The Metaverse is having a moment
JULY 28TH, 2021
The biggest ideas in tech often lurch into the lexicon before they are truly coherent. This was the case with the ‘Metaverse’ and we’re just now beginning to see the emergence of the core infrastructural pieces catching up with the lexicon.
The term ‘Metaverse’ comes from digital cyber-punk antiquity. Coined by the writer Neal Stephenson in his 1992 novel, “Snow Crash,” then reimagined as both the Matrix in the film of the same name, and later as the Oasis in the Ernest Cline novel “Ready Player One.” In all of those cases, the term Metaverse refers to a fully realized digital world that exists beyond the physical one in which we live.
Today, the Metaverse more commonly refers to a persistent, live digital universe that affords individuals a sense of agency, social presence, and shared spatial awareness, along with the ability to participate in an extensive virtual economy with profound societal impact. The Metaverse is often envisioned as the next significant third space- a term coined by sociologist Ray Oldenburg as not home (1st), not work or study (2nd) but where you will spend your leisure time. It is an anchor of community life and where you meet with old and new friends. A persistent spacial internet, of sorts.
Current technology is capable of fulfilling a fraction of this vision of the Metaverse- including 3D photorealistic immersive visuals, spatialized audio, primitive tactile feedback and voice interaction, early forms of location-independent presence, etc. It feels like a start. The internet and the mobile internet are being repurposed for the Metaverse, and we’re witnessing an abundance of emerging Metaverse-specific technologies, experiences, and behaviors.
Social gaming platforms like VRChat, Roblox and Fortnite, in which players can build their own worlds, have Metaverse characteristics, as does social media. If you own a non-fungible token (NFT) or even just some crypto, you’re participating in the emergence of Metaverse infrastructure. If you’ve used a VR headset, you’re treading into the wold of Metaverse human computer interaction. If you’ve customized a digital avatar, you have some experience creating the digital representation of your Metaverse self.
The CEO of Epic Games recently tweeted about the emerging confluence of Metaverse infrastructure:
In his influential Metaverse essays, VC Mathew Ball identifies eight core enabling technologies that are critical to the development of the Metaverse. Each of the core technologies has made significant strides recently, but each also has a long development path ahead of it in order to fulfill its role as the underpinning of the Metaverse. This, of course, represents an opportunity for investors.
At the moment, worldwide networking and computing capabilities are not yet capable of supporting a persistent digital world that can be experienced in real-time by millions of concurrent users. While VR hardware has made significant strides in recent years, it’s still quite bulky and, at the moment, miniaturization comes with performance trade-offs. Crypto is driving the advancement of several infrastructural components- compute, payment services, content & assets, interchange tools & standards- but the crypto industry itself is still in its infancy. The Metaverse build-out is only beginning.
While it’s still early days, big tech clearly sees the writing on the wall and is trying to position itself for the future:
Speaking to CNET in May, Mark Zuckerberg shared his own Facebook-centric view of the coming Metaverse: “We want to get as many people as possible to be able to experience virtual reality and be able to jump into the Metaverse and to have these social experiences within that,” he said, referring to the company’s experimental virtual reality environment, Horizon, which he hopes people will explore using Facebook’s Oculus headsets.
In a June interview with VentureBeat, Jensen Huang, the chief executive of Nvidia, which makes computer chips, shared his company’s Metaverse vision: “We’ll be able to almost feel like we’re there with each other.”
Unity CEO John Riccitiello recently shared his Metaverse definition, stating that "I'd argue the Metaverse is already here, and it's really just another word for the Internet, but better."
Speaking about Fortnite, Matthew Weissinger, the vice president of marketing at Epic Games recently stated that “It’s more than a game. We’re building this thing called the Metaverse- a social place.”
Even in its infancy, the financial opportunity represented by the Metaverse is immense. In the first quarter of 2021, people spent nearly 10 billion hours playing Roblox, according to the company’s earnings report, and more than 42 million users logged in each day. Players also spent $652 million on the site’s virtual currency, Robux, which can be used to purchase hats, weapons and other digital items for their avatars. After going public on March 10, the company’s valuation shot to $45 billion; where it still sits today.
VRChat, for its part, is growing faster than Roblox was at the same point it its lifecycle and recently introduced its own in-game creator economy framework (Disclosure: I’m an early investor in VRChat). VRChat saw significant user and revenue growth during the pandemic and growth trends have accelerated in 2021. The company recently completed an $80M capital raise to continue building its Metaverse vision.
The financial opportunity inherent in the Metaverse extends to brands and performers as well. In May, Gucci launched a line of digital goods on both Roblox and VRChat, with a bag selling on Roblox for more than $4,000, exceeding the price of the physical object. A Travis Scott concert held within Fortnite last April drew more than 12 million concurrent views, the company said. LeBron James recently launched his own line of avatars and accessories on Fortnite.
These examples represent the tip of the iceberg for brands, performers and influencers. The financial opportunity to monetize the Metaverse is immense and can be capitalized upon in a way that’s more authentic to the users. It’s a far cry from the predominately ad-driven spammy monetization models that exist online today.
While all of this points to the fact that we’re on the cusp of something exciting, recent history warns us that we’re unlikely to be able to predict exactly what the realized Metaverse will look like, or how it will function. Even the best theses about what the internet would look like were only directionally correct, and underestimated how the internet would impact nearly every facet of our lives. Still, early investors who are directionally correct will see some of the best investment opportunities of this generation.
At no point will a flip be switched to turn on the Metaverse- rather, the Metaverse will come about gradually, as cultural changes and technological upgrades continue to evolve. Just as no formal change marked the transition from Web 1.0 to Web 2.0, the development of the Metaverse will occur naturally as technology progresses, people spend more time online and tie more of their identities to their digital selves. I’m excited to watch it all unfold, and I’m excited to support the founders that are building the Metaverse.
