As the last days of summer achingly melt into ... lord knows what comes next, I was thinking about how to characterize this fleeting season. Yes, there was the resurgence of COVID and ironically enough another accompanying run-up in the stock market, but I actually think this summer was marked by something else. To my mind this was the time when the Metaverse became a thing, a thing that will become bigger than COVID, or the stock market for that matter.
I will explain it all, but before I do, to those of you well-versed in the Metaverse, rolling your eyes at the Boomer and muttering "that was sooo 2020," let me assure you the overwhelming majority of people on planet Earth have no idea what the Metaverse is, and to them I write.
What is the Metaverse? Simply put, the Metaverse is the next mega-phase of the internet, a merging of the physical world with XR, AR and VR that is just beginning to revolutionize the way we interact, work and live.
Here’s how the Wall Street Journal describes it: “an extensive online world transcending individual tech platforms, where people exist in immersive, shared virtual spaces. Through avatars, people would be able to try on items available in stores or attend concerts with friends, just as they would offline.” (The Metaverse will also require massively more computing power as well as tools and code not yet created or written.)
On his earnings call in late July, Facebook (FB) CEO Mark Zuckerberg devoted significant time to expounding upon the Metaverse: “It's a virtual environment where you can be present with people in digital spaces,” he said. “You can kind of think about this as an embodied internet that you're inside of rather than just looking at. We believe that this is going to be the successor to the mobile internet.”
Metaversians also talk about the Metaverse being synchronous and always live for an infinite number of participants, meaning for instance your avatar will be wandering around this digital world in real time, as seen probably through some sort of glasses, for play, yes, but also for work.
If all this sounds beyond your ken, know that instead of checking your phone first thing in the morning, at some point you will be checking into the Metaverse. Can’t imagine that. Oh, it’s coming. For what life might be like in the Metaverse age, check out "A Day In The Metaverse" by Cathy Hackl, CEO of the Futures Intelligence Group, a consultancy that helps brands with Metaverse strategies.
Does the Metaverse exist anywhere yet? The answer is yes, early versions of it. The closest approximations of it right now include the likes of digital game platform Roblox (RBLX), Second Life, which bills itself as a virtual world, not a game, and especially smash-hit game "Fortnite," which is rapidly transforming itself into a virtual world replete with everything from commerce to Ariana Grande concerts. (More on "Fortnite" later.)
If you haven’t dropped into one of those worlds, it may be tough to wrap your brain around what’s going on here. One convenient shorthand way to understand the Metaverse is to watch the 2018 Spielberg movie "Ready Player One," which, if you ignore the Hollywoodification, has some excellent simulation of what people are contemplating (never mind that life may end up imitating this art.) One more source: The 1992 novel, “Snow Crash,” where sci-fi writer Neal Stephenson coined the "Metaverse."
And for the most insightful deep-dive explainer on the Metaverse, I recommend this "great" [that’s according to Mark Zuckerberg and tech writer Casey Newton] essay by Mathew Ball, a venture capitalist (and former Canadian firefighter), who has become one of the most prominent Metaverse thought leaders, from last year. In June, Ball dropped an updated, nine part(!) "primer" here.
“The internet era was defined by the computer being in the living room and the connection to the internet being occasional,” Ball says. “The shift to mobile computing meant moving the computer from the living room to the office and into your pocket, and changing access to the internet from occasional to continuous and persistent. Metaverse is the idea of computing everywhere, ubiquitous, ambient. In a simplified sense, think about the Metaverse as a series of interconnected and persistent simulations.”
Another important point is what techies call interoperability, meaning that you can move seamlessly around this virtual world on multiple devices without friction. Ditto for intellectual property. Marvel characters (say you as Black Panther) could hang with DC characters (your best friend could be Wonder Woman) without corporate overlords Disney and WarnerMedia, respectively, throwing a hissy fit.
‘The next internet, web 3.0. We don’t want to be left behind.’
“The Metaverse is a network of interconnected virtual worlds in the same way the World Wide Web is a network of interconnected website,” says Rabindra Ratan, an associate professor of media and information at Michigan State University who specializes in the interaction between people and technology. “I can jump in a web browser, cruise from one website to another. In the future, you will jump in the Metaverse browser from one virtual world to another to another.”
That ease of digital mobility is critical. “The greater degree of interoperability, the greater utility of any simulation,” says Ball. “Like how a J.Crew belt is interoperable with Gap pants; an American-bought car works in Canada and Mexico. It’s generally more efficient, better for the economy and users, and everything has more utility."
“The second element is the extent to which interoperability enables greater competition in the marketplace,” Ball says. “If every company had proprietary belts or shoes, would it become practical for a new pants apparel company to emerge that wouldn't work with the belts you purchased previously? No one would buy new pants if they needed to replace the belts and shoes.”
NB: And of course crypto, or some sort of digital descendent, will be the coin of this new realm. And already retailers like Ralph Lauren and others like Visa are beginning to dip their toes in the Metaverse water.
“Take a look at the internet and mobile internet. Over time it disrupted nearly every industry in nearly every geography,” Ball says. “It changed which companies consumers patronized, business models, products, behaviors. This produces an extraordinary economic opportunity overall.” Same will happen from the Metaverse, Ball says.
“Back in the 2000s, people thought we’ll never need an e-commerce team or a social media team, just have an intern start it,” says Hackl. “I see this and think there’s a little more seriousness from companies thinking ‘this is the next internet, web 3.0. We don’t want to be left behind.’ They used to say every business is a tech company. Now every company will be a Metaverse company.”
Sure the origins of the Metaverse have been kicking around for years, but what’s happened this summer is that Silicon Valley, media and the world of business are starting to not only pay attention to the incipient Metaverse, but they are beginning to transition into it.
Mark Zuckerberg spoke to his employees earlier this year about the need to make Facebook a Metaverse company, and in July, Casey Newton of the Verge did an interview with him on the subject that you should check out.
Zuckerberg’s ruminations on the Metaverse are thoughtful and illuminating and reminded me that we sometimes dismiss him as a one-dimensional CEO intent on digital domination and wholly dismissive of Facebook’s foibles. Still, Newton rightfully calls Zuckerberg's vision of the Metaverse and Facebook’s role in it as “audacious'' considering it “comes at a time when the U.S. government is attempting to break his current company up.”
In his interview with Newton, Zuck describes what meetings in the Metaverse will be like, which is to say that they will be what Zoom calls are to conference calls, (remember them?) Again you really should read the whole interview.
“A lot of the meetings that we have today, you’re looking at a grid of faces on a screen. That’s not how we process things either. We’re used to being in a room with people and having a sense of space where if you’re sitting to my right, then that means I’m also sitting to your left, so we have some shared sense of space in common. When you speak, it’s coming from my right. It’s not just all coming from the same place in front of me.
In the future, instead of just doing this over a phone call, you’ll be able to sit as a hologram on my couch, or I’ll be able to sit as a hologram on your couch, and it’ll actually feel like we’re in the same place, even if we’re in different states or hundreds of miles apart.
I already do a bunch of meetings in VR. Even though the avatars aren’t as realistic today as they will be in a few years, in a lot of ways it already feels almost more real, and more like you have a sense of space, than a Zoom call, because you have the shared sense of space….If you’re sitting in a circle, everyone can kind of remember what order people were in. There’s spatial audio. You look over to the head of the table and there could be a screen there, where people who can’t be in VR or AR can videoconference in and be a part of your meeting from outside. You can project and different people can share as many documents as they want. So it’s no more of this, “Oh, I can only share one document at a time,” because everyone, you presume, only has one screen. And in VR, people can pull up as many screens as they want so you can share as much context as you want during a meeting. You have a whiteboard, people can draw. It’s pretty wild.”
Ratan of Michigan State, (who after reading “Snow Crash” was inspired to get a PhD focused on virtual reality and avatars), says Zuck is no Johnny-come-lately here. “This has been in the works for years, ever since Zuckerberg bought Oculus in 2014,” Ratan says. “People might not have realized it then. The vision was always to create a Metaverse-like experience for people beyond gaming. Eventually the Metaverse and internet will become synonymous.” Another facet of Facebook’s journey into the Metaverse began in September 2019 when the company introduced Facebook Horizon, a virtual reality, online game.
Zuckerberg likely sees the Metaverse as mission critical. “Facebook, among the big five tech companies [also Apple, Amazon, Google and Microsoft], is the only one that doesn't have an operating system,” Ball says. “It’s the only one that doesn’t have a key consumer hardware device. The Metaverse at a minimum allows them to potentially displace those who do, at a maximum it can go further. [Because] they don’t have a hardware, software platform, what they can do today is partly controlled by that problem. Business models and products Facebook wants for consumers are often blocked by Apple. They want to launch a cloud gaming experience — they can’t. They want a tipping program — they find it impractical when Apple has to take 30% first. The opportunity for economic expansion is to gain share relative to big tech companies, diversify into a platform and hardware and escape the confines of a platform ecosystem that currently defines the business.”
None of this is lost on CEOs of the other FAAMG (Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google) companies, who are moving forward into the Metaverse for their own objectives. Remarked Microsoft (MSFT) CEO Satya Nadella at his earnings call on July 27, (only days after Zuckerberg’s call), “As the digital and physical worlds converge, we are leading in a new layer of the infrastructure stack, the enterprise Metaverse."
And there are others too, such as Nvidia (NVDA) CEO Jensen Huang and his comments in July about the Metaverse, saying “I believe we’re right on the cusp of it.” Nvidia has created what it calls an Omniverse, "a virtual environment the company describes as a ‘Metaverse’ for engineers,” according to Venture Beat. Huang also said the economy of the Metaverse will be larger than that of the physical world. Impossible? Not when you consider, for instance, all the work from home, designing (of everything) and leisure activities that will be done in the Metaverse.
So what companies (stocks!) are poised to benefit from the Metaverse? Guess who? The usual FAAMG suspects for starters, according to Ball, and he spells out why in his first essay. Balls also cites Unity Software as well as private companies like Valve, Ubiquity6, Singularity 6, (no relation believe it or not), Genvid and Magic Leap (the latter being almost an old school player by now).
But the granddaddy of them all is Epic Games (owner of Fortnite), which was founded by CEO Tim Sweeney as Potomac Computer Systems 30 years ago at his parents’ house in Potomac, Maryland. Now based in Cary, North Carolina, Epic released "Fortnite" just four years ago. The game now has 350 million registered players, with anywhere from six to 12 million people playing at any given time.
Some reports suggest growth at "Fortnite" may have topped out or that it is even declining (as a private company, Epic can pretty much divulge what it wants), but nonetheless it is still a juggernaut, making billions of dollars for Epic. Some business details were revealed in Epic’s recent battle royal with Apple (AAPL) over payments on Apple’s App Store. (In fact, Sweeney has become a major thorn in Apple’s side. Pretty remarkable for a little ol’ game company CEO.)
In April, Epic raised $1 billion (added to the $4 billion plus it raised previously, according to Crunchbase), and is now worth nearly $29 billion. Sweeney’s stake in the company is worth $7.4 billion, according to Forbes. Let's just say if Epic ever went public, there would be strong investor interest.
Still with all the excitement, the Metaverse is hardly a virtual utopia. Imagine the problems of today’s internet in 3D with avatars, just for starters. Yahoo Finance’s Dan Howley does a great job of laying out potential problems: 3D bullying for example and even worse.
“Think about all the data they can be tracking,” says Ratan of Michigan State. “They can identify you by nonverbal gestures and height. They can use machine algorithms to predict your sexual orientation based on the way you look at different people in the virtual world. I worry about privacy becoming even more limited in these Metaverse experiences. Technological innovation is always a double-edged sword. The Metaverse is a great example of a technology that will likely bring huge benefits to people but there will be unintended, unanticipated costs and harms.”
Right now the Metaverse has next-to-no regulations, few agreed upon industry standards and an ecosystem that is overwhelmingly male. What could possibly go wrong? It all needs addressing, that’s for sure.
“I don’t want to turn to the Metaverse to escape reality,” says Cathy Hackl. “I don’t want to have that dystopian view of it. In some ways the Metaverse is an extension of humanity and creativity, where we’re heading next.”
And paradoxically, whether that’s for the better or for the worse will in fact be up to us. Up to humanity. After all, reality is the only thing that's real.
This article was featured in a Saturday edition of the Morning Brief on August 28, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer