Understanding The Metaverse Industry: Episode II – Opportunity, VC Activity and Industry Outlook

Authur: Yang Peng, Investment Analyst

In this episode of Metaverse industry overview, we will continue to introduce this impactful concept and the underlying business opportunities. However, there are still a lot of misconceptions about the Metaverse and its related concepts like Web 3 or blockchain. Below is a graph showing what Metaverse isn’t, and if you would like to know more about its definition, please refer to our last episode.

Opportunity

According to a report named ‘Value Creation in the Metaverse’ published by McKinsey in June 2022, Metaverse may generate up to $5 trillion in impact by 2030 — equivalent to the size of the world’s third-largest economy today, Japan. It is shaping up to be the biggest new growth opportunity for several industries in the coming decade, given its potential to enable new business models, products, and services, and act as an engagement channel for both B2C and B2B purposes.

The potential impact of the metaverse varies by subsectors, for instance, McKinsey estimates it may have a market impact of between $2 trillion and $2.6 trillion on e-commerce by 2030, depending on whether a base or upside case is realized; an impact of $180 billion to $270 billion on the academic virtual learning market; a $144 billion to $206 billion impact on the advertising market; and a $108 billion to $125 billion impact on the gaming market.

VC Activity

VC activity in the Metaverse industry has significantly increased since 2012, with deal value growing from $0.3 billion in 2012 to $55.5 billion in 2022. To put that into perspective, the compound annual growth rate for deal value in the Metaverse industry is around 68.55%. Furthermore, as the graph below shows, most invested capital went beyond small start-ups, showing a steady increase in developed start-ups in the Metaverse industry.

According to McKinsey again, large technology companies, venture capital (VC), private equity (PE), start-ups, and established brands are seeking to capitalize on the metaverse opportunity. Corporations, VC, and PE have already invested more than $120 billion in the metaverse in the first five months of 2022, more than double the $57 billion invested in all of 2021, a large part of it is driven by Microsoft’s planned acquisition of Activision for $69 billion. Large technology companies are the biggest investors—and to a much greater extent than they were for artificial intelligence (AI) at a similar stage in its evolution, for example. Industries currently leading metaverse adoption also plan to dedicate a significant share of their digital investment budgets to it.

Industry Outlook

As the Metaverse industry is rapidly developing, it is revolutionizing some industries, thus creating opportunities for the Metaverse industry to further expand. Gaming, namely, is one of these industries. Game developers continue to leverage numerous technology trends, which further drive innovation and improvise the gameplay. For instance, mor immersive playability through VR and AR supports photorealistic graphics, making it almost indistinguishable from real life. VR/AR gaming platforms also enable players to connect and socially interact with each other in virtual spaces. The launch of the fifth generation of cellular communications or 5G is likely to reflect positively on the metaverse market. This is primarily because 5G networks will go a long way forward towards improving the performance and reliability of connected devices

More traditional industries, such as aerospace and defense, are also being impacted by the Metaverse. For one, training pilots in the Metaverse is highly cost-effective as, initially, trainees can learn without the customized and expensive simulators, and receive real-time performance feedbacks. Once trained in the Metaverse, they can move on to simulators before taking final training in an actual airplane. In a virtual environment, one can explore emergencies, process stages, buildings, and repairs and reduce the time required for training on the real-world side.

Ultimately, with the Metaverse infiltrating more and more sectors, it will accumulate an enormous customer base across industries, which follows the same path as information technologies. However, further technological development is required as the Metaverse is yet to mature.