I was in college when “The Matrix” released. It just blew my mind away, and soon became the subject of many an intense conversations with my friends. We debated endlessly on what is real and what is not, marveled at the immersive experience offered by the simulated reality; and relished the limitless possibilities that opened up once Neo and the gang started bending the physical laws in that virtual world shown in the movie. Little did we know the things that were to come, though the word Metaverse was coined by then.
The Matrix raises a thought-provoking question: would you rather covet the familiarity and comfort of an artificial world or face the harsh truths and the difficult domain of an unknown reality? Now those were the days before high-speed internet, snazzy mobile phones and engaging social media, and hence while an artificial world had its appeal, it was still science fiction for us.
Years later, in 2009, we got Avatar. That movie showed the transfer of a human consciousness into another species. But more importantly, it explored virtual and augmented reality. The presentation was stunning but the premise this time was a lot more believable. By then, we have grown more familiar with the alternate/enhanced reality through Second Life.
Launched in 2003, Second Life’s annualized GDP exceeded $30 million by 2005, barely two years after its launch. By 2009, it exceeded half a billion dollars, with users cashing out $55 million into real-world currency that year.
The gaming industry kept the ball rolling and the 2010s saw the traction in Minecraft and Roblox. In addition to offering significant technical enhancements compared to their predecessors, Minecraft and Roblox also focused on a younger target audience and were therefore far easier to use while offering greater capabilities. By the end of 2021, more than 150 million people were using Minecraft each month—more than six times as many as in 2014, when Microsoft bought the platform. Despite this, Minecraft was far smaller than the new market leader, Roblox, which had grown from fewer than 5 million to 225 million monthly users over that same period. Then came Fortnite, which transformed from a gaming platform to a social one with non-game experiences. Live concerts were being hosted on Fortnite, and the world had started to take notice.
While all this was happening, Mark Zuckerberg went all in when he not just renamed Facebook to ‘Meta’ but also envisioned the metaverse as the successor to the mobile internet — a set of interconnected digital spaces that lets you do things you can’t do in the physical world.
Suddenly most of the science fiction movies that fantasized about an alternate reality now seem a distinct possibility in the future. Not just that, it seems that parts of it are already here, and billions of dollars are being invested to get the technology to reach the stage where a continuous, embedded, enriched experience is very possible.
This year, Merriam-Webster, The United States’ oldest dictionary publisher, has added “METAVERSE” to their lexicon. To quote Al Pacino’s signature exclamation that finally got him an academy award, “Hoo-ah!”
The word ‘Metaverse’ was first coined by Author Neal Stephenson, in his 1992 novel Snow Crash. In the novel, the protagonist scrapes by in a future dystopian Los Angeles while being a hero through a digital avatar in the virtual world called the Metaverse. Subsequently, Neal contributed as the inspiration and then, as an advisor, in Bezo’s Blue Origin, which is probably the second most valuable company of its kind, ranked only behind Elon Musk’s SpaceX.
Over time, many have tried their hand at giving a definition to the word Metaverse. One of the most compelling and comprehensive definitions comes from Matthew Ball, the CEO of Epyllion and the former global head of strategy for Amazon Studios. Ball describes the metaverse as
A massively scaled and interoperable network of real-time rendered 3D virtual worlds that 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
Let’s dig in for a better understanding and to see how the current infrastructure holds up.
As we speak, the metaverse is being developed from various perspectives. The content and experiences are what draw the eyeballs and generate the traffic, and are being created by first-party developers and small creators. These experiences are being built on game engines (such as the Unity and Unreal Platforms) and accessed through gaming platforms, browsers and app stores. The underlying infrastructure is another key piece and this includes the devices, networks and all. And finally, there are the enablers that provide security, privacy, identity management and, of course, payments for monetization.
While video games can drive users into a flow, the immersive nature of VR and AR makes it possible to create an alternative reality that is both more pleasurable and more meaningful than regular reality.
Now that we have discussed the concept of the Metaverse in some detail, it is time to look into the future and see how life, as we know it, is likely to change in the future.
The metaverse is still being defined, both literally and figuratively. Yet its potential to unleash the next wave of digital disruption seems increasingly clear, with real-life benefits already emerging for early adopting users and companies.
McKinsey estimates the economic value of the Metaverse to hit $5 trillion in impact by 2030 – equivalent to the size of the world’s third-largest economy today, Japan. 50% of that is expected to come from e-commerce.
Source: McKinsey Analysis
And companies are increasingly investing in this opportunity. The first 5 months of 2022 saw an investment in the metaverse space to the tune of $120 billion+, which is more than double of what got invested in the whole of 2021.
The broader investment landscape is dominated by three categories of investors:
In 2021, consumers spent more than $50 billion on digital-only video games (in contrast to physical discs), and nearly $100 billion more on in-game goods, outfits, and extra lives. As a point of comparison, $40 billion was spent at the theatrical film box office in 2019, the last year before the COVID-19 pandemic, and $30 billion on recorded music.
The monetization in the virtual economy primarily involves goods that only exist virtually, and that are bought via purely digital (and thus low marginal cost) transactions. However, the leverage squarely lies with the platform owners who charge a transaction fee of, believe it or not, 30%.
‘It’s going to be important to create a truly creator-focused economy in the open metaverse, where creators can realize the value of their creations and not just be at the mercy of a gatekeeper that takes all the profit off the top because they are at the gate and they can do it.’
–Marc Petit, VP of Epic Games’ Unreal Engine Ecosystem
Traditionally, the gaming console makers such as Sony, Microsoft and Nintendo have subsidized their hardware consoles for the end-users, only to have them tied up to their ecosystem. All content providers have to mandatorily release their titles across all platforms, as not doing so for any one platform will make them lose the customers who are tied to the said platform. And aligning their titles to each platform means working with each set of SDKs to talk to the platform’s GPU, thus increasing the cost for the content creator. The end-users do not fare any better either, because if they decide to switch platforms, say from a Microsoft (Xbox) to a Sony (PlayStation), none of the game titles (or the game progression thereof) that they have had bought for Xbox can be ported to PlayStation. In other words, they need to buy the same game twice, this time for PlayStation, and then start playing from scratch. Switching costs, exit barriers, unfair leverage.. take your pick.
In the mobile ecosystem, the gatekeepers are Apple and Google. And they conveniently charge 30% as well for in-app purchases for interactive apps, essentially the entirety of the metaverse.
In the “real world,” payment processing costs as little as 0% (cash), typically maxes out at 2.5% (standard credit card purchases), and sometimes reaches 5% (in the case of low-dollar- value transactions with high minimum fees). In the metaverse, everything costs 30%.
In the real world, the Visas and the Mastercards offer value-added services, but they come as unbundled offerings that end customers/merchants can choose to pay for. In smartphones and tablets, all services are bundled for an ecosystem; and the charges are 30%. Imagine the profits being made by Apple and Google at the cost of independent content creators. The Windows platform does not charge any fees, but its users are a fraction of what exists on the Apple and Android ecosystems. Even Roblox is bleeding from this onslaught.
There are confusing restrictions imposed on blockchain-based games and transactions through cryptocurrencies as well, and all can be linked to defending the revenue models. For example, Apple does not allow NFC-based ‘tap and go’ payments apart from Apple Pay, citing security reasons. However, they allow the NFC technology to be leveraged in opening of hotel and car doors, negating the security argument.
Furthermore, Apple does not allow applications used for crypto mining or decentralized data processing, citing heating issues. Neither Apple nor Google allow games that accept cryptocurrencies as a form of payment, or that use cryptocurrency-based virtual goods (that is, non-fungible tokens, or NFTs).
For the Metaverse to emerge, it’s likely that developers and creators will need to find ways around the gatekeepers.
Behind the scenes of the metaverse will be a demand to deliver permissionless identity, financial services and high-speed exchange. Data will have to be stored and served to millions if not billions of people. The answer to these problems may lie in the technology of cryptocurrency and blockchains.
Companies like Decentraland and The Sandbox have developed virtual worlds that integrate cryptocurrencies so gamers can create structures like virtual casinos and theme parks, and monetize them. In Decentraland, the currency used is called MANA, and is available to purchase on exchanges like Coinbase. There are even casinos in Decentraland where you can gamble in MANA, with dealers paid in MANA to show up for work.
NFTs will also play a foundational role in the metaverse, giving people complete ownership of their characters, accrued in-game items and even virtual land. An NFT of a virtual estate in Decentraland recently sold for more than $900,000, the largest sale to date.
Eventually, it will be possible to buy and sell virtual goods from different games and universes on interoperable marketplaces. So, someone might be able to sell their virtual plot of land in the Decentraland world and use the funds to purchase Fortnite skins, for example. Cryptocurrencies could become the sole legal tender used in the metaverse, with all virtual objects and intangible items being expressed as NFTs.
The Metaverse is taking baby steps, but there is no doubt that it is already here, and it is picking up steam. In its infancy, no one could have imagined the overwhelming impact the internet would have on commerce. And it is the same right now with the metaverse. Today there is little doubt about the size of the opportunity, and the investments made are there for all to see. Within a decade, the metaverse has the potential to drive a very different world.
The metaverse is coming, one way or another. The future of the internet will be more human than the way we experience it today — more physical, interactive, and speech-based than flat screens filled with text and images. Recently, Somnium Space, the VR metaverse world, is launching a feature called “Live Forever”, which allows users to create AI duplicates of themselves so loved ones can visit their eternal digital avatars and touch them via haptic suits.
In the movie Matrix, Morpheus explains to Neo, “What is real? How do you define real? If you’re talking about what you can feel, what you can smell, what you can taste and see, then real is simply electrical signals interpreted by your brain.” Think about it. We already spend most of our days in the digital world. And one day, our life, as we know it, will be in the metaverse. And for the generation that is growing up on Roblox and Fortnite, they will simply know the simulated reality as their normal, regular life.
“Red Pill or Blue Pill”? That scene aged well, didn’t it?
Something Big is happening!!! Our lives will never be the same.
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