Understanding the Metaverse Industry: Episode I – Definition, Business Model, and Industry Drivers

Author: Yang Peng, Investment Analyst at Bridge Point Capital

The attention on Metaverse has grown tremendously since the launch of NFTs and Facebook's transition into Meta. However, Metaverse's idea may confuse many investors due to its evolving concept and involvement of advanced VR/AR technology. Thus, the Metaverse needs to be defined and contextualized to be understood appropriately.

Timeline of Metaverse (Source: DataScienceCentral.com)

Definition

The Metaverse is the internet, iteratively evolved to incorporate Web3 principles regarding the devolution of user data, novel technologies aimed to improve the usability and immersion such as augmented reality/virtual reality (AR/VR) headsets, and greater interoperability built atop more open standards and blockchain technology. The market size of Metaverse is estimated to be $40 billion by 2021 and is expected to grow at a CAGR of 50.74% for the next eight years, reaching a market size of $1607.12 billion by 2030.

There seven essential rules that the Metaverse is built around:

1. The Metaverse is interoperable: Information and contents are always transferable to users at anytime

2. The Metaverse is persistent and in real-time: The Metaverse cannot be paused in any way and all instances within the Metaverse happen simultaneously, with results instantly happening after instances

3. The Metaverse is hardware agnostic: Metaverse can be accessed across all types of devices

4. There is only one Metaverse: Metaverse itself encompasses all the instances, and users can migrate seamlessly between instances

5. The Metaverse is an extension of reality, not a replacement: Through linking individuals’ online presence to real-world identification, every activity in the Metaverse is based on the physical world

6. The Metaverse is not centrally controlled, hence decentralization: The Metaverse is open to everyone, including corporate, government, and private users, aiming to promote the distribution of ideas and contents. No entity is entitled to own the Metaverse

7. The Metaverse is the internet, evolved: The Metaverse incorporates advancements such as immersive hardware and Decentralized Finance, but it is simply an updated version of the internet, which means they are not separated from each other.

Business Model

There are various business models in the Metaverse to face specific needs, but in general, these needs can be classified into three core categories: access, infrastructure, and experience.

Access: the hardware used to engage with the Metaverse, mostly immersive hardware such as VR headsets, AR glasses, and other immersive reality accessories. Some notable products include Oculus from Meta and HoloLens from Microsoft.

Infrastructure: technologies that are used to power the Metaverse, constituted by Web3 and Networking & compute. General Web3 technologies include Blockchains, NFTs, DAOs, and Decentralized finance (DeFi). Some common technologies used on the Networking & compute side are Photonic computing and Satellite internet.

Experience: contents developed for the Metaverse, which are divided into two major categories: entertainment and enterprise. On the entertainment aspect, some attractive features are immersive gaming, accessible under VR/AR equipment, and Decentralized social media. Enterprise wise, Metaverse can facilitate collaboration & productivity through a more immersive software. Additionally, some start-ups are also focused on developing immersive experiences or IoT solutions for industrial clients, especially those in the manufacturing or construction field.

Mark Zuckerberg is betting his company’s future on the metaverse. Michael Nagle/Bloomberg via Getty Images

Industry Drivers

• Many millennials have begun working with increasing disposable income, and the first wave of Gen Z is also entering the workforce, bringing their unique tech cultures to the market. With the internet's increasing infrastructure and coverage, the current generation is becoming more adaptive to the digital world, making the transition to Metaverse smoother.

  Furthermore, 56% of Gen Zers claim to be friends with someone they know only via online interaction, which will easily remove barriers between online interactions. The native language of Gen Z will also impact the Metaverse as this generation matures and becomes the dominant consumer. Digital services that channel these digitally native demands will prove immensely popular and displace legacy business models that appear outdated or unfair to younger consumers.

• The pipeline for mixed reality technology is strong, with all the major Big Tech companies investing heavily in the space. In the past years, the application of augmented reality has expanded to fields such as construction firms, hospitals, and the US military. As the technology matures, more of the population will be using Metaverse during some aspect of their daily lives. On average, people are already spending almost five hours daily on their phones, a demonstration of how addictive a compelling piece of hardware with a mature app ecosystem can be.

  As companies are increasingly looking for ways to connect their various operations for a more cohesive user experience, the cross-application functionality plays off the notion of interoperability. Users now can expect to find deeper integrations between areas such as messaging and productivity.

• Firms are looking to develop a less centralized world through innovating infrastructure and technology. Under this world, entrepreneurs with rapid innovation are expected to be incentivized with monetary rewards, which allows Proprietary solutions to move faster and scale more quickly than public ones.

  Additionally, have much more flexibility to switch ecosystems. This means that a company’s moat is not simply a network effect, but rather a continuous series of innovations regarding user experience and services rendered. In this world, businesses are propelled to make creative innovations, or else they would be eliminated by others. Most importantly, consumers would be best off, continuously rewarded with new technology and updates.