What Is The Metaverse And Why Does It Matter
At a conceptual-level, the Metaverse can be thought of as the successor-state to today’s Internet - just as today’s predominantly mobile Internet was built on top of fixed broadband Internet of the 1990s and early 2000s. And while the technologies to design, enable and support the “fullest” of the Metaverse are as far from the capabilities of 2021 as the 1990s Internet is from us today, emergence of the Metaverse will revolutionize every industry. From healthcare to payments, consumer products, entertainment, hourly labor, and even sex work. In addition, altogether new industries, marketplaces and resources will be created to enable this future, as will novel types of labor, skills, professions, and certifications. The collective value of these changes will be in the trillions.
What is the Metaverse?
In technical terms, the Metaverse is differentiated from today’s web via new technical capabilities (e.g. the ability for massive numbers of concurrent users to share a single, real-time, synchronous simulation), experiences (e.g. persistent virtual worlds), widely adopted (and new) standards that enable interoperability of virtual goods and currencies (e.g. Fortnite VBucks into Robux, a Prada dress that can be used anywhere), and a robust virtual economy that is broadly similar to that of the ‘real world’ (e.g. good creation, scarcity, trading, hiring).
But what really matters is that an ever-growing share of our time and money will soon be spent in virtual spaces and on virtual goods. Not just for leisure, but also education, health, politics, investment and labor. Sometimes, these spaces and goods will be purely virtual, other times “virtual twins” of physical ones, and sometimes AR augmentations of these physical environments. Similarly, a growing percentage of our income will be spent on virtual assets, goods and experiences, many of which we’ll be able to sell, trade, share, use or improve.
The Metaverse is a consensus expectation among today’s tech leaders, including Jeff Bezos, Mark Zuckerberg, and Tim Sweeney. And this expectation is driving their investments in mapping, AR glass hardware, brain-to-machine communication, and more. And it should. The Metaverse offers the opportunity to acquire market share in nearly every sector, and the Internet’s standards and protocols.
Why Do Investors Need a Metaverse Index? And Why Now?
Although we can define the high-level properties of the Metaverse today (e.g. virtual space, interoperability, persistence, mass concurrency), many of its specific opportunities and winners are unclear. For example, consider describing the Internet of 2020 in 1990. Not only were we prone to facile and largely skeuomorphic analogies (the “Information Superhighway” or the “World Wide Web”), the ideas we could envision (e.g. UGC content, instant messaging, digital transactions) didn’t lead clearly to the technologies, business models, content, behaviors, and companies that tapped into them (e.g. Twitch, Snapchat, Bitcoin). At the same time, investors in the 1990s or 2000s did not need to pick specific companies or ideas. Instead, the right “basket” would have provided considerable upside with significantly less risk, effort, or technical knowledge.
Investors need a Metaverse Index because trillions of dollars are a stake
Investors need a Metaverse Index because trillions of dollars are a stake, but which companies will collect this value, when, and how remains uncertain - and there are few Metaverse experts available to investors. This is particularly true at the retail level; it’s easy to find one or two stocks with reasonable exposure to the Metaverse. However, there’s no practical, intelligent, or safe way to build and maintain a diversified Metaverse portfolio.
Crucially, the Metaverse investment thesis is already a hot topic among investors. The primary public “Metaverse stock”, Unity ($U), targeted a $9.2B IPO valuation in September. It ultimately went to market at $13.7B, popped to $19B and is currently valued at $42B even though it remains unprofitable. It defines its Metaverse TAM as roughly 1x its traditional market (gaming).
Even after hitting record metrics under the COVID-19 lockdown, Take Two ($TTWO, $24B market cap) was asked on its analyst call “what its Metaverse strategy is." Roblox is targeting a $40B IPO valuation and positioned itself as a pureplay Metaverse stock. Notably, Roblox’s S-1 filing used the word “Metaverse” sixteen times. According to Edgar, the term had only been used in a filing ten times total in the preceding five years.
Epic Games has made the Metaverse central to its lawsuit against Apple, the most valuable public company in the world.
Epic Games has made the Metaverse central to its lawsuit against Apple, the most valuable public company in the world. Niantic (makers of Pokemon Go), is one of the most highly valued private companies in entertainment, media and tech, and is a pureplay Metaverse company.
Other companies, such as Snap, believe the Metaverse is their step-function growth opportunity (hence their focus on being a “Camera” company, i.e. the passport to the Metaverse). In other words, it is how they go from a distant second place versus Facebook, to a distant first.
Nvidia, AutoDesk, and Fastly are repositioning many of their products and newest solutions for the Metaverse. The best example is Nvidia’s “Omniverse”, a platform for virtual collaboration and simulation.
