Meta Turns it Into a Buzz, Tech Giants Take their Positions, Roblox Leads the Pack
The metaverse
It is difficult to remember a time when we heard a word thrown around so much as to almost become commonplace, without really knowing what it means. Such has become the case with the word “metaverse”.
Quickly becoming a buzzword, every tech behemoth seems to have its own interpretation of what the metaverse could be. Ever since the entity formerly known as “Facebook”, on October 28, announced its name change to Meta, shortly followed by Mark Zuckerberg’s keynote depicting the company’s vision for the metaverse, companies involved in the space, including the likes of Nvidia, Roblox and Qualcomm, saw their stock price surging. Just about every company with a semblance of digital presence has communicated in some form or another — through presentations, talks, or Tweets — about their plans for the metaverse.
While no one can predict whether the recent interest in the metaverse will have staying power, All Blue Capital is betting on this new trend, which we see as the next disrupting event in technology, materializing the advent of the Internet 3.0 and bringing a new set of opportunities in this already thriving industry.
What is the Metaverse?
Etymologically, “meta” comes from the Greek and means “beyond”, suggesting a conception of the “real” world moving beyond and acknowledging a new realm. Despite the recent surge in interest, the term “metaverse” was first coined by Neal Stephenson in his 1992 novel “Snow Crash”. Neal pictured it as an urban environment along a 100 meter-wide road, running the entire 65,536 km circumference of a black spherical planet. Ernest Cline reimagined it in 2011 as an Oasis in his “Ready Player One”, referring to a fully realized digital world beyond the analog one in which we live. In between, Hollywood took a shot at the metaverse with the epic series “The Matrix”, depicting a dystopian future in which humans are unknowingly trapped inside a virtual reality.
Today’s concept of the metaverse is something more practical: a virtual universe blending bits and pieces of digital technologies, including an extension of social media as we know it — as Zuckerberg’s Meta suggests — but also live-streaming, video-conferencing, gaming, virtual reality, and cryptocurrencies. Often, such as is likely to be the case with the metaverse, the rough outlines of future solutions are often agreed upon well in advance of the technological capabilities to produce them. However, it is sometimes impossible to predict how they’ll fall into place. Therefore, the exact association and resulting synergies between these technologies remains a work in progress, and the metaverse as depicted in industry leaders’ presentations is realistically still years away. However, Facebook and other tech giants define it as the future of human interaction and communication.
As difficult as it was to predict in the 1980s what the Internet would become today, it is impossible to predict what the metaverse will become in forty or even ten years’ time. However, we can try to pinpoint a few key attributes it should exhibit. First and foremost, to reach its full potential, the metaverse should be interoperable. This means interoperability of assets, digital items and contents across all the platforms offering access to the metaverse. Its contents and the resulting experiences should be operated and created by a wide and diverse range of contributors, including individuals, organizations and businesses. The metaverse and its experience should cover both digital and physical worlds, encompassing open and closed platforms, as well as public and private networks. It should also be a fully functional and self-sufficient economy, where businesses and individuals can invest, own, sell, and create a wide range of products and services, creating tangible and recognizable value for others, one that can easily be commoditized. To support such a virtual universe, the metaverse ought to be persistent, never pausing, resetting or ending, and synchronous, providing a living experience that exists consistently in real-time for everyone, just as it is in the physical world. Finally, the metaverse would ideally not set caps on concurrent users while providing each single user with a sense of individuality and presence. In practical terms, this last attribute implies that everyone could be part of the metaverse and participate with individual agency, at the same time, and together in any specific activity or event.
Why it matters
Whether you believe in the future of the metaverse or not, you can’t deny it is becoming a big deal. Tech behemoths are heavily positioning themselves in the space and for good reason. The metaverse has potentially no limits in terms of opportunities for revenue. It is set to alter the way we allocate and monetize modern resources. Under this new parallel digital universe, all providers of digital goods and services would be able to participate in a highly value-added economy by the means of virtual labor. With time and with consumer spending shifting from real to virtual goods, services, and experiences, the potential in terms of advertising and e-commerce is unparalleled. Morgan Stanley, in a report dated November 16, sees the metaverse as a $8 trillion TAM, which is likely to become the “next generation social media, streaming and gaming platform”. The company sees digital demand in the metaverse for fashion and luxury brands alone to grow from current depressed levels to $50 billion in 2030.
More generally speaking, the metaverse could easily represent a technological leap forward similar to the Internet transformation of the 1990s, from static text and images on a webpage to platforms where people buy books, stream movies, attend online colleges and work collaboratively on projects. Eventually, the metaverse could completely change the way individuals interact with each other and spend money, altering the way people congregate and creating a fully distinct virtual life experience.
The bigger picture
Nvidia, a computer-graphics chipmaker at the forefront of the technology underpinning the virtual environment, envisions the metaverse developing into multiple virtual worlds, moving beyond its current predominant application in gaming and into the corporate space. Nvidia refers to it as the “omniverse”.
In an organizational and professional context, the omniverse is not intended to be a single platform but rather a means to allow for the integration and collaboration of all technologies. For instance, it already offers unparalleled levels of virtual simulation for organizations, enabling them to see the output of their operations in a real-time 3D environment and allowing team members, regardless of geographic location, to contribute in concert to the elaboration of large projects.
Simulations and especially digital twins are good examples of the benefits and potential for monetization the metaverse can bring. Digital twins are a replica or “twin” of something physical in the real world — an object, industrial plant, building, car, surgery block — in digital form. The underlying concept is that whenever a product is designed — a car, house, city — it is first created in a digital environment before being moved to the physical production stage. Organizations are increasingly keeping the digital twins of their factories, designs and processes as a reference point for ongoing development. Once brought into the metaverse, it allows companies to increase efficiency by, for instance, training engineers or teaching mechanics how to optimally perform their tasks, keeping up to date with the company’s constantly evolving operations.
Digital twins dramatically reduce costs since modifications to production processes can be tested in digital form. In the case of Siemens, a technology and industrial conglomerate, a digital twin of their heat recovery steam-generating plants allowed the company to reduce its costs by $1.7 billion annually. These plants involve complicated processes where efficiency depends on a number of factors such as corrosion, replacement and failure rates. The digital twin of their plants enabled Siemens to substantially improve its predictions by simulating the process on the digital replica, reducing inefficiencies. Ericsson, a major telecommunications provider, uses the metaverse to replicate a full-scale city and determine optimal locations for its 5G signal towers. The virtual platform allows the company to account for parameters such as car traffic density and the number of inhabitants to establish the best positioning for its antennas.
The key aspect of the metaverse is its tremendous potential for monetization. In the case of large corporations, this monetization comes primarily from designing and manufacturing cost reductions. The metaverse allows for an optimization of the manufacturing process by integrating and interconnecting all of a company’s resources on a single platform — which is why industry experts agree that interoperability across the metaverse is crucial. More generally speaking, virtual worlds have been present for some time now, with platforms like Epic Games, Fortnight, or more recently Roblox, already generating billions of dollars from the sale of virtual assets in their respective virtual environments. Now, the metaverse is moving towards scaling up these environments from the consumer space to the corporate space, likely becoming a massive new marketplace and the next big untapped opportunity.
Given current trends, it is believed that the demand for digital assets — including NFTs, cryptocurrencies — is bound to outpace the demand for physical assets in coming years, making the metaverse a massive business opportunity. An interesting way of looking at the monetization potential is by understanding that people will be able to trade assets that don’t have physical counterparts, thus eliminating the constraints of the physical assets that the internet allowed to trade thus far. Unlike physical resources, there is no limit to the amount of digital assets that can be created, bought, and sold.
Why Facebook made the switch to Meta
Cynics might say that Facebook conveniently timed its name change to Meta as a PR move to shift the attention away from the recent leaks displayed in the WSJ, portraying a company that is seeking to maximize profits at the expense of its youngest audience and their psychological frailties. However, the tech giant’s move, which single-handedly managed to shift the industry’s focus to the metaverse, appears to be more pragmatic. Meta is driven by bigger plans. The company envisions becoming a pioneer in developing the infrastructure of the Metaverse, which if successful, will put the company at the forefront of the Internet’s “next frontier” — just as it did in 2008 when social media platforms were maturing.
In his own words, Zuckerberg describes the metaverse as an “embodied internet … where with just a pair of glasses, you will be able to step beyond the physical world… beyond the limits of distance and physics”. In his recent video presentation, Zuckerberg appeared optimistic about the potential benefits the metaverse could deliver to users, even sounding altruistic by restating his company’s mission to “Bring people together”. But one question remains: how will Meta monetize the metaverse?
From the start, before becoming the world-leading social network we all know, Meta understood that to attract larger audiences to use its app and eventually monetize it, it needed to give it away for free. The approach paid off, with the free app allowing the company to center on a highly targeted advertising model that grew to generate a reported $54 billion in revenue so far in 2021, setting Meta on the path for another record year. Despite such figures, Meta’s revenue from non-advertising revenue streams — including its efforts at AR/VR with its Oculus headsets — reported a paltry $1.2 billion in the same period. The company’s name change and sharp move into the Metaverse aims to change that.
Although Zuckerberg reaffirmed that Facebook — the social network — will always remain free for its users, he has never made such a proclamation for the metaverse. This new avenue is expected to expose Meta to new sources of revenue, with opportunities including hardware sales, ticketing, subscription services, avatar sales through “skins”, gaming, play-to-play models, and SaaS. On top of that, ads — which already represent the company’s bread-and-butter — could also be integrated into the metaverse, for instance in the form of neatly slotted patches in the virtual landscape. Moreover, the metaverse is likely to provide Meta with a more detailed understanding of its customer base through the virtual experiences, further boosting demand for its already established ad services, becoming even more hyper-targeted.
Meta seems well aware of the opportunities that come with leading the charge in this nascent industry. Reality Labs, the company’s Meta division, is planning to invest $10 billion in making metaverse-enabling hardware such as VR headsets. The company already spent years building its AR/VR portfolios with acquisitions such as Oculus in 2014 and earlier versions of its own metaverse with Horizons platforms. Further down the line, Meta is seeking to incorporate its own tech products in the metaverse, including advanced AR glasses, smartwatches, and wrist wearable neural inputs, eventually leading to what the company refers to as “the era of human-computer interaction”.
The industry is shifting and Roblox is taking the lead
The most notable tech players are all at the starting blocks. Everyone wants a piece of the pie and no one wants to be late to the party. Following Meta’s lead, Microsoft announced its new version of Microsoft Teams, expected in 2022. The new platform will allow users — or rather their avatars — to share Excel files and PowerPoint presentations. Nvidia and Unity Software, a software-maker, both aim to use their platforms to power and become the underlying framework of the metaverse. Video-game producers, including Microsoft and Games Inc., want in too. Tencent already registered a series of metaverse-related trademarks for its own multi-purpose app QQ, and, through a joint venture, is launching a gaming parallel platform that will abide by the Chinese government’s newly imposed rules on the amount of time the country’s youth can spend playing video games. ByteDance, TikTok’s parent company, is heavily investing into Prico, a VR headset maker, and Reworld, a mobile game producer. Major telecommunications conglomerates, including China Mobile, Verizon Communications and SK Telekom Co., in search of catalysts to spur revenue growth, are working at creating their own metaverse platforms. Given the sudden rise in companies seeking to enter the space, specialist consultancy firms helping companies to transition into the metaverse are emerging — U.K.-based Dubit is a good example. Finally, let’s not forget cryptocurrency and other payment facilitators, who were quick to understand that someone would need to fill the vacuum and facilitate the resulting surge in cross-border virtual transactions.
Although the industry has much growth ahead of it and everyone is still trying to figure out how to best enter this new market, we believe that few are finding their way better than Roblox. The company is a market darling, with its stock price skyrocketing this year, and for good reasons: it quickly established a metaverse offering and has already found successful ways to monetize it.
Roblox, the California-based company created in 2006 that went public in March this year, has already seen its stock price more than double, with a current market capitalization of almost $44 billion. The stock notched another all-time high of $138.77 last Thursday, November 18. The video game developer successfully demonstrated how to use technology to connect users of all age groups and create new digital experiences. The platform relies on user-generated content, enabling gamers to create their own identities using avatars — one of the premises of the metaverse. Roblox quickly surpassed its online video game status, growing into a fully developed community, providing customers with virtual 3D worlds within Roblox’s platform environment.
Beyond the underlying technology, the company’s growth trajectory to date has been impressive. With triple-digit growth in both EPS and revenue in the quarters it reported on since its IPO, Roblox currently boasts more than 40 million games, over 9.5 million developers and, as of Q3 2021, 47.3 million average Daily Active Users (DAUs).
Roblox operates under a freemium business model. It makes money through the sales of its in-game currency (the Robux), advertising deals, licensing agreements and royalties. Robux allows gamers to customize their avatars or buy or enhance their virtual experiences. The company offers the currency in direct purchase or via subscriptions. In its S-1 filing, Roblox reports generating most of its revenue from Robux sales, which totaled $509.3 million in Q3 2021, a 102% increase YoY.
Virtual empires of existing “real world” household brands are being replicated on the platform. Gamers can’t seem to get enough and keep reinventing their virtual selves in this version of the metaverse. Roblox reports that one in five of its gamers changed their avatars daily. After yet another collaboration, this time with Nike, on November 18, to create Nikeland on Roblox — offering among other things a digital showroom allowing users to outfit their avatar with special Nike products — the gaming company is now eyeing collaborations with luxury brands. Considering that every piece of clothing or physical appearance can be individualized and is monetized in the game, with some items listed in thousands of dollars or more, it becomes evident why luxury brands are looking to get a piece of the pie.
While acknowledging that the metaverse will take years to evolve, Roblox has quickly transformed some of its premises such as social gaming or NFTs into immediate opportunities, monetizing its content and constantly creating new partnerships with established real-world brands. In an area that is likely to require years to mature but that already benefits from a loud buzz, Roblox appears to be emerging as an early leader, successfully positioning itself for parabolic growth.
