2022 will be the biggest year for the metaverse so far

2022 is poised to be the biggest year yet for “the metaverse,” as Facebook parent Meta, Apple, Microsoft and Google gear up to release new hardware products and software services in what so far has been a niche market for early adopters.

The “metaverse” describes software and hardware that allow users to play or work in virtual 3-D spaces, or pull in information from the internet and integrate it with the real world in real time. For now, the metaverse might be accessed through a smartphone, but eventually, it will be experienced through advanced virtual reality or augmented reality headsets, backers say.

Big Tech companies are betting that gadgets that transport their users into enhanced or imaginary worlds will open up the biggest new market in software since Apple introduced the touchscreen smartphone in 2007. If the metaverse takes off, then perhaps everyone who has a smartphone today will also have a pair of computer glasses or a VR headset in a few years.

“Large tech platforms (which benefited from the rise of mobile computing apps) now look toward augmented reality as the next computing platform shift,” Goldman Sachs analyst Eric Sheridan wrote in a December note. He said it appears to be the “next logical shift in consumption patterns” and will create new industry leaders.

Companies are pouring research and development dollars into prototypes and foundational technologies and gearing up for a virtual battle when their products hit the market.

Venture capitalists invested $10 billion in virtual world start-ups in 2021, according to Crunchbase, and that doesn’t count the budgets from Big Tech players. For example, Meta CEO Mark Zuckerberg said the company spent so much money on VR and AR in 2021 that it cut the company’s profit by $10 billion.

Goldman Sachs analysts estimate that as much as $1.35 trillion will be invested in developing these technologies in the coming years.

Here’s where the big names in technology stand and what they’re expected to release next year:

Meta has a lead over its Big Tech rivals: It’s currently manufacturing and selling VR hardware, and accounted for 75% of the market in 2021, according to IDC.

On Christmas, the most popular app in Apple’s U.S. App Store was the Oculus virtual reality app needed to use a Quest 2 headset, an imperfect but meaningful sign that a lot of people found virtual reality gear under the tree.

Meta hasn’t released sales numbers for its Quest. But Qualcomm, which makes the chip at the heart of the Quest, estimated that the company had shipped 10 million units by November. Those aren’t smartphone numbers, but they are significant — and boosted by major TV ad campaigns flogging the hardware.

Meta is planning to release another virtual reality headset this year that it’s been calling Project Cambria. The device, according to Facebook, will have hardware that makes it better for “mixed reality,” or using cameras on the outside of a VR headset to pipe the real world in to the viewer. Meta says it will also include face and eye tracking, which will make the device more responsive to the user’s commands.

Meta’s early foray into the market has given the company an early look at what software users want to boot up on their headsets. This month, it launched a social platform called Horizon Worlds, where people can attend comedy shows and movie nights inside Facebook’s virtual world.

Meta has acquired several companies that make popular apps for Oculus headsets, most notably Supernatural, a workout game in which users hit floating blocks in time with a beat.

This strategy may come under antitrust scrutiny. The Federal Trade Commission has opened an in-depth probe over the $400 million acquisition, The Information reported.

These technological building blocks are creating the foundation for an entirely new product, expected to be an Apple-made high-end headset that mixes virtual reality and augmented reality, which reportedly could be launched in 2022.

Unlike Meta, Apple doesn’t discuss new hardware products until they are ready to be revealed. When Apple does release a headset, it is likely to shake up the entire market and provide a new approach for many challengers, like the iPhone did for smartphones and the Apple Watch did for smartwatches.

Apple’s competitors will watch closely to see what Apple CEO Tim Cook touts as the biggest advantages and selling points for its headset.

Content and how Apple integrates its services will be crucial to the device’s appeal. Will Apple introduce a new app store for virtual reality apps? Will the Apple headset have exclusive content or VR-based sports or music stemming from its purchase of NextVR?

Investors and market analysts are starting to wonder if future sales from headsets or other reality-based gadgets should push Apple’s stock even higher if it does release its first major new product category in seven years.

“Apple’s current market value does not reflect new product category launches,” Citi analysts wrote in December. “This will change with the launch of the new AR/VR headset in 2022.”

Apple won’t call it “metaverse,” though. “I’ll stay away from the buzzwords. We just call it augmented reality,” Cook said in September.

In 2020, Google bought North, a well-capitalized start-up working on lightweight AR glasses that were a spiritual successor in terms of functionality to Google Glass.

Google now has a new team focusing on operating systems for augmented reality, according to a post shared by senior director Mark Lucovsky in December. Before joining Google, Lucovsky worked at Meta’s Oculus.

According to job listings, Google is hiring heavily for this team, which is working on an “innovative AR device” and is adding products “to the AR portfolio.”

The highest-profile client for HoloLens is the U.S. military. Microsoft won a $22 billion deal earlier this year to sell 120,000 custom HoloLenses to the government so soldiers can use them to “increase lethality.” However, earlier this year, the Army said it would delay the start of a HoloLens field test to 2022.

Whether the deal continues to get delayed or whether it turns out to be a winner for both sides will be an important signal for the ultimate health of the augmented reality market.

HoloLens has also piqued the interest of medical companies, who want to see if augmented reality can help improve operating rooms or even help do surgery remotely.

Microsoft is heavily investing in cloud services to be the glue for virtual worlds expected to be released to the public in 2022.

In March, the company announced Mesh, which allows software makers to create apps that allow different devices to share the same digital reality. Mesh works a little like a video call, only with three-dimensional holograms. Microsoft laid the groundwork for this push in 2017 when it acquired AltspaceVR.

These metaverse software features will be launched in 2022. Microsoft is integrating Mesh into its videoconferencing app, Teams, later this year. Features for Xbox games, another natural fit, are also in the works, with no release date yet. But it remains to be seen if AR headsets improve the kind of productivity applications that Microsoft is best known for.

Still, CEO Satya Nadella is enthusiastic.

“I can’t overstate how much of a breakthrough this is,” Nadella said in November.