Metaverse Mania in Big Tech
So here we are, Q2 earnings season in the United States. As much as investors are interested in how the companies performed between April and June, they’re a lot more interested in what the companies have planned for the future. It’s also a rare opportunity for CEOs to have the full attention of investors. And these days, especially for Big Tech CEOs, it’s not enough to simply say that you forecast growth in revenue or the user base. You need to dazzle. You need to amaze. You need to sing for your supper.
Enter the jargon.
Disruption has become a word synonymous with Silicon Valley. Every tech company wants to label itself as a disruptor to its industry. Disruption is what draws investment, media interest, and ultimately what gets people speaking about your business.
Previously, if you really wanted to get tongues wagging, you’d bring up disruption alongside another hot tech buzzword: the Fourth Industrial Revolution (4IR), that popular descriptor of…well…anything you really wanted it to be.
Along with ‘Internet of Things’, it was a great way to sell tickets to conferences. Discussing Uber or Airbnb? Throw in 4IR. Discussing artificial intelligence or machine learning? Throw in 4IR.
However, much like over-crowded offices and business trips that could have just been a Zoom call, 4IR seems to be a relic left behind in 2020.
Its successor? The Metaverse.
First popularised by Neal Stephenson’s 1992 dystopian novel ‘Snow Crash’, the idea of the ‘metaverse’ was a virtual world complete with avatars, rules and social norms that differed from the real world. No one has managed to pin down a definition for what the actual metaverse would be, but the underlying concept is that it is a “live, shared, persistent universe of interconnected virtual worlds”.
Facebook CEO Mark Zuckerberg describes it as “an embodied internet, where instead of just viewing content – you are in it”.
Zuckerberg has never been shy about how unbounded his ambitions are for Facebook. He has always wanted to build Facebook into the ultimate ‘walled garden’ – a Facebook so intertwined with the internet that the two are essentially one and the same.
It wouldn’t even need to be a monopoly, it would just need users to think it is.
Zuckerberg has hinted towards his aspirations in the past, but always stopped short of making a definitive statement. Before its development was halted, Facebook’s Aquila drone was envisioned as a way to bring internet access to everyone on Earth, with Zuckerberg claiming that it would “lift millions of people out of poverty” in the process.
In 2015, after purchasing the virtual reality (VR) headset producer Oculus for $2bn, Zuckerberg told a room of developers: “There’s always a richer, more immersive medium to experience the world. And after video, the next logical step is fully immersive virtual reality.”
This past week, in an interview with The Verge, he clarified his vision:
“My hope, if we do this well, I think over the next five years or so, in this next chapter of our company, I think we will effectively transition from people seeing us as primarily being a social media company to being a metaverse company. And obviously, all of the work that we’re doing across the apps that people use today contribute directly to this vision in terms of building community and creators.”
On the Facebook earnings call, “metaverse” was mentioned 20 times during just one hour. One key quote stood out:
“The defining quality of the metaverse is presence, which is this feeling that you’re really there with another person or in another place. Creation, avatars, and digital objects are going to be central to how we express ourselves, and this is going to lead to entirely new experiences and economic opportunities.”
Throughout the call, Zuckerberg emphasised that while advertising would be a “meaningful part” of the metaverse’s business model, the biggest opportunity lay in the sale of digital goods, including digital clothing. Remember all the hype around non-fungible tokens? It was for a reason – NFTs would be an integral part of the eventual metaverse economy.
Speaking of earnings, Facebook delivered an impressive Q2:
- Revenue of $27.8bn, a 56% year-on-year increase.
- This was driven by a 47% increase in the average ad price. Surprisingly, while the cost of an ad rose dramatically, the amount of ads delivered only increased by 6%. It’s creating what Ranjan Roy refers to as the “perfect stagflationary storm” – costs are increasing, while economic output slows.
- Net income increased by 101% y-o-y to $10.4bn.
- Monthly active users across Facebook’s properties increased 50 million quarter-on-quarter to 2.9 billion.
Despite the robust earnings, Facebook’s shares opened at $375 on Wednesday morning and dipped to $356 following the earnings report. Facebook cautioned that the company expected revenue growth rates to decelerate for the rest of the year, as 2020’s Q3 and Q4 growth rates were particularly robust. Further, it expects Apple’s privacy-focused iOS updates, which asks users if they want to allow apps to track their digital activity, to negatively impact its ad targeting.
Elsewhere in Silicon Valley, Microsoft joined in on the buzzword frenzy. Microsoft CEO Satya Nadella described Azure as “leading in a new layer of the infrastructure stack, the enterprise metaverse”. Although he was ribbed online for jumping on the jargon bandwagon, this wasn’t Nadella’s first time in making reference to the metaverse.
Nadella mentioned metaverse twice during April’s earning call, once when describing Azure’s potential to be a first-class platform for simulated environments and mixed reality, and again when discussing gaming. “As games evolve into metaverse economies, we are building new tools to help anyone sell creations on our platform,” he said, “Minecraft has nearly 140 million monthly active users, up 30% year over year, making it one of the leading platforms in the creator economy.”
Minecraft, Nadella’s first major acquisition as CEO of Microsoft, has been described as the perfect reference for how the metaverse could function. A virtual world like Minecraft, and similarly Fortnite and Roblox, would be a destination within the metaverse that players could visit and interact with.
Fortnite is already leading the pack in world-building. It has its own digital clothing catalogue in the form of ‘skins’ and hosted an in-game concert headlined by a 60-meter tall Travis Scott that had players floating around and, at one point, completely submerged underwater. It was attended by 27.7 million players.
A Reality Check
As fascinating as it all sounds, the actual metaverse is still years away. The fact that it’s still so non-specific should be a sign that no one quite has it figured out yet.
That’s the thing with buzzwords – part of why CEOs love shifting definitions and jargon is that when they don’t exactly deliver on the disruptive technologies they promise, it can be blamed on a misunderstanding of the concept.
That may help founders who rely on buzzwords to cloud over their rickety business models (WeWork securing funding by calling itself a ‘tech’ company being a prime example), but it doesn’t help anyone trying to understand what the future of business actually looks like. It may also be causing new businesses to overthink their value proposition in order to sound disruptive enough.