The Metaverse Fad: Will the trend sustain in the future?
Today’s digital era is making several advancements and one such on-going development that is creating a buzz these days is metaverse. While there exists no perfect definition of the concept of metaverse as it is still emerging, it can be best described as seamless convergence of physical and digital lives, which creates a unified, virtual community where we can work, play, relax, socialize, or engage in commercial transactions.
As the concept of metaverse is developing and moving closer towards reality, VCs have already poured in over $10 Bn in 2021 alone backing companies related to metaverse related companies. This includes Epic Games’ $1 Bn round being in the lead, other significant investments include funds raised by The Sandbox, Mythical Games, Niantic, among others. Even big tech players are placing their bets in the future of the digital world. The term ‘metaverse’ particularly gained popularity among the public after the social media giant, Facebook rebranded itself as ‘Meta’ to put focus on its strategy to build in the direction of metaverse. It is anticipated that metaverse will expand across almost every sector in the coming years, with market opportunity estimated at over $1 Tn in yearly revenues.
How different industry segments are growing in the virtual world?
Expected to build over a trillion-dollar economy, businesses across different industries are exploring opportunities in the metaverse space. The global gaming market is projected to reach over $218 Bn by 2023, with global player base growing over 3 billion during the same period. The use of AR & VR along with in-game assets have enhanced user experiences. Further it is estimated that estimates revenue from virtual gaming could reach close to $400 Bn by 2025.
Roblox, which went public last year through a blockbuster IPO valuing the company over $45 Bn, is considered to be one of the most successful metaverse player already. The company currently has over 47 million daily active users (DAUs) and monetizes its user base through sale of its virtual currency — Robux (R$). Gaming companies are investing heavily in enhancing user experience by improving gamers’ virtual identity and avatars.
A report by JP Morgan suggests that over $54 Bn are transacted every year on virtual goods. As virtual game developers monetize from sale of in-game assets, it opens the door to social commerce and retail in the metaverse. Several physical retail brands are now looking forward to enter the meta-world by setting up virtual malls and stores. The immersive experience provided by these virtual stores could end up enhancing brand’s revenues. Research by virtual store platform, Obsess, suggests that 70% of the consumers who visited a virtual store ended up buying an item.
Brands like Walmart, Adidas, Nike, etc. are planning to set up their virtual stores and some are even purchasing virtual land, which also gives rise to the commercial realty sector on the metaverse. The metaverse real estate market is expected to grow with a CAGR of 31% from 2022 to 2028. Last year, the sale of real estate on 4 major metaverse platforms exceeded $500 Mn, and its figure is expected to almost double this year. With current trends, we can even expect the virtual real estate market to facilitate land credit, mortgage, rental agreements, etc. in the future.
Apart from gaming, retail and real estate, Metaverse allows immersive experiences for users across many other industry segments, including education, music, aerospace, etc. While they are still in early stage, such segments have the capacity to grow big in the future.
Some exciting startups in the metaverse
1. Niantic Labs
· HQ: San Francisco, California, USA
· Total Funding: $770 Mn
· Last Round: Series D
· Valuation: $9 Bn
Started as an internal startup within Google, Niantic is an augmented reality company and also the developer of games like Pokémon GO. It aims to build a real world metaverse which will use technology to improve experience of the world as it has been known for thousands of years. The popular game Pokémon GO turned out to be so successful for the company that on an average it earned over $1 Bn per year from 2016–2020 and generated over $641 Mn in H1 2021 itself. The company is working on its Lightship platform that will attempt to incorporate the real world metaverse into products like Field Trip, Ingress, and Pokémon GO. It has also partnered with companies that provide hardware like AR glasses and microprocessors, that will help them to provide an amazing user experience.
2. Sky Mavis
· HQ: Vietnam
· Total Funding: $161 Mn
· Last Round: Series B
· Valuation: $3 Bn
Sky Mavis is the producer of Axie Infinity, which is the company’s flagship game built on Ethereum. It follows a play-to-earn model, where users are rewarded through NFTs. Earlier this year, Sky Mavis released a governance token (RON) on its Ethereum sidechain Ronin, which allows users to pay for DeFi features like community governance and future utility via staking through validators to earn rewards. As per the co-founder, within a month of Ronin’s release, Axie experienced a 300% increase in monthly NFT trading volume.
3. The Sandbox
· HQ: San Francisco, California, USA
· Total Funding: $95 Mn
· Last Round: Series B
The Sandbox offers a community-driven platform where creators can monetize voxel ASSETS and gaming experiences on the blockchain. Known for its virtual real estate marketplace, the platform has been successful in getting brands like The Walking Dead, Snoop Dogg, and Atari to buy their own virtual land. With about 2 million registered users, Sandbox already has 19,000 land owners. The Sandbox is committed towards building the idea of the metaverse as a continuous shared digital space.
4. Decentraland
· HQ: Genesis City, Metaverse
· Total Funding: $26 Mn
· Last Round: Venture Round
Decentraland provides a platform which uses Ethereum blockchain, where users can buy virtual plots of lands as NFTs through MANA cryptocurrency. Decentraland is scaling fast and its user base has increased by 3,300%. The demand for virtual land on the platform is increasing, which has also resulted in the rise of its crypto token MANA, appreciating by over 4,100% over last year. Financial institutions like JP Morgan, IMA Financial Group have already set up their plots on the platform.
5. MetaMall
· HQ: London, England, United Kingdom
· Total Funding: $4.6 Mn
· Last Round: Seed
Built on the Solana Blockchain network, Metamall is a decentralized mall on the metaverse where users can socialize, trade, and carry out business interactions through an immersive experience powered by VR technology. Metamall allows users to buy virtual real estate and earn token money by leasing, staking, advertising and developing it. It features separate zones for commercial properties to set up shops, showrooms and business interactions, along with lifestyle experiences such as casinos, clubs, VR games and NFT art galleries.
6. ByondXR
· HQ: New York, USA
· Total Funding: $7.5 Mn
· Last Round: Seed
ByondXR helps brands, retailers and wholesalers to create immersive metaverse e-commerce platforms for their customers. Till now ByondXR has created virtual stores for many luxury brands, including Armani, L’Oréal, Lancôme and La Roche-Posay, as well as household giants like P&G and Target. Although the company is still at an early stage, it aims to transform the future of retail industry.
FinTech supporting the Metaverse movement
As businesses evolve themselves to operate on the metaverse, fintech can provide a bridge for both personal and business interactions, by managing finances and transactions. Financial services companies like brokers, lenders, banks are looking forward to adopt metaverse initiatives to enhance their reach. South Korea’s Shinhan Bank has partnered with KT to set up its space in the metaverse which will offer a virtual banking branch and financial education. Looking at the limitless opportunities in this industry, JP Morgan has become one of the first leading banks to launch in the metaverse, banking on the scope of growth in the virtual real estate market. It is believed that for financial services, decentralized finance (DeFi) collateral management will come into play, which would be managed by decentralized autonomous organizations (DAO) rather than traditional finance companies. In the foreseeable future, we can expect more businesses trying to make practices of managing financial transactions supplied by fintech solutions similar to real life.
What the future holds?
In the long run, the aim of metaverse is to make it interoperable. What currently exists is the Web 2.0 version of the metaverse, where the users are restricted as they operate within a confined space as the companies collect huge amounts of user data for their innovation and enhancement. The Web 3.0 version of the metaverse will transform the way we interact, conduct businesses and the internet economy at large by providing a more open and decentralized space where no single entity has control over users’ data and assets. This may take a while to achieve with the on-going debates around the credibility of Web 3.0. However, going forward we expect that apart from large-scale platforms, several companies will transform and evolve their business models in order to operate within the Metaverse.
This article has been co-authored Tamanna Kapur who is in the Research and Insights team of Torre Capital.
For exclusive information about additional research and insights by our Analysts, kindly subscribe to Torre Capital’s Blog.
If you are an investor or shareholder and want more advice about the Pre-IPO secondary markets, please feel free to reach out at support@torre.capital for investment advice, or register for an account at Torre Capital.
