It’s been nearly a year since Facebook CEO Mark Zuckerberg announced that his company would be renamed Meta. It was a huge statement about the direction of the metaverse, which many were beginning to declare would encompass everything from socializing to transactions, work to entertainment. And as I wrote last week, it’s a gamble that has gone sour for the billionaire. But across the market, are we seeing the same pattern? Is interest in the metaverse waning? The first stopover I went to was Google, where search analysis shows a huge increase in interest in the term “metaverse” after Zuck moved all-in last October. Not long after, a steady downtrend.
A damning graphic, no doubt. But how much of this can be attributed to the concept of the metaverse itself, and how much is just a consequence of the broader bear macro environment? It’s hard to say, but there’s no doubt that many metaverse designs have been significantly overblown. It is possible to believe in the metaverse, but simultaneously hold the view that many of the tokens in space are overvalued, offer minimal utility, or both. One thing I still can’t understand is why so many investors are willing to pour money into anything remotely related to the metaverse, regardless of whether the investment has a verifiable plan to gain market share in the eventual metaverse, or whatever. Sure, that blind gamble has fallen off a cliff now that the market is so brutal, but many of these companies still have gargantuan valuations even after drops of over 80%.
The dot com bubble
Let’s not forget that the Internet has changed the world immensely, going beyond the expectations of even the biggest bulls. And yet, think about how many companies went bankrupt during the dot-com bust. A poignant reference is Priceline.com. You may not recognize that name today, but it has been in the biggest Internet companies. His thesis was compelling: of the half a million airline tickets that weren’t sold every day, customers could use Priceline to enter the price they were willing to pay. In this way, airlines offloaded their excess inventory, customers bought cheap seats, and the market balance was found. That kind of makes sense, right? And all the while, Priceline was getting a cut of every transaction. A seemingly sensible business plan; a gap in the market; and something that would have made people at parties respond with “oooh, that’s so smart”. Priceline was launched in 1998 and, in seven months, sold 100,000 tickets. Just 13 months after launch, the company went public at $16 a share. It rose that first day to $88 and settled at $69. There were also plans to expand even further – why couldn’t the system work equally well in areas like hotel rooms, train tickets and even mortgages? Its close of $69 after the IPO day gave Priceline a valuation of nearly $10 billion. It was the most valuable company in the short history of the Internet. And then it dropped 94%. This story is not unique, of course. The Nasdaq has lost more than a third of its value just over a month after peaking in April 2000.
What does the dot com bubble have to do with the metaverse?
Which brings me to my point. You could believe the Internet without believing all the companies claiming to be “Internet companies”. These companies were notorious lossmakers, with the concept of profit unheard of in the dot-com days. Priceline, for example, lost $142.5 million in its first quarters. And yet, the Internet has obviously changed the world. There are many Pricelines out there today. Perhaps the “profit” of the dot-com era is the “utility” of the metaverse era. Before investing in any of these tokens, ask yourself what do they actually do? Do they have a clear roadmap for leveraging the metaverse to create something of tangible value? More importantly, is there any use? Seems like basic questions. And that’s the point. They really are basic – but many coins can’t answer them. Let’s not forget how easy it is to create a cryptocurrency; a simple copy and paste technically creates one for you. Combine that with the fact that so much money was flooding the space – both from investors and through VCs – and it’s no surprise that so many tokens have completely collapsed. For every Amazon, there are ten Pricelines. And the other thing that needs to be mentioned here is that (obviously) there is no guarantee that the metaverse will become even remotely as impactful to society as the internet was. Even with the Internet hitting every target imaginable, there are still a number of Pricelines out there. Imagine how many there would be if the Internet failed?
final thoughts
Just because you believe in the metaverse, don’t blindly bet on anything with the name “metaverse” on it. For the foreseeable future, of course, all cryptocurrencies – metaverses or otherwise – will continue to follow the stock market, such is the macro environment right now. So even those that offer utility and may be well positioned to excel will not yield returns for investors as long as the broader market continues to lag. But even if the market recovers, metaverse tokens still need to prove they actually accomplish something – which many cannot. As always when investing, it’s important, therefore, to do your due diligence on the currency in question, block out the noise, and ask yourself these basic questions, as discussed above. Don’t let the metaverse seduce you with sweet words whispered in your ear. A utopian dream is not going to pay the bills at the end of the day, and we have the dot com bubble as proof of that.
