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Layoffs signal waning strength in Web3, metaverse niches

Vancouver's Dapper Labs lays off 20 per cent of workforce for second time in four months
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A woman interacts with someone while wearing equipment to access the metaverse

Go back a year and technology insiders were exuberant about the future of the metaverse, non-fungible tokens (NFTs) and other elements of the third iteration of the Internet, or Web3.

Industry insiders say a shift has taken place, where sustainability and artificial intelligence (AI) are now the hot technology niches.

Higher interest rates and a more sobering general economic outlook dampened investors' interest in the Web3, NFT and metaverse sector, while companies that hired too many employees too fast have been forced to lay off staff.

Vancouver's Dapper Labs is a case in point. The company raised US$305 million in March 2021, and another US$250 million six months later – investments that sent the private company's market value to US$7.6 billion.

Last year Dapper Labs launched a $725 million Ecosystem Fund to drive innovation across its Flow platform that powers Web3 games, apps and digital assets.

The company's workforce increased to what it said were 613 employees. In November, it cut 134 of those employees, or about 22 per cent of its staff.

Last week, the company confirmed that it had laid off a further 20 per cent of its employee count.

"We are restructuring the Dapper Labs organization to improve our focus and efficiency," CEO Roham Gharegozlou told staff in a message posted to the company's website.

"If you have not already received a notification, you are not impacted."

He noted that his company "remains in a strong cash position with no outstanding debt," and that top-line sales were about $135 million in 2022.

The layoffs came as Dapper Labs faces a class-action lawsuit alleging that it violated U.S. securities law by selling NFTs to investors without registering them with regulators.

Deloitte's director of research in technology, media and telecommunications, Duncan Stewart, told BIV that excitement about the metaverse and NFTs has waned, while other nascent technology niches have become popular.

"About this time last year – so roughly February, March of 2022 – both at Mobile World Congress, and generally around the world, there was an awful lot of excitement and enthusiasm about the metaverse," Stewart said from his hotel room in Barcelona, where the large technology trade show Mobile World Congress is taking place.

"What we are seeing is that here in Barcelona, the number of companies who are talking about the metaverse, the number of square feet, or meters, dedicated to the metaverse, it's down 50 to 80 to 90 per cent."

He estimated that more than 110,000 people are attending the Spanish extravaganza, where the convention hall is more than 1.2 km long.

"In every booth last year – no matter what it was about – there was a section of the booth that mentioned the metaverse," he said. "That section is gone this year, and instead there's a section on sustainability or AI."

San Francisco-based Open AI sparked intense interest in AI on Nov. 30, when the privately held company launched a free version of a chat app that would answer questions: ChatGPT.

Investors then bid up prices of publicly listed companies in the sector, such as C3.ai Inc. (NYSE:AI), which saw its share price more than double before retreating somewhat in the past few weeks. 

Other insiders in the technology sector are similarly seeing a rotation in which niches excite investors.

"Different frontier-technology verticals are going to have their moment in the sun," said Kassandra Linklater, COO and co-founder of Frontier Collective, which advocates for infrastructure to be put in place to build Vancouver's technology-company ecosystem.

"If you look at these kinds of technological revolutions, they come in waves. There was so much exuberance in the marketplace over the last couple of years, with the pandemic and low interest rates, and funny money flying around, that it allowed for, maybe, non-essential product building."

The excitement over metaverse-related companies also led to what Linklater said was "over-hiring."

She believes that many of those who were laid off will be able to find jobs at other Vancouver technology companies.

Her organization posted on Twitter a Google document with a list of laid off Dapper Labs workers who opted in to publicly disclose their names, positions, LinkedIn profiles, location and whether they preferred to work in offices or remotely.

"There's no lack of opportunities across the different tech sectors," she said.

"There's still smaller employers that have struggled with hiring needs. Especially with these bigger players reducing their demand on talent, I think it's going to allow for better companies to be built. This talent is going to be eaten up pretty quickly."

gkorstrom@biv.com

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