The metaverse: Real profits in a virtual world

When was the last time you played a video game? If it’s been a while then you might want to buckle up, because the metaverse is already here and everyone from executives of multinationals to the man on the street is talking about it.  

The metaverse, a neologism formed by contractions of the words metaphysical and universe, is suddenly being touted as the future of the internet, this despite virtual reality being around since the 90s without ever breaking into the mainstream.  

So why now? The main reasons are technological and financial. Concerning the former, the capacities of augmented reality and virtual reality (AR/VR) headsets are now such that fully immersive online worlds can be created for the first time. 5G internet is also a factor. But the main technological breakthrough driving the metaverse is blockchain, which allows the virtual world to be decentralized and facilitates secure transactions within it via the use of cryptocurrencies.  

In December Meta launched its first metaverse. Requiring a Facebook account and accessed using the Quest headset and app, Horizon Worlds lets you spend time together with up to 20 other people in a virtual space, strolling along a sun-kissed tropical beach or having a cocktail in a Manhattan rooftop bar, all without leaving the comfort of your sofa.

In February, Meta disclosed that Horizon Worlds, and Horizon Venues ─ another virtual meeting place ─ had 300,000 active monthly users and 10,000 separate worlds.  
 
The vision thing  
And then there is the tech itself. With its purchase of VR headset manufacturer Oculus for $2 billion in 2014, Meta became the top producer of the gear needed to access current and future metaverses.

Facebook may have been in the vanguard of the social media revolution, but it was still a “digital tenant” since it did not produce the computers or smartphones needed to access its platform. With the Oculus purchase, it can make money from both the platform and the tech needed to access it.   

The metaverse is maturing rapidly and urgently needs a financial system to regulate transactions taking place within it

In March, a report by the International Data Corporation stated that sales of VR and AR headsets grew 92.1% from 2020 to 2021 with shipments reaching 11.2 million units. Furthermore, the think-tank forecasts that the number of units shifted annually globally will double by the end of 2023. 

Meta has staked its claim in this new virtual landscape, but it is far from the only company seeking real revenue streams in the unreal space of the metaverse.

The most mature metaverse to date remains Decentraland. Launched in 2020 by a pair of Argentine software developers, it even has its own cryptocurrency, the Mana, which as of April 11th had a market cap of $3.4 billion according to cryptocurrency aggregator CoinGecko. A few weeks ago, over 100,000 users attended the Metaverse Fashion Week event held in Decentraland.  

In China, where Facebook is banned, TikTok’s parent company ByteDance is in the process of developing its own metaverse entitled Party Island. Mirroring its US rival, ByteDance paid $1.4 billion in 2021 to take over VR headset maker Pico. 
 
Virtual goldrush 
Third party companies are getting in on the action too. Samsung, Gucci and Pokémon are just some of the top brands active in the metaverse. The logic for this is simple, virtual customers need virtual apparel and accessories for their avatars – and are willing to pay real money for them.  

And just as you might wear an expensive suit and smart shoes to an important meeting at work, brands are betting that employees will similarly want to dress to impress in virtual office meetings. 

With its purchase of VR headset manufacturer Oculus for $2 billion in 2014, Meta became the top producer of the gear needed to access current and future metaverses

Gucci has put out a virtual version of one of its spring 2021 handbags, which those in search of a digital status-symbol can buy for the not inconsiderable sum of $400.

Aside from finding a new way to squeeze more money out of style-conscious netizens, another advantage for fashion houses is that unlike in the real world, thanks to NFT (non-fungible token) technology they will be spared the scourge of counterfeiting.

This is because NFTs use blockchain technology, which ensures that a virtual asset like a Gucci handbag or a movie poster, cannot be tampered with or copied.  
 
Gotta have games 
The number of people logging on and exploring these new metaverses pales into significance when compared to those playing multiplayer online games, and in the quest to be the metaverse of choice, companies are eyeing an opportunity to give their version a built-in user base.  

Epic Games, the publisher of MMO game Fortnite recently raised $1 billion to support its growth in the metaverse. Indeed, Mark Zuckerberg has set aside 50 billion to realize his vision for Meta. 

Not to be outdone, in February Microsoft announced it was buying software house Activision Blizzard for $68.7 billion, the biggest sum ever paid for a video-game developer, in a move that gives the Seattle- headquartered company an ideal platform on which to build its own metaverse.

These are gargantuan amounts of money to be sure but can be viewed in the context of a sector which Bloomberg Intelligence estimates will be worth $2.5 trillion by 2030. 

There can only be so many successful metaverses, however, and if tech companies have learnt anything from the streaming wars, it’s that you need both a platform and content to stand a chance of being one of them.  

The result of all this virtual activity and real investment, is that the metaverse is maturing rapidly and urgently needs a financial system to regulate transactions taking place within it (to say nothing of the laws that will be needed to cover life in virtual societies). 

Fintechs will need to concoct new financial services that meet the needs of customers eager to buy a virtual mansion on a virtual plot of real estate, for example, and just like in a traditional video game imagination is needed to make progress.