The Metaverse is Already Here
The metaverse is not a gimmick or a gadget — it’s the new world, and you already live in it.
Let’s set one thing straight — Zuckerberg did not invent the metaverse, and does not earn the right to name Facebook ‘Meta.’
George Lucas built the first MMORPG, ‘Habitat,’ in 1978, with all the attributes of a metaverse. Neal Stevenson coined ‘metaverse’ in Snow Crash (CosaNostradamus). Ernest Cline’s OASIS in Ready Player One in 2011 built on Stevenson’s work. Second Life became the most ambitious PC metaverse world builder in 2003.
Jump to 2021: Zuck renames Facebook ‘Meta’. This is like changing your legal first name to Dr., and thinking you’ve earned the right to cut out a strangers’ spleen. But it worked, somewhat, as the un-informed believe Zuck to be pioneer of it all, ignoring the history and the indigenous Second-Lifers roaming ghost towns in steampunk hats. Zuckerberg’s priority of being first-to-metaverse-market backfired, however, because it torpedo’ed users into whatever hellscape this concept was.
Meanwhile, Sweeney is at the helm of a more user-first crew, helping users smooth-sail into the Metaverse: “Over the next few years, what we’re going to be doing at Epic is bringing these pieces together into something that comes closer and closer to the metaverse from science fiction,” Sweeney said at GDC’s State of Unreal Engine presentation in 2023.
Economy and Society will tether the metaverse to our universe (aka, why it is worth anything)
To understand this, I interviewed Professor Miklos Sarvary, my Columbia Business School research director, and one of the earliest adopters and writers on metaverse theory. He wrote the first ever ethnographical study of online gamers in Second Life, and created INSEAD’s metaverse school in 2010.
Sarvary believes the defining attribute for the Metaverse is a functional economy. Does the Modern Metaverse check this box?
“The economy in the Metaverse… [will] be larger than the economy in the physical world,” stated Jensen Huang, founder of Nvidia. Huang is biased, as the Metaverse’s success means massive growth for Nvidia’s platforms and processors powering the degree of computing power required. So let’s look at an objective fact instead —
The world’s largest companies are publicly reorienting themselves around the Metaverse (Microsoft, Apple). Leading gaming industry giants whose PR and IR teams are pushing the ‘Metaverse’ as a terminal value driver had two of the largest ever IPOs (Unity and Roblox). Microsoft’s record-breaking $69 billion purchase of Activision had, in my opinion, much more to do with securing the talent and technology to ultimately build their Enterprise-facing metaverse (Call of Duty is spectacular, but not $69 billion dollars spectacular).
If the metaverse is like a new world, or “the 8th continent”, as Metallica lead said in an interview as he discussed his Fortnite Festival concert, does it have a nation-sized GDP? What is the market value of all final goods and services from a nation in a given year?
The metaverse could contribute as much as $760 billion or about 2.4% to U.S. annual GDP by 2035 (Reuters, Meta Platforms Study). For reference, Sweden’s GDP today is $620 billion. GDP has grown substantially from its origins. In 2009, Second Life’s annualized GDP was $500 million dollars, with users cashing out $55 million into real-world currency (Metaverse, Matthew Ball).
So, economy? Check.
Society-wise, the question is — who would spend time here, how to win their time, attention and loyalty, and draw them our of realuniverse into metaverse? No need! They’re already in it. You might even be in it too (Neo).
Travis Scott hosted a concert in Fortnite-world that hosted 48 million concurrent players experiencing the show virtually in a metaverse environment. For reference, Taylor Swift’s famously well-attended concerts cap out at ~70,000 people, and the largest concert in history was Rod Stewart at 4.2 million people at the Copacabana on New Years of 1994.
In their quarterly report in Q2 2020, Roblox Corporation cited that 75% of children ages 9 to 12 in the US regularly used their online platform. 150 million people used Minecraft on a monthly basis in 2021 (a Microsoft-owned platform game).
People are already there, living and playing together, spending and making money, and having meaningful social relationships.
What is the metaverse going to be like?
Sweeney defines the metaverse as, “just an online social entertainment experience in a real-time 3D setting. You and your friends, going around having fun together, in a 3D world.”
That is true. More loquaciously, I like to think of it as the physicalization of our imagination. It’s an isotope of the abstract inner world put into spaces that we can cyber-physically inhabit.
The metaverses that I believe will be most successful are those that are tethered strongly to our real lives and existing social networks and value systems, and exist as an augmenting layer that gives us new heights and depths of experience and interaction, rather than an ‘escape’ completely to a different planet.
In other words,
SELECT Earth.Purpose_Of_Life, Metaverse.Activity
FROM Earth
LEFT JOIN Metaverse ON Earth.ID = Metaverse.ValueID;There must be a connecting value between the two realms thats allows us to inner join our Earth existence to our Metaverse lives.
This means the Metaverse is not infinite — its TAM can only be as large as humankind’s attention capacity, actions and land and items must exist in a way that is tethered to real value, and social interactions need real people connecting, not sycophantic bots. An infinite space metaverse with zero human end-users is not valuable. If you build a cyber-discotech for a touring musician and only bots go to boogie, is it successful? That’s a good Turing situation, not a good touring one. There must be real stakes for the metaverse to be as real as our universe.
Who will be our metaverse hegemon?
US companies are heavily competing against each other for power in this new rush to colonize our imaginary worlds. Big tech has the advantage.
Microsoft, Apple, Meta, Nvidia, and Tencent can be thought of as the new nation-states of this new planet. We’ll see iterations of unipolarity/bipolarity/multipolarity the same way we have through eras of empires and world wars reshaping political landscape.
Just as in international relations, each of these new countries will be advantaged and disadvantaged by the resources they intrinsically possess and have accumulated up until this point, the level of buy-in of their user-base populations, and the warfare strategy they pursue going forward. While Epic believes in an open source, collaborative, peaceful interaction between metaverse corporate nation states, others will aim to lock users in to their systems. Ultimately, there’s enough room for multiple players to win, and long-term, a one-state system will likely fail, just as no one country has ruled the whole world.
Even if one does become start on top with strong moats of network effects, there will be disrupters and emerging players. Developing worlds will attract new capital and lure expats away to explore new lands.
Takeaway: given all of this, what should you invest in?
Since 2018, I believed Microsoft was most likely to capture upside and convince investors of the value of their Metaverse empire for the 10-year period between 2018–2028.
Microsoft has a history of being willing to survive declining ROIC (as in 2008–2016) while investing in new innovation (Azure and re-making the revenue model to subscription, sustaining losses over 8 years), and then bouncing back. They have an eye for long-term plays, which will be necessary to win this war.
Microsoft has the cloud infrastructure to handle massive data highways. They have both B2B and B2C consumers captive, maximizing the potential of metaverse implications across personal and professional use cases. It also has the best combination of multiple competitive advantages, including an incredible pipeline of IP coming at last with Activision’s acquisition approved, leading to content that will draw users into a metaverse medium. The downside is that, while Microsoft has experience realizing synergies in gaming acquisitions (ex., Bethesda), synergizing their way to justify a $69 billion check is unlikely. They are so cash-rich, however, I’m not sure if it matters, or what may have been a better use of that cash.
In a few years, however, I believe the correct growth choice to bet on in this space will swing handily to Epic, if it goes public by 2028. One risk to Epic’s current state is the Tencent ownership. It is ~40% owned by Tencent. “For a communist and centrally planned country ruled by a single party (China), the potential of a parallel world for collaboration and communication is a threat.” China has put limitations and taxes on Metaverse technology. I believe this will come to an irreconcilable investment conflict for Tencent. Whether Tencent’s hold-ups over the metaverse will affect Epic’s attempts to become the dominant platform is yet to be seen, but some reshuffling of the cap table may be required in the next 5–10 years for Epic to claim the crown.
