I don't know if you have a more narrow view of this idea or specifically mean VR/AR, but that just sounds like what massively multiplayer online (MMO) games such as Ultima Online, Everquest, and World of Warcraft are. I think Roblox is even a broader use case, though I am fairly unfamiliar with that.
MMOs have been very viable from both a business and user stand point and have been a fairly big thing for going on a quarter century or so at this point. Whether these branch into more of the Second Life non-game social space or into being largely AR/VR driven is pretty up in the air, but it's not some sci-fi concept really.