Part 4: The Metaverse, Why Now

This is Part 4 of Agya’s August series on the Metaverse.

To read the series to date, check out:

• Part 1 on how we got here.
• Part 2 on what the Metaverse is not.
• Part 3 on what the Metaverse is.

The Metaverse didn’t come out of nowhere, and its momentum today is fueled by macro trends that have been building for the better part of a decade.

In this edition of our series, we take a close look at these trends to understand “Why Now” — what is it about today that creates an environment where Metaverse innovation can thrive?

Let’s dive in.

The Metaverse has conceptually existed for decades, but until now it was restricted to fantasy worlds like Snow Crash and Ready Player One. Today, that is changing. The Metaverse is attracting the attention of brands, governments and corporations around the world, indicating there has been some recent shift that has brought the Metaverse from the pages of Snow Crash to a real-world trillion dollar opportunity.

We believe the “why now” question has three answers: consumer readiness, enterprise readiness and technological readiness.

Consumer Readiness

Consumer demand is what can make the Metaverse a multi-trillion dollar opportunity. To that end, we are seeing two secular shifts that indicate consumer sentiment is heading in a direction primed for widespread Metaverse adoption in the years to come.

• Accelerated digital adoption: The era of widespread remote work has primed consumers for a future when people spend significant time interacting with others in a virtual world. To use Zoom as a case study: at its height, the video conferencing tool had 300 million daily meeting participants, 45 billion logged minutes on Zoom webinars annually and 485 million annual downloads. These are hundreds of millions of digitally-native consumers that will almost certainly consider the Metaverse a step up from spending hours on Zoom every day.
• Generational behavior shifts: The second shift in consumer preferences we are seeing is driven by Gen Z. In the 2022 Consumer Trends report by The New Consumer and Coefficient Capital, they emphasize the importance of the Gen Z demographic; collectively, they make up ~40% of the US population, are entering their prime spending year, and they love the internet. The survey revealed that more Gen Z consumers feel like themselves online than offline, and 68% of the generation consider themselves a ‘gamer.’ This has driven rapid adoption of Metaverse platforms like Decentraland, which saw unique MAUs jump from 30k in March 2021 to 500k in March 2022. Whether they know it or not, Gen Z is ready for the Metaverse and will drive consumer adoption over the decades to come.

Enterprise Readiness

While consumers are starting showing early indications of Metaverse readiness, enterprises have demonstrated they are ready to dive in headfirst. Two or three years ago, you would be hard pressed to find someone who would believe that Fortune 500 companies would spend millions building virtual HQs on gaming platforms like Roblox or The Sandbox; however, that’s exactly where we are today. There are two major shifts we can look to that capture enterprise readiness for the Metaverse:

• Digital adoption at work: A McKinsey study found that corporate adoption of digital technologies sped up by three to seven years during the first few months of the pandemic. Over half of the respondents said their companies are looking to technology as a way to strategically differentiate themselves from competitors. Enterprises have realized that the future of work will be more distributed and online than ever before, and many have already rushed to embrace immersive collaboration solutions like Gather, Teamflow and Sowork. Gather, for example, has over 10 million users and functions with only a small fraction of the features that future Metaverse tools will support. Given the early adoption and excitement around this space, we can be fairly certain there will be large enterprise demand for the Metaverse as the technology improves.
• Big tech sentiment shifts: The second shift that captures enterprise readiness for the Metaverse is in how big tech is publicly approaching the space. CEOs of gaming giants like Epic Games or Roblox have been talking about the Metaverse for the last decade, but only recently has it become the center of public strategies for companies like Nvidia and Meta. When Facebook rebranded to Meta, Zuckerberg reaffirmed they believe “that the metaverse is the next chapter of the internet” and that it will “touch every product [they] build.” Satya Nadella, the CEO of Microsoft, said recently that “The Metaverse is here, and it’s not only transforming how we see the world but how we participate in it — from the factory floor to the meeting room.” He emphasized that Microsoft believes that “Going forward, every business process will be collaborative, powered by data and AI, and will bridge the digital and physical worlds.” Building the Metaverse is expensive, and big tech needs to be on-board to make the upfront capital investments necessary to bring the technology to a level that enterprises and consumers find compelling enough to adopt into their everyday lives. This seems to be the case, with Meta’s Metaverse division reporting a $3 billion loss in Q1 of 2022.

Technological Readiness

For the first time, we have reached a level of technological maturity that can support basic Metaverse experiences. These advancements are seen across the tech stack.

• Hardware: Oculus has been working on its headsets for years, and saw a breakthrough during the 2021 holiday season where US search volume for the Meta Quest 2 headset outperformed the PlayStation 5, Nintendo Switch, and Xbox. In 2021, Quest 2 sales accounted for 78% of all AR/VR headset sales and seems to be the first product that has found a sense of product-market fit. There is also a lot of speculation around an Apple AR/VR headset, which could be unveiled as early as Q1 2023 and will likely be immediately embraced by millions given Apple’s record with consumer hardware.
• Networks: There are three core parts of Networks that are relevant to the Metaverse: bandwidth (how much data can be transmitted over a unit of time), latency (the time it takes for data to travel from one point to another and back) and reliability (overall uptime, and consistency of bandwidth and latency). The advancement and implementation of 5G is making serious improvements across all three metrics. For example, a fully immersive Metaverse experience will require latency in the range of 10–15 ms; in comparison, anything below 100 ms is considered acceptable for gaming today. 5G promises to cut off 20–40 ms from 4G latency speeds, with some networks creeping into the single digits. Similar improvements also apply for bandwidth and reliability.
• Compute: Compute power can come from two places: 1) the cloud, where data-processing occurs at remote supercomputers which then push the entire rendered experience to a user’s device as a video stream, or 2) locally, where the data is processed and rendered on the consumer device. Intel estimates we will need 1,000x the current compute power to enable the fullest form of the Metaverse, which will likely come from improvements in both local and cloud compute capabilities. Between the two, cloud computing has seen the most progress to date with the proliferation of edge computing centers. These are cheaper to build, more sustainable and put less strain on Network infrastructure as the data doesn’t have to travel across as long a distance to reach the end user.
• Storage: The Metaverse will generate data orders of magnitude larger than what the internet creates today, and will need to be stored somewhere that’s accessible and sustainable. One exciting advancement in this space is Cloud 2.0. This involves decentralized storage and compute, where a variety of devices can contribute to nearby compute requirements if its own local processing power is not fully utilized. Early movers like Filecoin and IPFS are already driving adoption of this concept. Cloud 2.0 is nascent, but could turn every smartphone, IoT device or gaming console into a mini edge data center.