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Exploiting the Metaverse: Who will be the real winners?

By jumping into an immersive experience using a virtual reality headset, one can work, play video games, buy digital items, socialise with friends, and consume media, all while present within the metaverse itself. To quote the science-fiction film Ready Player One, which depicts an infinite metaverse called the Oasis: “People come to the Oasis for all the things they can do, but they stay for all the things they can be: tall, beautiful, scary, a different sex, a different species, live-action, cartoon, it’s all your call.”  

One of the reasons giants like Facebook are getting so excited is that a fully developed metaverse will feature a functioning economy where users can earn and spend in digital or fiat currencies.  An early example of a metaverse with an online economy is the gaming platform Roblox and its currency, the Robux. Users who purchase Robux can spend it on experiences and items for their avatar. Developers and creators can earn Robux by building engaging experiences and compelling items that users want to purchase and converting those Robux back into fiat currencies like the UK pound or US dollar.  

The metaverse is not some futuristic idea; early versions already exist.

Epic Games’ Fortnite has hosted virtual concerts with Ariana Grande and Travis Scott, where users attended as their digital avatars to enjoy the shared experience with others. The success of these events has been staggering, drawing millions of fans that far outnumbered in-person shows.  

Similarly, Roblox’s popular experience Adopt Me! counts 6.2 billion annual visits on average since its release in July 2017. And Adopt Me! is just one of the thousands of places available to visit in Roblox’s platform. To the extent that traveling in virtual worlds and the real world are quasi-comparable, the metaverse could also become an economical form of on-demand mass transit to explore new places, people, and cultures.  

As companies invest further in building metaverse-related initiatives, what we call the ‘metaverse’ is not necessarily a centralised monopoly. Metaverse development may yield more centralised and distinct experiences currently, but it is working towards an end-state that is a fully decentralised. And unlike in Ready Player One, which depicts a metaverse where the real world is left behind for one infinite virtual world, in our world several metaverses are likely to emerge. We expect the most successful metaverse platforms to evolve toward a more open architecture that allows all (or at least many) parties—users, developers, and companies—to participate on equal terms.  

This concept already exists today with Decentraland, which is built on the Ethereum blockchain, giving community members the chance to create, experience, and monetise content and applications. Unlike other virtual worlds and social networks, no single agent has the power to modify the rules of Decentraland’s software, land, or the economics of its currency. Community members can buy, develop, and sell land, which, like in the real world, is finite, making it more valuable.   

Just like Apple built an ecosystem where developers sell their apps, a thriving metaverse requires a robust third-party developer base that sells experiences and accessories. If the $200bn earned by Apple’s App Store developers from 2008-2020 is any indication, the economy for developers in the metaverse could be massive. Developers for Roblox earned $328.7m in 2020 and $248.7m just in the first half of 2021. 

Similar potential exists on the creator side.

Alphabet’s YouTube has paid creators a total of $30bn over the last three years. Critically, developer revenues are often shared with the social media or video game platforms themselves. Just as Apple famously receives 30% of app store revenues, metaverse platforms are likely to extract similar economics. Metaverse experiences are also likely to feature in-platform ads that promote real-life physical items as well as ads for digital metaverse-oriented items, including games, accessories, experiences, and other products.  

E-commerce platforms could evolve from selling goods on websites to offering their products within virtual malls, where users buy digital items for their virtual life and real-world items that they can have delivered to their door. In a virtual mall, one could look at items with friends, talk to an influencer about the product, and digitally try out the goods before purchasing. In many ways, it’s the next iteration of social commerce, or the intersection between e-commerce and social media, which generated $475bn globally in 2020 according to one estimate. 

Digital events are likely to be a major offering within the metaverse going forward. You could virtually attend concerts, movies, sports, or e-sports events with friends, while enjoying the conveniences of being physically in your own home. Ariana Grande’s virtual Fortnite concert earned the singer an estimated $20m. The global virtual event market is estimated to be $94bn, of which revenues are likely to be split between the content creators like movie studios, professional sports teams, and artists and the metaverse platforms that host these events.  

While sales of virtual reality and augmented reality headsets, graphic chips, and omnidirectional treadmills are just some of the obvious high-tech hardware expected to rocket, as financial transactions move to the metaverse, other new services will emerge. Users will need to easily convert between fiat and digital currencies, transact in digital currencies to purchase goods, and custody their digital purchases somewhere. FinTechs, especially those focused on the blockchain space, could play critical roles in facilitating these transactions and ensuring rightful ownership. In exchange, these companies are likely to charge for transactions, foreign/virtual exchange conversions, and/or custodial services. While in the real world each of these themes continue to disrupt and redefine the status quo, with the metaverse, there’s no limit to what might happen. 

Pedro Palandrani is a research analyst for Global X, a New York-based provider of global exchange-traded funds.  

 

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