In this day and age, investors are bombarded with new technologies and potentially disruptive trends at a vicious rate. Just when you think you’ve conquered the latest in a stream of revolutionary ideas, you start noticing headlines about newer waves of innovation taking the investment community by storm. In recent months, one such wave has been the Metaverse.
For a while, ignoring the Metaverse momentum may have required minimal energy, but then October 28, 2021 happened. Social media colossus, Facebook, announced that it was rebranding itself to Meta. During that announcement, company founder and CEO, Mark Zuckerberg, stated clearly that from then on his company would be “Metaverse first, not Facebook first.”
Less than three months after Facebook’s rebranding, Microsoft announced its largest acquisition ever with the purchase of Activision Blizzard, framing the deal as one that “will provide building blocks for the metaverse.”
All of a sudden, you have two of the top five tech companies in the world diving head first into the Metaverse.
When we wrote about Web3 and its vision for the internet, one of the points we made clear was that the current version of the web cannot carry on in the same way. Web 2.0, the social internet, is no longer the playground of possibilities that it once was. And now, in a battle for the next generation of the web (Web 3.0), proponents of a decentralized web and Big Tech are fully engaged in a race to build the internet of the future.
Anyone who’s seen the movie Ready Player One will have had a glimpse of the Metaverse concept. In the movie, people seek to escape from reality via an expansive virtual reality universe created by one of the characters in the movie.
Technically, the Metaverse is a network of computer-simulated 3D worlds, the experience of which is, in some instances, facilitated by the use of virtual and augmented reality devices. In the Metaverse, users move around and operate as avatars, interacting with other avatars. The video below from Meta’s Horizon Workroom illustrates the Metaverse construct applied to remote collaboration.
More than a new form of technology, think of the Metaverse as a new form of interaction via technology.
A point to highlight about the Metaverse is that the concept has been around for close to 30 years now. Neal Stephenson coined the term in his 1992 science fiction novel Snow Crash, where humans, as programmable avatars, interact with each other and software agents, in a three-dimensional virtual world (aka the Metaverse).
So then, if the concept (and implementations of it such as Second Life, etc) has been around for decades, why all the sudden interest from Big Tech?
The Next Transformation of the Internet Since Mobile Internet
In the foreword to his influential essay, The Metaverse Primer, venture capitalist Matthew Ball describes the Metaverse as:
“…a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”
A mouthful no doubt, but, in his description, Ball encapsulates many of the core characteristics of the Metaverse that, according to him, puts it in a “quasi-successor state to the mobile internet.” He believes that the Metaverse will build upon and iteratively transform the internet,
“…by placing everyone inside an ‘embodied’, or ‘virtual’ or ‘3D’ version of the internet and on a nearly unending basis. In other words, we will constantly be ‘within’ the internet, rather than have access to it…”
Ball contends that, just like the internet and mobile internet before it, the Metaverse will usher in a novel network of interconnected experiences and applications, devices and products, tools and infrastructure.
So, although attributes such as, gamification, virtual reality, user-generated content and even a virtual economy are all components of the Metaverse, each one on its own does not sufficiently describe the Metaverse.
Yes, games will be played in the Metaverse, and goods and services will be sold/purchased there too, but neither the game nor vendor nor marketplace is the Metaverse – for the same reason we don’t say that Fortnite or Amazon or Apple is an internet.
But Why Now?
To answer the question, one need only look at the growth of Metaverse-like platforms such as Roblox, Fortnite and Decentraland over the last few years.
Let’s start with Roblox. The game creator quadrupled its number of daily active users in 3 years and increased revenue more than sevenfold within the same period. See the charts below:
Moreover, the online gaming platform is dominated by young users. According to the company, an eye-catching 67% of Roblox’s users are under the age of 16, and only 14% of its users are over 25 years old.
Per BusinessofApps, Roblox’s valuation went from US$4 billion in 2020 to US$38 billion in 2021.
Similarly, Fortnite – also witnessing astonishing growth – grew its number of registered users from 20 million in 2017 to 350 million users in 2021. The popular cross-platform game’s lifetime mobile revenue soared from US$100 million in 2018 to US$1.1 billion in 2020.
Decentraland, arguably the first mover into the Metaverse space, is also scaling at mind boggling pace. The virtual world’s user base grew 3,300% over the past year, and the company’s market cap reached a peak of about US$10 billion in November 2021, according to CoinMarketCap.
Evidently, this rapid growth and adoption of the multiple platforms that offer Metaverse-like elements is not going unnoticed by Meta and its Big Tech counterparts. As we implied earlier, the future of the internet will be built around new forms of interaction that’s catered especially to the incoming generation of internet users.
Today, huge amounts of those users, under the age of 25, are increasingly entrenched in online platforms that offer virtual personas and virtual spaces within an expansive digital universe.
The Interoperability Challenge
When he announced Facebook’s rebranding as Meta, Mark Zuckerberg acknowledged that the Metaverse will not be created by just one company.
If there is to be just one Metaverse, as Zuckerberg, Ball and other thinkers have pointed out, then it must offer an interoperability that’s unprecedented in the history of the internet. Remember, the Metaverse is not a product/service on the internet but a modality of the internet.
To be interoperable, users in the Metaverse need full access to their data, digital assets and content across the multiple worlds, platforms and experiences situated within the Metaverse. For many, this is one of the defining properties of the Metaverse…but at the same time, one of its biggest hurdles.
In his article on the Metaverse, The Washington Post’s Will Oremus observed that,
“…getting rival companies to meld their products into a single metaverse would require a level of cooperation and openness for which today’s tech gatekeepers have shown little appetite or aptitude. Historically, the development of interoperable technologies such as email and the Web has been driven by the government, academia and nonprofits — not corporate giants such as Meta.”
Compared to the other challenges before the Metaverse, building an interoperable ecosystem might be its most complex challenge to date given that the issue is not only technological but also economical.
As Oremus pointed out, unless there are clear business and/or social incentives for groups, creators and project owners to collaborate on interoperability within the Metaverse, we might be stuck with a Metaverse of “miniverses” (in other words, not the Metaverse).
A Real World of Opportunities
Before diving into what could be in store for the Metaverse, consider the following: In less than two weeks after Christmas 2021, Meta’s Oculus app, the mobile companion for Oculus VR devices, was downloaded roughly 2 million times worldwide. Putting that into perspective, that’s about half the total number of downloads for the app in 2020, and more than the app’s total downloads in all of 2019. Now let that sink in.
Bloomberg’s analysis based on data from Newzoo, IDC, PwC, Statista and Two Circles estimates that,
“The global Metaverse revenue opportunity could approach $800 billion in 2024 vs. about $500 billion in 2020.”
Use cases for the Metaverse are beginning to span nearly every aspect of modern life imaginable. About a week ago, CNBC reported that,
“Real estate sales on the four major metaverse platforms reached $501 million in 2021, according to MetaMetric Solutions. Sales in January  topped $85 million, the metaverse data provider said. It projects that at this pace sales could reach nearly $1 billion in 2022.”
On the subject of digital assets, also note that NFT sales went through the roof in 2021, compared to the year before. According to Reuters and data from DappRadar which collects data from 10 different blockchains,
“NFT sales volume totalled $24.9 billion in 2021, compared to just $94.9 million the year before…”
Chip makers/vendors have also been talking up the Metaverse as a sort of parallel universe for all kinds of simulation. In an interview with CNBC’s Jim Cramer, Qualcomm CEO, Cristiano Amon, noted that the cloud economy has made it possible for pretty much everything to have a “digital twin”. Using the example of a car, he explained that,
“‘When the car shows up at the dealership and somebody is going to look under the hood, they can put a virtual reality, augmented reality device, and it will tell you from the digital twin in the cloud, where to fix it, where’s the problem,’ he said, adding that it can be used for worker training, too.”
In a separate interview, also with the Mad Money host, Nvidia CEO, Jensen Huang, expressed a similar vision where he asserted the belief that companies are now investing in the Metaverse to run simulations that could translate into real-world savings. Huang claimed that,
“‘By doing that, we could decrease the amount of waste, and that’s the reason why the economics are so good for companies,’ Huang said. ‘They’re willing to invest a small amount of money to buy into this artificial intelligence capability but what they save is hopefully hundreds and hundreds and hundreds of billions of dollars.’”
The reason the Metaverse offers so much promise for simulations (among other applications) is because of the precision of the data (and speed of computation) that’s required in such an environment. Remember, the Metaverse is supposed to offer a persistent (i.e. it continues indefinitely, with no end or pauses), and immersive experience to billions of users. Everything in real time. For that to happen, we’ll need enhanced data/AI techniques and computing power like we’ve never seen before.
Intel recently shed some light on the brewing Metaverse infrastructure story that not too many are watching.
According to a top intel exec, a 1,000 times increase in computational efficiency from today’s state of the art will be needed to support the Metaverse.
Raja Koduri, senior vice president and general manager of Intel’s Accelerated Computing Systems and Graphics Group, wrote in his editorial from December 2021, Powering the Metaverse,
“We need several orders of magnitude more powerful computing capability, accessible at much lower latencies across a multitude of device form factors. To enable these capabilities at scale, the entire plumbing of the internet will need major upgrades.”
Koduri doesn’t believe that hardware upgrades alone will get us anywhere near the goal in the next five years. There’s just no way. Even if chip processing power efficiency doubles every 1.5 – 2 years as Moore’s law predicts, in five years, we would be at 10x computing efficiency, maximum.
However, Koduri is cautiously optimistic that AI and other software improvements will be on hand to close the gap in the short term. If he’s right, the Metaverse will catalyze the coming of age of AI and related services.
The Metaverse and Web3 will Frame the New Internet
Much like the industrial revolution of the 18th/19th century, the transition to the Metaverse could usher in new (digitally parallel) industries and a plethora of ancillary services. Mobile internet, social media, and esports have all contributed in moving the web to the point where, by all appearances, the next logical iteration of the internet will be in the form of the Metaverse.
Sure, the vision for the Metaverse comes with technological, social and business challenges. However, the determination of tech giants and new web advocates to move on from Web 2.0 is already spurring significant investment in greater innovation and new mechanisms to cross the hurdles along the path to Web 3.0.
It’s important to note that the Metaverse and the Web3 foundation’s vision for a new decentralized web are not in opposition. In fact, decentralization and the blockchain are critical components of the Metaverse. When you think of the virtual economies and ownership of digital assets that are built into the Metaverse, the connection between both concepts starts to become clearer. As Prof. Rabindra Ratan and Prof. Dar Meshi of Michigan State University put it,
“Web 3.0 will be the foundation for the metaverse. It will consist of blockchain-enabled decentralized applications that support an economy of user-owned crypto assets and data.”
With Facebook’s rebranding as Meta, the efforts to build the Metaverse and Web3 are now well underway. And, judging by how quickly the future generation is embracing the shift, there is no turning back.
The Metaverse is not a fad, and it warrants thorough research from every investor.
All the best with your investments.