Metaverse Business Models, Economics & Investment Thesis
We have been reading all sorts of reports around Metaverses and the numbenumberr of times that Big Tech Executives have been using this term in their annual reports and investor presentation and public appearances has gone through the roof. This is about time we did a piece around the monetization of the same and the various business models and investment theses involved here.
Before we dive deep into this rabbit hole (literally) it is imperative to understand basics about the IOT, AR, VR, MR and other terms that are building blocks of any Metaverse (yes, there are many) and we will not focus on explaining these terms here. It is highly advisable to go through the building blocks first before moving on!
What is the Metaverse?
Metaverse is similar to a still from Sci-fi movie which is based in some distant future and has people porting themselves from 1 place to another and doing things that we typically would have done in person!
In reality, this is a symbolic representation of the virtual presence of a physical object/being. This is a collective "world" of all things digital or physical being omnipresent i.e. virtually everywhere.
Today's internet (web2) is in the hands of the user, tomorrow's internet will be the one that the user is inside of i.e. the Metaverse. The user is interoperable across the metaverse i.e. the user does not require multiple sign ons (identifiers) to access various virtual spaces inside that metaverse.
Summing it up: Metaverse is a collection of all spaces where the user lives i.e. in today terms it is a combination of:
- all social networks the user is on
- all commerce platforms the user has bought from
- all virtual collaboration tools that the user has used to work, study etc.
- all virtual entertainment services that the user has spent TIME (why caps, it's elaborated towards the end of the article just below the Investment Thesis)
- all virtual payment modes that the user has ever used to make a virtual purchase
- all assets that user holds ++
- & all of the above in their physical forms and so on.....
Components of a Metaverse
Like the current universe that we live in is made up of galaxies, worlds (Planets) stars etc. Metaverses are made of components as below:
Let's draw the attention to a typical product nomenclature that Azure supports - The Azure Digital Twins (very aptly named, must say). This is an IOT service which enables developers to create digital equivalents (mirrors or Twins) of physical world objects.
Similar to this, the Metaverse like any other world is a world/government/country running on its own. It has it's own equivalents of everything that the real world has to offer as the above image shows and is explained below:
- Hardware: All pieces of hardware that are required to access the Metaverse i.e. your mobile phone, your internet modem/router, your VR headset etc.
- Software: This is by far the most important component of the Metaverse considering it's impact. To understand the kind of software that will run the Metaverse, we need to understand the Gaming Industry's software requirements. Consider companies like Google's Stadia, Roblox etc. that are creating extremely immersive experience for the players and at the same time making it affordable or free for everyone to participate, these companies can support millions of sessions (concurrently) without even a single hitch. (No wonder Netflix wants to get into Gaming!)
- Network: The bandwidth required to access Metaverses will be huge because of the amount of data that needs to be transferred across devices and components. And thus comes the latency part of the Network that will have to ensure that the virtual experience is as near as the real world equivalent. Top it up with the reliability of the network to ensure you don't loose out on a virtual auction of a virtual piece of art just because your internet is not working!
- Platforms: Platforms will be the building blocks of the Metaverse economy. Consider the example that you use a VR headset (powered by Facebook) to login to work (powered by MS Teams) and get the feeling of sitting in your office with your colleagues and at the end of the workday you simply switch to a bar with your friends watching a football or cricket match streamed by the likes of Netflix. For going back home, you just take a virtual walk and on your way back you shop groceries from Amazon virtual store and pay with your altcoin wallets (with the products physically delivered to your doorstep). This is how platforms will evolve with the Metaverse.
- Standards: For a thing this complex, there will be a strong need to document and set standards (protocols) for 3rd party services to work seamlessly with the metaverse, otherwise a small glitch in the fabric of the Metaverse due to a bug in one of the components might cause the entire virtual world to collapse. The real power of the internet came to fore only when data prices declined, computing power of devices increased and the 2 prominent OS (Android and iOS) opened up their platform for 3rd party developers to contribute with some framework or standards. Similarly the Metaverse will only scale up with these 3rd party service integrators. E.g. Virtual Office Space Builders (equivalent of real world real estate developers).
- Payments: Remittances as we know it will be a thing of the past and the entire money flow will only be via Digital currencies. This will be the currency that the user will convert from fiat to digital / crypto and spend in the Metaverse for various services like rents, travel, food, entertainment, study etc. This payment mode will be ubiquitous and with minimal to nil conversion/txn rate to ensure that the economy does not lose out to the physical world where the conversion of fiat does not require any loss rates in the interim.
- Assets: Imagine buying a piece of digital land/art and establish ownership via Smart contracts while paying for the same via altcoins and trading this in the form of NFTs. All of this without the need for a single piece of paper exchanging hands.
- Users: You & I.