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The Foundations of the Metaverse

January 18, 2022
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Seemingly everyone has heard of the metaverse, mostly because a big company formerly known as Facebook, now Meta, decided to announce to the world that they were as a company pushing to develop and play their role in the metaverse. 

For those who don’t know, the definition of metaverse is: a virtual-reality space in which users can interact with a computer-generated environment and other users. Anyone who can’t wrap their mind around that, don’t worry, you are not alone. A simple breakdown of this would be a movie like Ready Player One. Where everyone wears goggles and enters into this virtual world where they interact with their friends like they are with each other in real life. It is hard to imagine that being our future as well because of how dramatic it is to only live in a virtual world. But that is what the metaverse is. A virtual world where people will go to create communities. Undoubtedly not everyone will buy in, but think about social media. People thought the same about social media, and now it is part of nearly everyone’s lives. 

With the metaverse comes a lot of questions. What will it be like? Who will be there? How does this fit into society? What about the economy? Does real world life go away? How do I fit into this? The questions can go on forever. A lot of these questions can only be answered as the metaverse rolls out and becomes more of our lives. But there are questions we can put temporary answers to. These are, what might it be like and what might this mean as consumers, investors, and businesses. 

Let’s dig into that. What might it be like? The metaverse can be anything and everything. I do think it is going to be a place where a lot of people go to spend their time together as a community. It is exciting to think of the good that can come from it. People all over the world will be able to connect and work together to hopefully create good memories doing so. This part specifically can go a long way in the development of people and society. The argument can be made that it won’t be good development because of being purely digital. I totally understand that argument. However, I do believe that people being able to communicate, cooperate, and build skills like that with people across borders will be something that increases our ability to view the world as a whole and not be cut off by borders. 

Obviously with the good comes the bad, and there are some concerns I have with the metaverse. The first being how addicting it will be for people. We already see how addicting social media can be. Now this is social media x1,000. There are people that may be looking for an escape and spend 99% of their time in the metaverse. While, if that is making them happy that is great, I think we could all agree you’d rather see someone achieve that happiness in real life and not need an escape like a virtual world to achieve that. It’s very possible that a very large amount of people would rather spend their time in this digital world. If we enter a situation like that, it can greatly disrupt the real life physical society because so many people rather spend their time in the virtual society. This could decrease production in the real world as people would be online nearly full time instead of working in the physical world. I think this particular issue is pretty far in the future. However, it is one of those issues that if it is not monitored closely, it will be an uphill battle to pull people away from the metaverse when the time comes. I know that may seem dramatic but this is something we have never seen before so I’m just trying to think of every possibility. On the positive side of that argument. There can and will be some really cool and influential businesses that are built with the foundation of the metaverse that I’m really excited to see. 

The metaverse will be something where if you want to, you can build your own world that people can interact with and what is in that world is totally your call. Do you want games and rides? Cool, put them. Do you want it centered around sports? Also cool, do that too. Neither of those are your thing and you’d rather your world be a city where people can walk around and shop? Do that. But, how do you shop in the metaverse? How will goods and products be there?  How will we even access this? Well, this is where companies that we hear about everyday come to play their role. 

What might this mean as consumers, investors, and businesses? 

The following is a breakdown of how several different companies are planning to play their role.

The idea of the metaverse is that we can make it whatever we want it to be and do whatever we want to do. However, companies will absolutely play their role in that. Like I mentioned earlier, Facebook changed their name to Meta. Following this was a flood of articles regarding the metaverse and how other companies may play their role. Meta themselves, want to build a place where people can come and do whatever they want within their world. That is not the goal of every company though. 

Microsoft has started their own path into the metaverse. They are starting with products and services they already have at their disposal. They have created “Mesh''. Where a digital avatar can take your place in a Teams meeting. If you don’t feel like turning your camera on, no problem, the digital avatar takes your place and mimics your actions on your end of the camera. Branching off of Mesh, Microsoft has an immersive experience, where your digital avatar is in the same place as everyone else’s avatar as they are trying to replicate the feeling you have when you are together in the same room to talk and meet. Some people may say that there is no way they will ever be meeting in a virtual space with other coworkers and their avatars. In my opinion, if a company like Microsoft is pushing this and believes in it, it is just a matter of time till that trickles down to more companies doing so as well. Ultimately, both Meta and Microsoft are really good examples of companies that are both contributing to the metaverse but with different strategies of getting there. The one commonality they have is that they both have the hardware to do so with the VR goggles. 

Other companies won’t take this same approach. They will take products they already have, and sell them in the digital world. Nike is one example of this. They took steps necessary to sell their products in the metaverse. Meaning, once you create your digital avatar, you can now wear a Nike hoodie and Air Jordans that you purchased while doing it. 

Ralph Lauren took a separate approach recently. They created a VR store where as a consumer, you can put on a pair of VR goggles, and look like they are in their New York store. You can walk around and shop like you are there, no matter where you are. 

Roblox, a wildly popular video game platform, is another company paving the path to the metaverse. They, potentially, have the best framework built out for the idea. Within their game, anyone anywhere can build their own world that anyone can play. That person can also play anyone else’s game that they want, and there is a wide variety of games on the platform ranging from kid games to more adult oriented games. There is even a currency within Roblox that creators are paid. This payment is determined by different factors like traffic on their game and monetization of their game among other factors. This is interesting because it is Roblox building its own economy within its own game that they monitor and control for their users. They believe this is the beginning blocks of the metaverse and proof that people will come together and build something special. 

Moving forward it seems as if more and more companies will start to build out their role in the metaverse, but we still have a long way to go. So how do we think about this as consumers and investors? 

Let’s start as a consumer. The first decision that has to be made is whether or not you will participate in the metaverse. If you decide that it is something you want to explore, you will have the options to choose from a number of companies regarding the hardware you will use to access. Then you get to decide if you’re buying that pair of Nike Jordans for your avatar to walk around in. For those of you saying how dumb that would be. In 2018, Fornite, a free to play game, generated more than $5 billion of revenue for Epic Games through in-game purchases that are primarily different outfits your character can wear. The blueprint is there that people will spend a large sum of money so their digital avatar has the coolest things. It’d be cool if as a consumer your purchases are doubled. Meaning what you buy in the real world, you’ll now have access to in the virtual world and vice versa. Regardless of the structure, consumers, get ready to open your wallets. 

As investors, the space becomes incredibly exciting. With many companies pushing forward in the metaverse build out, it will be cool to see how each one will decide to do it. From that, a lot of interesting investment options come into play by deciding what companies you like in the space, who will be the most innovative, and how that will impact the company’s performance. Some will try to be early to the investing wave, get in on companies now with the idea that if you hold out for the long term and the company executes the metaverse well, then as an investor you will be rewarded. Others will try to see who is making material moves in a non-material universe, and of those which best suits their style as an investor. However each investor looks at the developing market, the possibilities for growth will be there over the next 10 years or so. As an investor whatever investments you make now, I believe you are doing so in the very beginning of this potential trend. So you have to be able to be patient to see potential returns.