Disney did an about-face on its metaverse strategy this week, laying off the high-tech team formed by the previous CEO Bob Chapek just last year. The Mouse House, like so many companies, is readjusting its priorities away from risky bets in extended reality, and focusing more on its core products of video streaming, parks and movies amid a strained economy.

The move makes The Walt Disney Co. the latest major media company to put distance between itself and the metaverse, leaving the advertising world to wonder what’s next, and what went wrong. The retreat is another blow to the early optimism, which some have called marketing hype, that fueled the interest in Web3 the past two years.

“Metaverse,” like “NFT” and “crypto,” has become a sullied word in some circles. The spectacular collapse of crypto exchange FTX exposed the unregulated nature of cryptocurrencies. NFTs, the digital assets powered by crypto payments, have been tainted by frequent scams and questionable utility. And the metaverse, despite all the attention brought to it when Meta changed its name from Facebook in 2021, has never quite taken off. This year, Meta CEO Mark Zuckerberg announced 2023 would be a “year of efficiency,” and the company has had to assure investors that pie-in-the-sky projects would not detract from its main business. Meta has also undergone significant layoffs. And in February, Microsoft cut its metaverse team as part of a round of layoffs.

Earlier this month, Meta also stopped supporting NFT integrations on Facebook and Instagram. The social network introduced the digital collectibles to much fanfare last year. The idea was that NFT holders could connect their crypto wallets to Facebook and Instagram, and they could display their virtual valuables. Brands are wary of associating themselves with NFTs, now, but they are still intrigued by the possibility of creating proprietary digital merchandise.

Read more: Nike, Starbucks show how brands are rethinking NFTs

Also see: Meta ditches NFTs on Facebook and Instagram

Momentum in immersive entertainment

“Nobody has really defined the metaverse,” said Nancy Lan, co-president of creative advertising at Territory Studio, a brand and digital design studio. “It’s a complex concept that now has a negative connotation in some ways.” Lan recently left her role as global creative marketing director at Netflix and previously worked at Disney.

“Skepticism of the metaverse doesn’t mean that brand activation using Web3 or augmented reality is dead,” Lan said. “It might just mean that major brands like Disney are waiting to re-strategize ways to apply these technologies effectively.”

The ultimate ideal of the metaverse is to create multiple, interconnected online worlds; allow people to switch between work, games and socializing in virtual reality; and to create a new economy in this digital world, which also ties back to real-world products, services and events. The project is based on a principle of decentralization, where the masses control the environments and their experiences, and the people are not stuck in one ecosystem. But the reality is much different. So far, it seems the most vibrant digital worlds have been in video games—Fortnite, Roblox and Minecraft.

There is clearly still momentum in immersive entertainment. This week, Apple sent invites to its next WWDC, the developer conference in June, and it is expected to reveal its mixed-reality headset, which has been in the works for years. That would put Apple in another competitive fight with Meta, which partly decided to build its own metaverse system to get away from Apple’s control over mobile devices.

Fuzzy concept

One of the biggest issues is Disney never quite defined what its metaverse strategy was. Former CEO Chapek vaguely discussed uniting Disney’s real-life properties with virtual reality. “We’ll be able to connect the physical and digital worlds even more closely,” Chapek said during a 2021 earnings call, referring to the metaverse initiative.

Disney declined to comment for this story. Bob Iger returned as CEO, where he had been the leader from 2005 to 2020, in November. Iger has identified content, technology and new markets as the three pillars for Disney. This week, Disney started a round of layoffs that will affect 7,000 workers, about 3% of the staff, which included an estimated 50 people on its metaverse business.

Montse Cebrian, a senior technical program manager on Disney’s “next generation storytelling” team, posted on LinkedIn this week: “OK, I’ll cut to the chase: Yes, the secret (and super amazing) project I was working on at Disney has been shut down."

The changes don’t mean Disney is out of the technology game, of course. Disney is celebrating its 100th birthday this year. The company is known for visual graphics, animatronics, movie making and internet services. Earlier this month, Josh D’Amaro, chairman of experiences and products at Disney Parks, was at SXSW in Austin, Texas, the tech and media festival, where he did a presentation about robots and motion capture.

Read more: The latest SXSW news

Niantic, the developer of Pokémon Go, is an example of a tech company that has spun popular IP into an augmented reality world. Since 2016, Pokémon Go fans have been on treasure hunts in real life to capture the digital characters made famous as a Nintendo game in the 1990s.  

“It’s long been our stance that we need to think about the next generation of technology and connection as more than just virtual worlds,” said Caitlin Lacey, Niantic’s senior director, product marketing, AR developer platform, in an email to Ad Age. “This narrow view does a disservice to the many technologies—augmented reality, virtual reality, Web3, AI, etc.—that are already playing significant roles in strategies that blend and connect the physical and digital worlds.”

Not going anywhere

Some people in advertising think that Disney’s public disavowal of the “metaverse” is short-sighted. “Disney is under pressure from investors to make cuts to nonessential businesses, the metaverse isn’t one of them,” said Catherine D. Henry, senior VP of metaverse innovation and strategy transitions at Media.Monks, the digital marketing firm, in a LinkedIn post. “The metaverse, Web3, is a critical growth area. Like the internet at its infancy, it’s not going away.”

Many ad agencies still claim to be bullish on Web3. Both IW Group and Accenture told Ad Age that Web3 remains a strategic priority for their businesses. Meanwhile, Movement Strategy said it has focused on building projects for clients that rely on fandoms. One of the promises of Web3 is to use blockchain technology to develop communities and generate consumer loyalty.

Each of these agencies built offices in the metaverse last year; IW Group, Movement Strategy and Accenture confirmed that their offices are still in operation. 

Rewind: 11 agencies operating in the metaverse

Brands such as Disney have an opportunity to turn their intellectual property into digital assets by adopting NFT technology, according to Jason Mitchell, Movement Strategy’s CEO.

Warner Music Group announced a round of layoffs yesterday, but the cuts did not hit its Web3 team, according to a person familiar with the strategy. Warner Music has tested digital assets, virtual concerts and fashion in the metaverse, and appears to still be pursuing that path.

Metaverse skeptics, though, are taking this as a moment to say, “I told you so.” The critics have sat by and watched marketing presentations of virtual worlds where there is little activity. They watched digital assets rise and fall with ultimately no value.

“Disney had bought this whole metaverse thing, hook, line and sinker,” said Rafael Brown, CEO and founder of Symbol Zero, an independent gaming studio. “Like a lot of folks, then they sat down as the economy crashed and looked at all the Web3, NFT and crypto stuff and realized none of this exists. It’s all bullshit.”

It's all games

But Brown said he has developed for Roblox, and other open-world games, which for many people is where actual consumers are congregating. Brands and marketers are still going to worlds such as Fortnite, developed by Epic Games.

Stu Richards, who is known online as Meta Mike, basically built his digital persona around the metaverse, and he is a partner success lead at GigLabs, an NFT platform. “I hear from a lot of brands, and lot of people in marketing, and they say they don’t want to approach the metaverse because it’s no longer a thing,” Richards said. “But it’s very much a thing.”

Last week, at the Game Developers Conference in San Francisco, Epic Games launched a new version of Unreal Engine for Fortnite. Unreal Engine, which is a platform for third parties and creators to develop inside the virtual world, is just the kind of virtual reality layer that the metaverse is supposed to be built upon, Richards said.

For Disney, the metaverse may have been too far off, when it’s still figuring out streaming TV, with Disney+, and trying to get people back to parks, according JinJa Birkenbeuel, CEO of Birk Creative, a research and creative consulting agency, and host of the “The Honest Field Guide” podcast. “There’s a tsunami of technological changes,” Birkenbeuel said, “but the metaverse is not real right now.”

Birkenbeuel said she believes in the possibility of a high-concept digital universe, but it’s not time—yet.

“What are they going to do, tear down all their parks and go 100% metaverse,” Birkenbeuel said. “Who are they going to get to go the metaverse?”