A "perfect storm" has led some industry observers to question whether the metaverse, once the most sought-after "shiny new thing" in marketing,is now on "life support". Generative artificial intelligence (AI), represented by ChatGPT, has taken over the tech hype cycle;key platforms see low user engagement, and face thorny issues such as privacy and brand safety; economic fluctuations have prompted brands to prioritize marketing fundamentals over the feverish digital bets made during the earlier pandemic.

"Overall, there is much less discussion. To a large extent, people have hit the brakes," said Dave Kersey, chief media officer at GSD&M, when discussing client interest in the metaverse.

Nevertheless, despite high risks in areas such as data privacy, it may still be premature to dismiss the metaverse entirely. It is not hard to see that brands across multiple categories are still deploying metaverse strategies to connect with younger consumers, build communities, and support hybrid experiences. The current stage of metaverse development may not be a finale, but rather a "dormant period." The metaverse emerging after the crash may have a clearer definition, but its scope may be more limited compared to the broad descriptions painted in the early days around this Web3-adjacent space.

"I believe it will narrow a lot," Kersey said of the possible evolution of the metaverse's definition. "Marketers are returning to proven, traditional strategies that drive sales and hit the bottom line."

Narrowing the competitive field

Just as marketing departments often bear the brunt of budget cuts during economic downturns, dedicated metaverse teams have also recently faced layoffs. This has sparked pessimistic predictions about a channel once built on grand promises of connecting the real and virtual worlds and enabling innovative business models,which is clearly a costly prospect. Similarly, amid persistent inflation, consumers are tightening their wallets, creating further barriers forhigh-priced hardware categories like virtual reality (VR)associated with the metaverse, which were already struggling to take off.

"Overall, there is much less discussion (about the metaverse). To a large extent, people have hit the brakes."

— Dave Kersey, chief media officer at GSD&M

According to The Wall Street Journalreports, Disney recently cut its metaverse division amid broader layoffs; Microsoft, meanwhile,has scaled back areas like social VR. Even Meta Platforms, arguably the most steadfast metaverse supporter among the FAANG giants, hasshifted more focus to AI, redirecting attention to automation technology like other companies. Marketers have also quickly adopted generative AI solutions like ChatGPT.

"AI is more practical, more functional, and more transactional," Kersey said.

However, the metaverse is still attracting significant brand investment. According to Deloitte's 2023 Global Marketing Trends Report, only 10% of marketing leaders believe themetaverse is irrelevant to their industry。

Last week, Papa John's partnered withgamified metaverse company OneRareto launch NFTs. Absolut, an official sponsor of the Coachella music festival, is incorporating the metaverse into its spring festival campaign, recreating theAbsolut.Land experience from the 2022 festival. PepsiCo, when announcing its first major brand overhaul in 14 years in March, also included metaverse and Web3-related explorations as part of the renewal.

Pepsi CMO Todd Kaplan, in arecent interview with Marketing Dive, said: "We are on the edge of an explosion over the next 10 to 15 years—when you think about Web3 and the metaverse, and think about overall digitalization, where are we headed." A representative for the soft drink brand did not respond to multiple email inquiries about Pepsi's current metaverse strategy and investment levels.

Additionally, metaverse activities on gaming platforms like Fortnite and Roblox attract tens of millions of players, with Gen Z and Gen Alpha making up a significant portion.

"If you want to connect with audiences, this might be a good area worth investing in over the long term," Kersey said. "Roblox has over 200 million monthly active users. There are still opportunities to build experiences, but I think economic factors are playing a bigger role."

Marketers still looking to enter the metaverse will ultimately need to make a stronger business case than just chasing trends. Some experts say that while the number of participants in the metaverse has decreased, those still present are pursuing depth rather than educational experiments or one-off trials.

"Clients are no longer focusing on 'buzz' as a KPI when investing in or strategizing around the metaverse," said Jeremy Cohen, senior vice president at Publicis and head of the agency's Web3 investments. "The questions are shifting more toward discussions about business transformation."

Back to reality

Even as brands continue to support it, andcompanies like Apple are expected to make major metaverse-related announcements, the channel still faces a potentially painful contraction. Startups that surged during the peak of abundant venture capital funding are now facing a bear market exacerbated by events like thecollapse of Silicon Valley Bank.

"The problem isn't a lack of demand from brands, but more on the supply side," Cohen said. "This is currently a highly fragmented ecosystem that has long relied on abundant low-cost capital."

"Many of the supporting companies that underpin this ecosystem will not survive," Cohen added.

The mechanics of the metaverse are also more complex than ever and more prone to backlash. Consumer advocacy groups have taken action against companies using metaverse platforms for covert marketing to children. This highlights a fundamental contradiction between marketers' core goal in the metaverse—reaching younger demographics like Gen Z and Gen Alpha that are hard to find elsewhere—and increasingly stringent privacy regulations.

Walmart has thus faced criticism from organizations includingTruth In Advertising.org. In late March, the big-box retailer ended its "Universe of Play" experience on Roblox tied to its toy catalog, but claimed it was a planned move, not a reaction to regulatory pressure. The retailer has taken multiple compliance measures, such as joining the Children's Advertising Review Unit's COPPA Safe Harbor program in late 2022.

"We are always looking to create engaging experiences for our customers," Walmart said in a statement previously shared with Marketing Dive. "Our intent in joining Roblox was to continuously innovate. Removing some experiences to develop new ones is part of that innovation. Universe of Play was discontinued as planned, and we look forward to launching new content for customers soon."

Roblox revised its advertising policies earlier in March, banning ads targeting users under 13. The changes also prevent off-platform linking through methods like URLs or QR codes.

"The more safeguards you have as a marketer... the better off you are."

— Dave Kersey, chief media officer at GSD&M

Marketing Dive contacted several other companies that recently ran campaigns on Roblox via email, asking whether they had adjusted their strategies. As of this publication, only The Home Depot responded. The home improvement retailerlaunched a virtual version of its "Kids Workshop" learning program on Roblox in early March. A brand representative said The Home Depot is reviewing Roblox's new terms and conditions and will make necessary updates to its experience.

"There's no doubt people are paying more attention to this," Cohen said of privacy issues. "Brands, especially big ones, tend to be conservative when regulatory uncertainty exists."

Experts agree that the controversy surrounding metaverse-friendly services should remind marketers to prioritize compliance and consumer safety protections, especially given the channel's relative immaturity and the limited tools available for audience segmentation. More substantive privacy considerations may deter industries that are more heavily regulated in sharing sensitive data.

"From a policy perspective, a lot is happening," Kersey said of compliance issues. "The more safeguards you have as a marketer—whether it's agencies representing brands or marketers themselves—the better off you are."