IT companies’ metaverse ambitions may slow as clients turn cautious

“Some industries are better-positioned to immediately benefit from the metaverse – gaming, media and entertainment, travel and retail – whereas for a few other industries, the use-cases and roadmaps might not be immediately clear, and generally for organisations here, metaverse-related initiatives are part of discretionary spends,” Nachiket Deshpande, chief operating officer of Larsen & Toubro Infotech, told Moneycontrol.

“We foresee some slowdown in these industries as they reallocate budgets to other technology projects that promise more immediate and tangible outcomes,” he added.

LTI’s clients in the metaverse space include global services companies, which are building advisory services or setting up retail metaverses for consumer companies.

Dynamic situation

Tech Mahindra, which has been strong with its emerging and futuristic technology segments, remains bullish on the opportunities in this segment but maintains that the macro situation remains dynamic.

“With appropriate measures in place like tackling inflationary pressure and managing hiring sprees, the Indian IT sector as a whole has managed to push against the fears of a recession here,” Rohit Anand, chief financial officer at Tech Mahindra said in response to Moneycontrol’s queries.

He said based on customer interactions, there hasn’t been any significant deviation from how the year started.

“But these are very dynamic scenarios. So, we have to continue to have those dialogue interventions… and continue to monitor it,” he said.

Any impact of an economic slowdown in the US will trickle down to India, but that will remain only for a short period, Anand said.

This comes as Mark Zuckerberg’s Meta, which is a frontrunner in attempting to build a metaverse ecosystem, had to slow down its investment pace on such projects to overcome margin pressures.

What makes the metaverse big for IT service and consultancy companies is the interest and pace with which global giants Microsoft, Apple, and Google venture into this space and the rapid development of associated hardware and software products. Being in the exploratory phase, it is important for clients of IT companies to also be well-paced and benefit from first-mover advantages.

To cater to demand, IT companies had quickened hiring for metaverse-related skills like AR/VR, blockchain and AI over the past few quarters. According to a report from staffing firm Xpheno in March, there was an 8-10 percent increase in job openings in this space from January to March and hikes were as much as 80 percent.

Emails sent to Tata Consultancy Services, Infosys, Wipro and HCL Technologies seeking comment on their metaverse plans didn’t elicit responses at the time of publication.

Reserved approach

According to Deshpande of LTI, most clients interested in the metaverse have either made their strategic investments and are moving forward with their planned implementation at full throttle or taking a more reserved approach.

“Their apprehensions are rooted in the fact that there are several unknowns and fewer points of reference at this time,” he said.

According to an LTI survey of 100 CXOs across North America, technology maturity and associated risks, user adoption, and the lack of skill sets were listed as the primary barriers. The survey also indicated that most CXOs seem to believe that mainstream adoption is three to five years away.

“It’s safe to say that we are in the early stages of metaverse technology and its implementation… However, with time, well-defined metrics around returns on investment, cost savings, and revenue growth will emerge and this will nudge more organisations to solidify their plans around the metaverse,” Deshpande said.

According to Ashutosh Sharma, head of research at Forrester Research India, the metaverse is still at an exploratory stage and clients are primarily enquiring about it and maybe carrying out a few pilot projects to figure out what works.

“At the same time, a lot of futuristic tech washing also happens, in the sense that they will claim that they’ve done this great thing using this new shiny tech, but you will discover it to be nothing but a tech-based solution dressed up as new,” he told Moneycontrol.

Sharma said large economies are a bit fragile at the moment due to soaring inflation and slowing growth and that’s a big risk in itself and will impact all service providers.

“But to cut the long story short, because of reduction in this discretionary spending, clients obviously would have cut down on some of these new trials and experimentation,” Sharma said.

No revenue impact

Sharma added that new as they are, futuristic technologies such as the metaverse and quantum computing contribute a very small fraction – less than even 1 percent – of revenue at IT companies. Even if spending goes down, immediate revenue flows won’t get impacted.

“This is something very new, very research-focussed at this moment. Companies try to use this tech as a new shiny object to attract clients. Reduced investments in them don't impact service providers and clients much,” he said.

Mrinal Rai, principal analyst at technology research firm ISG, said that not much client spending is actually happening on the metaverse and Web3 right now, though the technology has immense possibilities and opportunities in different industries.

“There are use-cases in banking and financial industry, travel, transportation, and, of course, entertainment, media and gaming. So there are different pockets of opportunities in this industry and everybody’s exploring. And when you call it the metaverse, it is not just one technology that’s getting implemented. There are building blocks in the metaverse, including non-fungible tokens and augmented reality,” he told Moneycontrol.

He said technologies that enable such an environment such as augmented reality and virtual reality have been around for some time. Although clients may not spend on the metaverse, they are working on implementing AR-VR-based technologies.

“And many of these Indian IT service providers already have clients that leverage AR-VR tech for industrial designing, digital engineering, or even in the workplace and collaboration phase,” Rai said.