Discover more from Innovestor Deep Dives
The Metaverse: Capitalist nightmare or digital revolution?
Short update: I’m currently working on my most in-depth piece yet, which will most likely be released in two parts over the coming weeks. It’s on a topic I don’t usually cover, but one that is very relevant at the moment. Subscribe below to find out more over the coming weeks.
Thinking about the metaverse…
Over the past several weeks, we have been hearing more and more people speaking about ‘the metaverse’. Though it may seem like a relatively new concept, it is not.
I am by no means an expert on the subject - in fact, I don’t think it’s possible to be an expert - but I do have some thoughts which I am keen to share. But first, here’s a thread from May 2021 which is a good starting point for anyone unfamiliar.
In this piece I will be aiming to answer some of the key questions surrounding the Metaverse - “What is the metaverse?”, “Is it here right now?”, “Who will be the leading players?”, “Will there be a relationship between the metaverse and DeFi?” - and much more.
I have split up the questions/answers into four main segments…
Optimism vs realism
As indicated by the title of this piece, there are two conflicting schools of thought surrounding the development of the Metaverse. One is based in hope and optimism, whilst the alternative brings up valid concerns about the direction this is heading and what it means for the future of human interaction.
I think the best place to start is to try and explain what I believe the metaverse is as it stands, and what I expect the metaverse to be in the future.
“What is the metaverse?”
My favourite way to describe what I believe the metaverse to be is by thinking of it as the ‘next big step’ in the development of the internet - moving from a 2D interface with the internet to a 3D one.
Lets break this down.
You could argue the internet’s development has followed three main stages, of which we are at the very beginning of the third stage.
Stage 1 - ‘Mainframe era’
Firstly you have the internet of the late 80s and 90s which was mainly dial-up, slow, and not portable.
This portion of history can be charactarised as the ‘mainframe’ era. Where large computers are owned and operated only by large companies (IBM, Universities etc). Importantly, they're connected only locally - I.e. they don’t tend to share information outside of their ecosystem.
Stage 2 - ‘Personal Computing’
The second phase, which is where we are at the tail end of right now, involves a wild increase in speed, portability and is typically charactarised by smaller and smaller devices. The smartphone was probably one of the most important things to come from this era.
As of the late 90s and early 2000’s, all of a sudden many small businesses have computers which they use daily - some homes even have a personal computer (PC). The continued development of the internet and its subsequent use-cases gave more of us a reason to own a computer.
That being said, we only had occasional access to that computing resource. It was in our living room, or our office - the infrastructure did not allow for portability.
Once the smartphone and mobile internet came out, it gave even more of us a reason to have a smartphone or a computer. Roughly 6.6 billion people worldwide now have a smartphone.
Internet access has been forever changed from temporary to constant. It’s all around us, all of the time.
Stage 3 - ‘Metaverse’ or ‘Web3’
This third stage is not necessarily to do with the continued transition towards smaller and smaller devices, but more focused on virtual worlds and virtual simulations. It’s also to do with the ability to purchase ‘real’ things via the virtual world and, crucially, being able to purchase things that exist only in these virtual environments.
This stage is fairly hard to conceptualise due to having very limited real-life points of reference. However we are starting to see more and more examples (and clearer visions) of what this third stage of the internet might look like (albeit fairly dystopian and, arguably, not what I want my future to look like). E.g. Meta and Microsoft’s vision…
In addition to the above, this newest stage will involve augmentation of the world around us - so not solely the idea of AR and VR inside of a headset, but more to do with a connection to the Internet of Things (IoT) and virtual representations of real life.
The key difference moving to this next stage, the metaverse, is that we will be living in an environment where computing surrounds us. It will almost become a part of us (arguably it already is). We will have perpetual access and interaction with computing resources.
One last way to distinguish this third phase of the internet, is to look at the relevance of 3D rendered, real-time simulations.
3D rendering is nothing new - it has existed for many decades. The difference in this new stage will be the level of cultural relevance as more and more people gain exposure. It will eventually bring the majority of people into these more visceral (3D) worlds.
“Is the metaverse already here?”
For most people over the age of about 25, the answer would probably be a resounding ‘no’. However, if you ask people under the age of 18, then I would guess that most feel we are, at the very least, at some sort of beginning phase.
There are several ways to think about this question:
No.1, and arguably most important, is the fact that this is a very gradual process. For every phase of the internet, it is incredibly hard to pin-point the exact date for which it began. In fact, it is almost-impossible.
For example, if we look for a defining point where the mobile internet era began, there are several equally valid answers. You may look towards the start of the first digital networks (i.e. 2G’s inception). You might say the inception of mobile browsers (WAP). You might start with the inception of the iPhone or the Blackberry, which were the first mainstream devices for the mobile internet. Or you might even wait until the second iPhone, which was the first to use 3G - making the mobile internet usable for the masses.
The point is, each of these answers are correct in their own way - it’s a progression.
No.2. In accepting this as a progression - we can begin to ask the question of ‘where are we now?’. And if we try to pinpoint our current position, it’s difficult to argue we haven’t started the process of change towards the metaverse. So, in order to prove this point, lets take a look at 3D virtual and social environments as a proxy for the current stage in development.
If we go back 6 years (2015/2016), we can estimate that millions of people were involved in virtual social environments. However, back then most virtual social environments were capped at around 10 - 20 people with only several billion dollars being spent on virtual items.
Fast forward just 6 years to 2021 and we have hundreds of millions of people (every day) spending significant time in these virtual worlds - with caps having increased to several hundred in some cases (Fortnite/Call Of Duty: Warzone). In addition, consumer spending in these virtual environments has increased over 10 fold to $55 billion, an order of magnitude change. This is mainly to do with the increase in popularity of these battle royale style games such as Fortnite, PUBG and Call of Duty.
Following on from the above, the social and cultural role this technology is beginning to play within key industries like film, theatre, automotive and much much more, is hard to deny.
So, looking at the progression made in these past 6 years alone - it’s hard to say we haven’t meaningfully started on the progression.
“Is the metaverse going to be free for everyone? Or will it be controlled by a select few mega-cap corporations?”
This question is hard to answer at this point in time. However, after having been pitched a fairly off putting vision of our future by Mark Zuckerberg, it’s important that this ‘metaverse’ should be sculpted by the people who are going to use it - not the corporations who stand to benefit.
Anyway, it’s likely to be much, much larger than any one company. To illustrate, let's take a look at the internet so that we can compare.
The current digital economy is roughly 15% - 20% of the ~$85 Trillion Global economy.
However, the big 5 tech companies only account for about 10-15% of the digital economy - with the remaining 85-90% of the digital economy depending on endless smaller developers, hardware manufacturers, network experts and other infrastructure and optimization companies in order to thrive.
The metaverse will likely have similar dynamics.
“Is the metaverse going to be a place where big tech companies keep expanding their advantage over the smaller players?”
It seems fairly intuitive that we are likely to see a bunch of todays leaders do very well in the metaverse. However, we’re likely to see many new companies come to the forefront, too - companies whos current capabilities are not fully understood in the current market.
Again, we can draw parallels with the early internet giants such as AOL or Yahoo, where there was initial confidence that their first-mover advantage would remain. In reality, the business landscape of the internet of today looks nothing like it did back then.
So, one could argue that considering the level of growth which has occurred in only 5 or 6 years, there is plenty of potential for some of these smaller companies to thrive over the coming years.
Gaming and entertainment are several sectors with strong examples of early adoption of ‘metaverse technology’ - “How will entertainment change?”
In a recent interview, Matthew Ball, a leading voice in the fields of the metaverse & entertainment makes a very well-put point about the link between technology, entertainment, evolving demographics and the metaverse.
“You go back to 2011. There were myriad news articles of an infant holding an iPad. And then after, they'll go to a magazine and they can't understand a magazine. They try to pinch to zoom. They try to swipe. And we laughed at it.
It was on CBS. It was on ABC. It was in Time magazine. It was parodical because we could understand what was going wrong, but they could not. And of course, 10 years have passed since that. A one year old is now 11, a four year old is 14.
They understand what was wrong all those years back, but what we can't appreciate is how different their frame of reference is.”
If we take a look at how this plays out nowadays, we can take a look at Roblox as an example.
It’s no coincidence that the platform began to really take off in 2017 when the generation of iPad native kids started to become 6 to 10 years old.
The primary demographic of Roblox is those kids.
Again, it comes back to the difference in reference points and our inability to relate to these differences having not had the same experiences. But these children tend to reject things like linear television - they were simply not designed for it.
And so, as Matthew nicely puts it…
“…I think part of this is reflecting the generational shift, which is that technology has to be available before the generation that it is designed for in order to put it to best use.
E.g. Facebook was possible long before Mark Zuckerberg created it. We know that it was not the most complicated product, but it took a 21 or 22 year old in college to know how to bring it together, then rapidly iterate upon it.
That gives me enormous faith in what entertainment is going to look like in a decade, even if I concede we will barely be able to recognize it.”
Basically, it's difficult to know what the entertainment industry will look like in a decade from now. But my bet is that it will look very much different than it does today.
The gaming industry is a great example of an industry willing to lead the way with new tech - be that VR, AR, haptics, 3D rendering (amongst a whole host of other technologies). Below is a well-known example from fortnite, where EPIC Games are starting to explore how entertainment might look inside virtual worlds. If nothing else it’s a completely unique way to experience live music, and is giving the medium some form of legitimacy - with the caliber of artists getting involved.
“Will the metaverse displace traditional entertainment? And if so, how?”
Entertainment (along with gaming) is one of the few areas really pioneering the capabilities of the current metaverse and exploring ideas as to what it could be.
The most likely outcome, as I see it, is that the metaverse will follow a similar path of most other new mediums of entertainment - in that it is initially used in addition to other entertainment, but eventually is used in tandem. A classic example of this is how our music consumption has evolved as the technology has developed. Initially we started with live, then radio, then portable, now on-demand, followed by newer formats such as podcasts and audiobooks. The chart below from Matthew Ball demonstrates this.
Back to the original point, in the last few years the majority of younger generations are consuming entire categories of media via the internet and their mobiles.
I linked the Ariana Grande video above, but there have been other examples such as Travis Scott on Fortnite, Lil Nas X on Roblox, or (as of just last week) Justin Bieber performing a live motion-capture performance. Technologically this last one is super-impressive and starts to ask questions around the future of live performance and how we consume it.
Therefore, it’s not a massive stretch of the imagination to think that many of the habits we have today could easily transition towards these virtual worlds.
3. Other use-cases:
Decentralised Finance and the Metaverse
For those of you who follow the crypto space with any degree of closeness, you will have at some point come across the idea that crypto (or, more generally, decentralised finance) will have an important role to play within the metaverse ecosystem.
And it’s easy to imagine how this might look - I.e. Digital tokens being used as a form of currency within a virtual world. It’s intuitive.
However, the real determining factor as to the system of payment used within the metaverse will probably come down to ‘what works best’. And it’s not clear to me that the use of crypto will be any more beneficial than regular payment methods (like visa). I.e. blockchain doesn’t seem to be a strict requirement of the metaverse.
Most of the things blockchain does in terms of payments can be done through other means. The question is, ‘which method is superior’?
That being said, I believe there are several credible arguments being made for the use of blockchain technology within the metaverse - and they are mainly to do with control and ownership.
For example, remember the recent debacle with Epic Games and Apple? One of the reasons why Epic Games sued Apple was to do with the premise that these large companies controlling the distribution channels actually strangles the smaller ‘for-profit’ developers, and thereby decreases the potential creativity. If we use Roblox creators as an example - these smaller creators will have to end up paying both Roblox and Apple, and there becomes a point where there is very little left for the creator themselves.
The use of crypto could offer the ability to allow creators to create outside of the traditional platforms and walled gardens. It could empower creators to collectively own the technology through which they will build the metaverse - avoiding the current big-tech gatekeepers who currently control many of the decisions and profit share.
It may take some time to see how this area plays out.
“Where could the metaverse really shine?”
I believe there are many areas where an improved level of virtual connection would be beneficial. But one that really stands out to me is education.
Education has traditionally been a difficult industry to disrupt. The global pandemic over the past several years has proven that our current technology is simply not cut out to be able to effectively educate remotely. Students and teachers hate it.
‘Presence’ is a key word we see in many of the corporate presentations aiming to sell us on this idea of the metaverse. However, if we are able to truly create a better sense of presence with the use of VR/AR technology (or whatever the tech happens to be), things like education could dramatically improve.
We would be able to see and feel our teacher, classmates and do something more meaningful than simply staring at a 2D screen on zoom. It could even allow us to enter virtual worlds which aren’t constrained by real-world limits - making for a far more memorable and engaging experience.
Entertainment is another compelling use-case which I have described in some detail above.
“What’s the point? And why is it important?”
So, at the end of the day, what's the point? Why is ‘metaverse’ such a buzzword at the moment? And why is all of this important?
I think the significance here, and why so many people are starting to really get excited about ‘the metaverse’, is that it promises a better (more intimate) way to interact online.
More and more of our lives are spent online in one way or another - and it’s important to note that humans were not built for interaction via 2D mediums. We are most comfortable operating within 3 dimensions.
So, the point (so to speak) is that the metaverse has the potential to be a more intuitive, more intimate way to connect with the internet - something that is deeply ingrained into our way of life. But moreso, it offers an opportunity for a better way to connect and socialise with other human beings.
“How can we invest in the metaverse?”
Lastly, and the question you will most likely want to know the answer to more than the others, is that of investing. How can we, as investors, stand to profit?
The metaverse is going to drive a lot of investing conversations. And of course, to make life easier, there’s an ETF for it.
In June, RoundHill launched the RoundHill Ball Metaverse ETF (ticker symbol $META).
Matthew Ball, someone who you should absolutely check out if you haven’t already is one of the key minds behind this project, along with Will Hershey - RoundHill’s CEO. Both are great minds.
Even though I am a fan, I think its important to keep an eye on the second order effects at play here. Regulators are going to be an important factor moving forwards - which could cause serious concern down the line if not addressed soon.
The companies picked will absolutely be important players, but it doesn’t necessarily mean they will all be good investments. This is just the beginning.
“What’s the opportunity?”
Jensen Huang, the CEO of Nvidia and coincidentally the top holding of the META ETF, has stated in past interviews that he believes the Metaverse economy will exceed that of the physical world (currently $87Trillion).
This seems like a fairly outlandish claim. So lets say, in reality, the metaverse poses a similar opportunity that the digital economy poses (15%-30% of the total economy) - we come to a fairly hefty ~$10 Trillion to $25 Trillion opportunity.
Its likely this opportunity will be distributed across many of the companies working on solving the solutions present today - from payment solutions, hardware producers, virtual platforms and other general infrastructure providers.
“Who are the leading players, and who will they be in the future?”
A good start in answering this questions is to look at the list of companies picked on the META ETF (above). There are some heavy weightings towards:
Nvidia - Digital infrastructure
Roblox - Future platform and ecosystem
Microsoft - Hardware and software pioneer
Unity - 3D rendering leader
Facebook - Virtual Reality leader
In addition to these more obvious picks, there will be hundreds (if not thousands) of companies producing the hardware and software we will use to access the metaverse. This will include the microchips used to power the experiences, the mobile networks innovating on 5G and 6G in order to enable this technology. And all the way down to the content companies like Netflix, and Spotify who have to find a way to exist and monetise within this new environment.
So, where does all of this leave us?
After watching Facebook’s (now Meta’s) bold statement on what the metaverse is - something feels slightly off. It feels like Facebook have almost stolen the meaning of the word ‘metaverse’, or are at least making claim to the meaning of the word.
It feels like a land-grab - like a company calling themselves ‘the internet’ back in 1995. But honestly, I see this as a smart move from Zuckerberg. He is making his intentions clear so that the people who are truly passionate about building the metaverse (or Web3) know where they can go to explore these concepts to the fullest. It’s one hell of a recruitment drive.
Whether or not the Metaverse will be fully conceptualised in the next 5 10 or 20 years, it’s important to note we’re still at a point where we can have a tangible say in what we want this future to look like. Mark Zuckerberg’s vision of the metaverse doesn’t have to be the way it turns out.
But for the everyday investor, I believe this is the beginning of another large generational opportunity which you should at least be clued-up on.