“Metaverse” is one of those words that explode into existence from nothing – like “Covid” or “Brexit”. And before you know it, it’s everywhere.
The world’s most popular social network has even decided to allude to it in the new name it has chosen for its parent company. But does it really mean anything? Or is it like “Web 2.0”, which never really denoted a formal change in the nature of the World Wide Web, but more a general evolution as websites became more interactive and less static? The term would appear to mean different things to different people. For some, it’s just the continuing digitalisation of everything around us; for others, it’s a whole new way of interacting with one another and with the world more broadly.
We do a fair amount of blue-sky thinking at Investment Quorum. But not in a casual, haphazard way. We closely monitor technology trends, and research and innovation, constantly trying to identify the next big paradigm shift. And we believe that the Metaverse might just be it; we believe it has at least the potential to disrupt life almost as we know it. Even if that is something of an exaggeration, there is little doubt that it represents the next chapter of the Internet as we know it.
Nick Clegg has described the Metaverse as a space where the physical and digital worlds come together… a space where digital representations of people – avatars – interact, meeting in their offices, going to concerts and even trying on clothes. Others – such as venture capitalist Matthew Ball, whose writing on the Metaverse has influenced Zuckerberg – have described it as a “successor state” to the mobile Internet. The term was first used some 30 years ago to describe a virtual alternative to the real world. And since then, various other building blocks have come together to create the concept that we (sort of) understand today. These include things like the online virtual world Second Life, as well as Blockchain, Bitcoin, non-fungible tokens, and Ethereum (on which many peer-to-peer and other distributed platforms are built).
A key moment was Facebook’s acquisition of Oculus – the first VR headset company, which has established itself as a critical component of Zuckerberg’s vision of the Metaverse. Since then, we’ve seen augmented reality take off – not just with Pokémon Go and other games that use your mobile to create an augmented reality superimposed onto the real world –, but with simulators and digital twins (virtual representations serving as real-time digital counterparts of a physical object or process that can be used for training). There has also been a dramatic increase in the popularity of mass-scale gaming: anybody who has ever met a teenager will have heard of Fortnight, which was played on an unimaginable scale during the lockdown.
Speaking of the pandemic… the last two years have seen numerous applications emerge, with sizes and scales that would have simply been unthinkable before Covid hit. Everybody will have their own examples – such as the ease with which our children started playing games with their friends, or the relative simplicity with which schools were able to teach them remotely.
All of this pandemic-catalysed zeal culminated in Zuckerberg’s decision to rename Facebook last year. Given Facebook’s… sorry, given Meta’s ownership of Oculus, and the early lead that the company has had in terms of market share in an embryonic virtual reality market, Zuckerberg’s vision of the Metaverse is indeed very VR-centric. But the excitement about the Metaverse is about a lot more than just the US$30 billion market for virtual and augmented-reality headsets. And it’s about a lot more than the US$54 billion that people spend annually on virtual goods.
At Investment Quorum, we believe that the real worth of the Metaverse can be measured in terms of the disruption of profit pools associated with the mobile Internet. And one of the most high profile profit pools is represented by the various app stores that collectively generated some US$170 billion in revenue last year. Now, if the Metaverse can indeed reinvent everything, and if it does indeed succeed in establishing itself as a true successor state to the Internet, then in actual fact, that disruption will be measured in trillions of US dollars.
And that is why so many companies both within tech and way beyond it are very interested in staking an early claim in this new digital frontier – everyone from Microsoft to Walmart (which has plans to create its own cryptocurrency and NFTs).
In January of this year, Microsoft acquired videogame holding company, Activision Blizzard, for US$68.7 billion as a way of increasing its presence in the Metaverse. Chipmaker Nvidia has its own Omniverse – a scalable, real-time reference development platform for 3D simulation and design collaboration – that it describes as its own tool for building the Metaverse. Back in the world of bricks and mortar, McDonald’s, Disney and Nike have all staked their own claims.
Meanwhile, many people are rather baffled by the excitement associated with the Metaverse’s spill-over into areas like NFTs that many believe will be tied up in its fabric. But that excitement is having real-world implications: last year, an NFT piece of art sold for US$69 million (which made the artist in question the third most valuable living artist ever). Many of the fund managers with which we deal believe that we are about to see the emergence of a new form of computing architecture based on the idea of distributed computing (call it Web 3.0 if you like). And for many people, their excitement revolves around the idea that NFT technology will have a starring role in the Metaverse.
What exactly all of that means is not yet clear, and it remains a controversial area. For every person who is wildly excited about the Metaverse, there is a sceptic. Indeed, tech heavyweights such as Tesla CEO and newly-appointed Twitter board member Elon Musk are sceptical about the future of distributed computing. Much of that scepticism is to do with the form that it might take and whether or not the human race needs a virtual alternative to the real world that we are so desperate to return to after two years of social distancing and remote working.
At Investment Quorum, we acknowledge that it is still early days. But even at this early stage, we are seeing the emergence of a framework for understanding what the Metaverse might look like in the future. One of the key areas will be 3D interfaces. For the Metaverse to be truly immersive, we will need headsets and virtual- and augmented-reality tech to deliver on that promise. Many people believe that it is over that hardware (and the associated standards and protocols) that the battle for the Metaverse will be fought.
There might be a fair amount of uncertainty regarding the timeline toward fully immersive interfaces, but we can be relatively certain about the need to invest heavily in the infrastructure needed to support the Metaverse. We already know that dizzying levels of computing power will be needed to support the very large systems that will make up the Metaverse. We are excited about this as investors because it means a need for more storage, greater bandwidth and lots of AI to manage the very low latency required if hundreds of millions of users are going to be using systems concurrently. And people from all over the world interacting in different languages will require real-time translation – more good news for investors in artificial intelligence.
Needless to say, all of this will require computing power that cannot realistically be delivered anywhere other than in the cloud. Fortnite has in excess of 300 million users – they can only really be supported and served by the likes of Amazon Web Services, one of the biggest public cloud computing companies. So as technology investors with our gaze resolutely turned towards innovation, we are focused on the infrastructure opportunities that we believe will emerge as the Metaverse takes shape. In the meantime, gaming and augmented reality are just some of the Metaverse’s exciting applications.
We believe that the Metaverse represents one of today’s really exciting emerging technology trends. Indeed, incorporated into most of our strategies at IQ are funds that give us exposure to many of the mega-cap technology names that are leading the charge and building Metaverse infrastructure. But it is still very early. In many respects, the Metaverse feels similar to the way the Internet did back in the early 1990s. So there is still some time for us to take a step back and take stock. But that should not prevent us from thinking about the infrastructure investment and AI development that will need to be poured into the Metaverse today in order for it to become a realistic, serviceable concept tomorrow.
We understand people’s scepticism about it. But if we are enthusiastic, it is because the pandemic has taught us that as a species, we can be apart and together at the same time. Many of the features that are part and parcel of modern life and which we take utterly for granted were the stuff of science-fiction only one or two generations ago. As investors, we play a key role in turning science fiction into reality.