Who will win the metaverse — Meta or Microsoft?
Let’s be honest. The metaverse is a nebulous concept. Most of us had not even heard of it until Facebook decided to rebrand itself ‘Meta’ last year. For those who had heard of it, it was strictly in the realm of gaming. The metaverse was imagined as the next-generation virtual world, an upgrade to our current favourite games.
Broadly speaking, the metaverse will be a virtual world that will mirror real-life social, economic, and professional experiences. And ideally, all metaverses will be interoperable.
The core building block of the metaverse, though, will be great virtual reality or augmented reality-based experiences. This makes gaming the natural starting point. The gaming companies behind popular games such as Fortnite (Epic Games) or World of Warcraft (Activision Blizzard) are giving us an idea of how the metaverse may look.
According to a Bloomberg Intelligence prediction, the metaverse is going to be an $800 billion opportunity by 2024. And Games such as Axie Infinity, and The Sandbox show early signs of how metaverses will fuel the digital economy.
While the ideal thought behind Web 3.0 — the next iteration of the Internet — is taking control away from the big corporations, it is highly unlikely to turn out that way. Facebook and Microsoft have already decided to take the Web 3.0 path through metaverses, which in turn will be built on good gaming capabilities.
While Facebook’s rebranding received an overall mixed response, the company has been investing in building its gaming capability for a while now. Microsoft, on the other hand, even before its acquisition of Activision Blizzard for a whopping $69 billion earlier this year, has been quietly building its capability in gaming. It is more than just the Xbox.
It is important here to acknowledge that all FAANG companies — an acronym for Facebook, Apple, Amazon, Netflix, Google — are also dabbling in gaming in varying capacities, but to win this game, they will have to capture a large subset of the population, and be able to make money from it. That is the only way to survive.
Facebook’s gaming play
Facebook has been building out its virtual reality (VR) capabilities over the past couple of years. Most of this is based on its VR headset Oculus, which it bought in 2014.
Currently priced at $299 (and between Rs 30,000–33,000 in India), Oculus’ Quest 2 is the most affordable and has the best-in-class graphics and overall VR experience. It is often rated better than Sony’s PlayStation VR headset, which requires a console to be wired into.
The one minor drawback is that you can only access Quest 2 with a Facebook account. Hardly a deterrent for those who are looking for a good VR experience.
Last year, Meta said it would be investing $10 billion in its Reality Labs, its VR and augmented reality division. It expects to increase this investment over the next several years.
Towards the end of the year, Facebook also opened up Horizon Worlds, its VR and AR-based game on Oculus, in the US and Canada for people above 18 years. This is widely considered to be the first version of the metaverse that the company is pinning its future on.
Then there are Facebook’s investments in the developer ecosystem, where it is inviting and incentivising them to create components of the metaverse, which will be accessed through Oculus.
In its latest earnings report, Meta’s Reality Labs revenue for 2021 nearly doubled over the previous year.
Microsoft’s gaming bets
When you think of Microsoft and gaming, you most likely think of the Xbox console, which is still one of the most favoured gaming consoles with enthusiasts, after Sony’s PlayStation. At $499 (~Rs 50,000 in India), it is priced steeper but also has subscription plans at around $34 per month, at least in the US.
Quest 2’s sales were a leading talking point in the VR and gaming worlds last Christmas, with sales soaring in the US, but at least part of this was driven by the fact that both PlayStation and Xbox faced manufacturing issues due to the global chip shortage.
So the Oculus Quest 2 sales, some experts opine, were driven at least in part by the fact that neither the PS5 nor the Xbox Series X was available to users. The chip shortage has been flagged as a concern by the companies themselves and could run into 2023, if not further. This may spell more sales for the Quest 2 in the short term, but serious gamers still swear by the experience on PlayStation or Xbox.
Apart from its Activision purchase, which has its fair share of sceptics as far as the metaverse is concerned, Microsoft has said on a number of occasions that it is serious about gaming. Many found it strange at the time, but Microsoft acquired Minecraft in 2014, and the game has done well since then.
Earlier this year, Microsoft introduced Mesh, a kind of metaverse for Teams, which is its enterprise collaboration platform. Now Teams has a monthly active user base of over 270 million. Mesh can tap into it.
It also has Connected Spaces, which uses computer vision and artificial intelligence to map physical spaces, something that would be of interest to retail store customers.
Where are we headed?
In 2021, unit sales of VR headsets worldwide were forecast to reach an installed base of about 16.44 million units. By 2024, the cumulative installed base of VR headsets is expected to surpass the 34 million mark.
Facebook’s metaverse ambitions, so far, have focused on building on top of, and for the Oculus headset. But converting a majority of Facebook’s current user base of over 2.8 billion users to paying customers who will pay for VR headsets is not going to be an easy task.
A majority of its users — over 328 million — are in India-like markets, where people will not be willing, or able, to spend $300 for a VR headset.
Also, for a company whose main revenue mode has been advertising, it is still early days. Though we have some idea of how ads in the metaverse will work. As an offer for a player to buy more capability to remain in the metaverse, as shown in movies such as Ready Player One. Brands such as Nike are also giving us glimpses of what advertising in the metaverse may look like. One can imagine the virtual equivalents of billboards and shop surfaces for placing ads.
But what we don’t know yet is whether the average user will find these ads compelling enough to become a serious revenue stream for Facebook.
For Microsoft, the revenue model has been subscriptions, whether in gaming or in its B2B sales. With its existing network of just professional users — if you consider Teams, LinkedIn, and Windows business sales — it has a better chance of selling its “metaverse for office” bundled as a component of existing subscriptions.
With Activision, it has got on board the capability to build great graphics that will support its metaverse ambitions. But it is yet to be seen how it actually helps the tech giant, given that none of its games, except World of Warcraft, are close to the concept of a 3D virtual world.
Activision has a monthly user base of 400 million. Combined with Microsoft’s Game Pass, any new metaverse-focused features will be rolled out to this user base. In contrast, the number of people playing games through Facebook Gaming is 350 million.
More interestingly, Microsoft has said it has metaverse ambitions for Minecraft, Halo, and Flight Sim, by converting them from 2D to 3D.
It also bears mentioning that Microsoft has kept some gaming titles on Activision open to competitors such as PlayStation, a strategy it adopted with Minecraft as well. Given that the metaverse is conceptually supposed to be interoperable, this multi-platform strategy can be seen as a sign towards that goal.
Facebook, as mentioned earlier, has kept Quest 2 titles linked to its own platform.
On the headset front, Microsoft has HoloLens, its augmented reality headset, which is expensive at $3,500. But then, the firm has always pitched it as an enterprise device, not one for gaming. Even then, it has managed to impress VR enthusiasts who say it gives a peek into what mixed reality and the nebulous metaverse may look like.
AR headset applications aren’t quite here yet, but Niantic, the maker of Pokemon Go, has experimented with the experience of playing the game with HoloLens 2.
Navigating the future
Facebook also has an image issue. Of late, the only reason it has been in the news is for its poor handling of privacy issues, being unable to handle the spread of fake news, and poor internal policies.
Though it is rightly excited about building a new kind of experience, no one really knows what shape the metaverse will take eventually.
Microsoft has had its share of controversies, but it has learnt to play nice with regulators and customers and keeps its focus on building its reputation.
It has been razor-focused on building its mobile-first, cloud-first strategy under CEO Nadella, and is extending it to its gaming ambitions as well. This means whether you can afford a VR headset or not, you can be a part of the metaverse as envisioned by Microsoft.
With things moving fast in the world of technology, it will be exciting to see who wins the gaming and, eventually, the metaverse race. But compared to Meta, currently, Microsoft is far ahead of the curve.
