By Francois Roux, CFA,
Portfolio Manager – Autus Fund Managers

In March 2014, Facebook paid $2 billion to buy a company most of its users have never heard of: Oculus VR, Inc. Oculus is a leading producer of virtual reality (VR) headsets. The acquisition revealed an important clue about the future vision of CEO Mark Zuckerberg for the social media company he had started in his Harvard dorm room in 2004. Seven years after the acquisition of Oculus, Facebook made a much bolder announcement.

A new name for a new era

In October 2021, Facebook announced it will be changing its name to Meta Platforms. The names of the company’s apps will remain unchanged. This means that Facebook, Instagram, and WhatsApp will remain household brands for billions of people around the globe. Meta Platforms will thus become the name of the holding company for all the assets of the current Facebook. The company’s stock ticker will also change from FB to MVRS on 1 December 2021. Why exactly did they choose this name?

Meta refers to the metaverse. Before Facebook claimed the name for itself, the metaverse was already a generic term put forth as a vision for the future of our digital lives. Some consider the metaverse to be the next natural iteration of the internet. Simply put, the metaverse is an immersive, virtual space in which users can interact with each other and with objects in the virtual world. Zuckerberg describes it like this:

“When I started Facebook, we mostly typed text on websites. When we got phones with cameras, the internet became more visual and mobile. As connections got faster, video became a richer way to share experiences. We’ve gone from desktop to web to mobile; from text to photos to video. But this isn’t the end of the line.  The next platform will be even more immersive — an embodied internet where you’re in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build. The defining quality of the metaverse will be a feeling of presence — like you are right there with another person or in another place. Feeling truly present with another person is the ultimate dream of social technology. That is why we are focused on building this.”

Mark Zuckerberg interacts with an avatar of himself at Facebook Connect 2021. Source: Business Insider

Mark Zuckerberg interacts with an avatar of himself at Facebook Connect 2021. Source: Business Insider

Not only Facebook’s metaverse

Microsoft CEO Satya Nadella has also weighed in on the metaverse, stating that it can be thought of as the physical world becoming digitised. Nadella further adds that the video meetings we have all become used to since the start of the pandemic will eventually transcend into 3D immersive meetings where we interact with each other using avatars. It is not inconceivable to imagine our working lives moving into the metaverse over the next few decades. Microsoft owns several professional software tools under the Office banner including Excel, Teams, Word, and PowerPoint. The company also owns the professional networking platform LinkedIn and the Xbox gaming console. These products and services could become more immersive over time, and Microsoft has already announced its intention to introduce 2D avatars in Teams in the first half of 2022.

Gamer’s paradise

The frontier of immersion in digital worlds has always been gaming. Modern games resemble communities of people who view online gaming as social events where they communicate with friends and talk about their daily lives. The COVID-19 pandemic has accelerated this trend as people were locked inside their homes for months at a time with few options of engaging socially in the real world. Game developers are also increasingly focusing their resources on games that are compatible with VR headsets. The Oculus range of VR headsets are among the most popular devices in this nascent category but competing devices have been coming to the market from the likes of HTC, Sony, and Valve.

A gamer plays in her Oculus Quest 2 headset.

A gamer plays in her Oculus Quest 2 headset. Source: The Verge

VR is not the only way to access the metaverse through gaming. Fortnite, the popular battle royale game developed by Epic Games (in which Tencent holds a 40% stake), has featured live shows by artists who appear on stage as avatars of themselves and perform in front of millions of their fans’ avatars. It is likely that these types of concerts will eventually happen in a VR environment which will become integrated with our current gaming experiences.

Marshmello performs for a live audience of 10 million people in Fortnite. Source: NAG Magazine

Marshmello performs for a live audience of 10 million people in Fortnite. Source: NAG Magazine

Consumers appear increasingly willing to spend real money in the virtual realm. Global spending on in-game items amounted to over $54 billion in 2020, according to Statista. This means the market for items in the virtual world already exists and is set for explosive growth in the coming years. The rise of cryptocurrencies and non-fungible tokens (NFT’s) is further evidence that people are willing to spend money on virtual items which exist only in the metaverse.

Fashion brands see an opportunity

The world of fashion is not immune to technological change. Over the past two decades, apparel and footwear brands have had to adapt to the shift towards digital sales channels and changing consumer needs. The metaverse is no exception, and several brands have already indicated their intentions to capitalise on this opportunity. In October, the U.S. Patent and Trademark Office acknowledged the filing of seven patents related to the metaverse by apparel and footwear behemoth Nike. Luxury brands are also jumping on the bandwagon. A recent report by Morgan Stanley predicts a $50 billion market for virtual luxury goods by 2030. The authors of the report do, however, note that the opportunity is most likely skewed towards soft luxury goods (clothing, leather goods, and footwear) as opposed to hard luxury goods (jewellery and watches).

Virtual or augmented?

VR is not the only way in which we will experience the metaverse. Augmented reality (AR) is the imposition of virtual objects into the physical world. In contrast to VR, AR does not change the user’s whole environment into a virtual world. Instead, the user’s reality is simply augmented with digital elements. A practical example of this is the popular mobile game Pokémon Go, where players run around in the real world attempting to catch digital creatures they can only see through their phones.

An application of AR: Pokémon Go. Source: New York Times

An application of AR: Pokémon Go. Source: New York Times

Who stands to gain from building the metaverse?

The metaverse value chain stretches from the producers of computer hardware all the way to the designers of the software and the hosts of the platforms on which the metaverse is being built. As mentioned earlier, Facebook and Microsoft are two technology giants leading the way as platform providers to a metaverse version of the internet. The computing power necessary to power the metaverse will require the advanced graphics processing units (GPU’s), central processing units (CPU’s), and memory chips produced by the likes of Intel, AMD, Qualcomm, Apple, Nvidia, Micron, and Samsung. On the software side, game developers like Tencent, NetEase, Take-Two Interactive, Electronic Arts, and Activision Blizzard are crucial actors in the development of the virtual worlds which will form the metaverse. On a more foundational level, game engines like Unity and Unreal Engine (owned by Tencent-backed Epic Games) will provide the tools with which the metaverse will be built.

Interoperability of different platforms

One of the most important questions about the metaverse is the degree to which people and objects will be able to transfer from one platform to another. As one Bloomberg reporter sums up the problem:

“If, say, Nadella and Zuckerberg wanted to meet up in the metaverse, would they have to choose either Microsoft’s Teams or Meta’s Horizon Workroom?”

The original vision of the metaverse is one where people move freely inside a unified metaverse, which implies perfect interoperability between different platforms. To their credit, both Zuckerberg and Nadella have alluded to their willingness to collaborate on a unified metaverse, but it remains to be seen how possessive companies will be over their own domains.

The metaverse will bring technologies and applications to our lives which we have not yet been able to imagine. The race is on to build the future of the internet. Facebook, or rather Meta Platforms, has taken a head start by staking its claim in an audacious way. Time will tell who the rulers of the metaverse will eventually be.