Stars aligning for the Metaverse
The Metaverse is not a new concept: it was first mentioned in the science fiction novel Snow Crash published in 1992. But now it is no longer just a word in a science fiction book, as technological improvements are making it a reality. By creating a more immersive and realistic experience, for better or worse, users will be tempted to spend more time in the Metaverse than they already do on social networks and video games. This should drive incremental gaming, advertising and e-commerce revenues.
The Metaverse gained significant traction among the investor community when Facebook announced in October 2021 that it would rebrand as Meta. Mark Zuckerberg showcased how people could socialise, work and play in a virtual world through their own digital avatars.
More announcements are expected in 2022, especially in terms of virtual reality headsets. While Meta currently has a strong position in that market with the Oculus Quest, Apple is expected to launch its own virtual reality headset this year.
The Metaverse will bring the Internet we know today to a new level in two major ways. The first major change will be the introduction of 3D. Video games like Roblox offer a preview of what the Metaverse could be like and how digital avatars could operate.
The second important evolution will be users’ ability to control their own content and use it in different virtual worlds, which will be fully interoperable. This would mean that a person buying a digital asset in one virtual world should be able to use it in another or sell it to someone else.
Digital avatars powered by AI
The Metaverse aims to digitalise everything including sectors such as education and live entertainment. Creating realistic digital worlds in 3D will require an enormous amount of content to populate them with digital items. AI will be used to simulate how those worlds should operate. Tech company Nvidia’s AI-powered ray tracing technology demonstrates how it is possible to realistically simulate the behaviour of light in video games. Their 3D simulation platform called Omniverse can also be used beyond gaming, as Ericsson has done by leveraging it to build digital versions of real cities to optimise 5G coverage.
Using blockchain to monetise content
A positive evolution expected from the Metaverse is that users will be in control of their content. Currently, big tech companies such as Google and Facebook control users’ data and their access to their services within their walled gardens. The use of blockchain technology will allow users to store their data on a decentralised network. NFTs (non-fungible tokens) recorded on a blockchain, will be used to certify the authenticity and ownership of a digital asset. This will allow users to monetise their data and transfer it in separate and interoperable virtual worlds.
The ability to use blockchain to guarantee the ownership of digital rights will make it possible to create new business models. The gaming industry started with the pay-to-play business model then transitioned to the free-to-play (e.g. Fortnite) and is now evolving to play-to-earn, where users can collect NFTs and then sell them on the market. The adoption of blockchain technology is expected to increase as more global consumer brands invest in NFTs to raise their brand awareness and generate incremental revenues in the Metaverse. Roblox, with its 49 million daily average users as of November 2021, has already demonstrated its popularity as global consumer brands try to create more immersive experiences. In 2021, Gucci created a virtual lobby in Roblox, in which digital avatars were allowed to view, try and purchase digital items such as a Gucci handbag.
Another example of the use of blockchain for owning content in different virtual worlds is the recent launch of NBA player Steph Curry’s virtual shoes. Under Armour released 2,974 NFTs representing a digital version of the shoes worn by him, setting a new 3-point scoring record. Each pair was priced at USD 333 and immediately sold out. To date three Ethereum-based metaverse platforms are already supporting these NFTs. This enables the owners of Steph Curry’s virtual shoes to wear them in Gala games (a play-to-earn gaming platform), the Sandbox (a virtual world created on a gaming platform) and Decentraland (an open-source 3D virtual word platform). Owners will also be able to sell their digital shoes on the OpenSea secondary market.
A growing market
The Metaverse is forecast to represent a market of around USD 800 billion by 2024 according to Bloomberg. It will impact multiple sectors including gaming, social media, live entertainment and hardware. It will also require significant investment in AI, blockchain, semiconductors and networking equipment, promising benefits for many sectors and stocks.
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