus” caused by the epidemic: 

“Roblox” experienced a surge in users from March to July 2020, and more users were added during this period than in the past fourteen years. In particular, the “Party Mode” launched in July 2020 meets the needs of American teenagers to hold virtual parties at home.

The hot sale of Oculus Quest 2 is also partly due to the demand for working from home and entertainment at home caused by the epidemic. Zuckerberg even believes that the trend of remote working is irreversible, and even if the epidemic is over, it will eventually lead to “human beings completely detached from the constraints of geographic location.”

The popularity of offline VR venues in China also benefits from the market share ceded by other forms of out-of-home entertainment. For example, movie theaters and theaters have been hit hard in the past two years; VR venues have been less affected because of the small number of participants in a single show, and have benefited from the reduction of commercial real estate rents.

In 2020, PC sales in the U.S. and around the world have seen a rare rebound, and PC game and console game users have also risen sharply. This is largely caused by users replacing out-of-home activities with games during the epidemic. Potential Metaverse manufacturers such as Epic Games and Take-Two have all eaten this wave of dividends.

Ironically, when Epic founder Sweeney refuted Zuckerberg’s Metaverse vision, he said: “Remote work is not a rigid human need. After the epidemic is over, remote work will ebb.” However, the end of the epidemic may It also means the ebb of the game industry and the temporary ebb of the entire Metaverse concept. This global change, combined with possible actions by national regulators, will collectively push the Metaverse from a “peak of expectations” to a “trough of disillusionment.” 

When will this happen? do not know. But according to the laws of history, it is inevitable. Let us think further: what will happen after this “trough of disillusionment” arrives? 

The collapse of a large number of start-up companies, the withdrawal of capital, and the reversal of the media, it goes without saying. What’s more important is the movements of those big companies: how many giants are willing to invest heavily in this field day after day and affect their quarterly profits when the concept of “Metaverse” is spurned by the capital market? 

Typical platform companies have a hard time sticking around. Google is a typical example. Most of the consumer products it has made in the past ten years have been “one-year/two-year hot”, and services like Stadia that have persisted for three years are already immortal. Amazon may not be much better. Its self-developed game and movie businesses are both high and low, which is related to the lack of patience of the management. However, these two giants did not invest too much in the Metaverse, and it would not hurt to withdraw. 

Meta Platforms (Facebook) will definitely not give up on VR technology as it has invested ten years and tens of billions of dollars in research and development costs. However, Zuckerberg may use another term to describe his VR vision. Before 2020, Zuckerberg seldom mentioned the word Metaverse, but in 2021, he became the standard bearer of the Metaverse, showing a keen sense of market hotspots and a spirit of never-ending death. If the word Metaverse is removed, he can also use various new concepts such as telecommuting, virtual office, VR teleportation (Teleport), etc. The only question is, will Meta change its name by then? 

Isn't it time for the "trough of disillusionment" in the Metaverse?

In China, Tencent will probably stick to it silently, because it has a huge game business on the one hand, and QQ, a candidate for the Metaverse platform, on the other hand. Tencent is the second largest shareholder of Epic Games, so it can easily learn from the latter’s achievements. You may have noticed that in the Metaverse boom in 2021, Tencent is the Internet giant that has been the most low-key and least willing to publicly reveal its Metaverse plans. Since it is not in a hurry to chase the hot spot now, it should not be in a hurry to quit when the hot spot cools down. 

ByteDance’s moves are hard to predict — it only entered the Metaverse with the acquisition of Pico in August 2021, too late. Its gaming business hasn’t been very successful, and the platforms and products at hand aren’t suitable for evolving into a Metaverse. With sluggish growth in its advertising business and uncertain futures in its gaming and education businesses, ByteDance will focus on e-commerce in the next few years. In this case, if the Metaverse concept cools, it will likely lose interest in further investment. 

Among the game companies, Epic Games will certainly stick with it, and it has made it a strategic goal to realize the scenes in “Avalanche”. The future of Robles is somewhat murky, because it has not yet achieved stable profitability, and its user base, which is dominated by minors, is not suitable for radical commercialization. At present, the valuation of Robles is much higher than that of Epic, because the former’s “Metaverse” component is stronger and more in line with investors’ expectations; but once the concept of the Metaverse cools down, Robles, who lacks self-hematopoietic ability, may quickly succumb to Epic Below, watching the latter take the lead on this track. 

As for traditional game companies like Take-Two, although they think they are closer to the Metaverse vision than Facebook, they still doubt the feasibility of the Metaverse concept. You can’t invest too much resources in a concept you doubt; once the concept is challenged by the market, you may immediately throw it away. Large-scale game companies in Europe and America, including Take-Two, EA, Activision Blizzard, and Ubi Soft, are generally listed companies and need to face the torture of shareholders every quarter, so it is difficult to remain focused during the “trough period of disillusionment” in the Metaverse in this direction. 

In contrast, a non-listed company like Mihayou has unique advantages: it is not short of money, does not need to care about short-term performance, and has sufficient knowledge and plans for the Metaverse. Once the concept of the Metaverse falls into a trough, only such a company can expand against the trend and achieve breakthroughs in technology and content at a relatively small cost.Incidentally, Epic is also a non-listed company, which is similar to Mihayou in various businesses. 

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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