Global metaverse revenue has risen 6.2% year over year (YoY), reaching an estimated $19.26 billion in 2023, an increase driven by the rising popularity of core products related to gaming and workflow digitization.

The report from S&P Global Market Intelligence noted that while the recent surge in spending falls short of the rapid growth rates seen in the early stages of the metaverse, it marks a significant recovery from the 2.7% YoY decline observed in 2022.

Commercial software and services offered by vendors like Accenture and Siemens saw a notable growth of 13% in 2023.

The gaming segment experienced a resurgence, fueled by the escalating competition between Roblox and Fortnite, resulting in a 7.3% YoY increase in revenue.

On the hardware front, metaverse interface hardware saw a decline of 3% YoY amounting to $5.27 billion in 2023.

This decrease was attributed to waning consumer interest in older headset models, however the introduction of new offerings from Meta and Apple are expected to stimulate growth in this segment in 2024.

Consumer-facing experiences received a notable boost, exemplified by Disney’s investment in Epic and Apple’s foray into the virtual reality (VR), augmented reality (AR) and spatial ecosystem with its Vision Pro headset.

Ian Hughes, senior research analyst at S&P Global Market Intelligence, says headsets are becoming smaller, lighter and more capable, solving for key roadblocks to adoption.

“As the installed base for AR/VR hardware grows, that lifts the level of accessibility to the metaverse across consumer and commercial spaces,” he explains.

The report cautioned revenue growth is expected to taper off in the final quarter of the year, indicating potential challenges in generating new sales opportunities.

Neil Barbour, lead analyst on the report, points out a lot of people still don’t know what they’re buying with the metaverse.

“Is it a game? Is it a gimmick? And in many cases, companies are building the car while they’re driving it, so the value proposition keeps changing,” he says. “We’re seeing some growing pains as clients and vendors negotiate over what role virtual spaces should take in everyday work and play.”

He explains the current ambiguity about the metaverse is akin to the way people felt about the internet in its early days–the potential was clear, but it took a while for form and function to meet.

“Video game developers and publishers have learned the hard way that building complex virtual worlds is an expensive and not always profitable conquest,” Barbour says.

GenAI could potentially shorten the development phase by producing routine assets that would otherwise take precious hours away from skilled designers.

Barbour points out the industrial sector is leveraging the metaverse to drive innovation – Siemens, in collaboration with Nvidia, is pioneering industrial metaverse applications.

“You can see key stakeholders, such as Siemens, recognize that this is a big problem that probably can’t be solved by one company, so they’re reaching out for strategic partnerships to accelerate the trial-and-error phase of the metaverse,” he explains.

From his perspective, there is a difference in the engineering precision and efficiency benefits for industrial metaverse applications and tools that heavily impact the bottom line in those industries and consumer metaverse, which is more about finding a way to entertain a mass audience.

Amidst debates over the fate of the metaverse, a growing focus on artificial intelligence (AI) suggests further potential.

While there has been consistent speculation and doubt over the future of the metaverse, the trajectory of digital interaction suggests points towards a metaverse-centric future.

This evolution, from industrial IoT to digital twins, underscores the convergence of technical trends towards AI-enhanced metaverse environments, promising significant cost savings and operational enhancements.

Hughes points out costs could be a major roadblock to continued growth of the metaverse market.

While new companies and investment dollars are coalescing around emerging opportunities, the metaverse is still in a race to deliver reasonable cash flow before the money runs out.

“Some of the biggest metaverse business lines that we have visibility into are nowhere near margin positive, and there’s still plenty of work to be done,” he says.