Chapter 14
IF THE METAVERSE IS A “QUASI-SUCCESSOR STATE” to the mobile and cloud era of computing and networking, and will eventually transform most industries and reach nearly every person on earth, a few very broad questions must be addressed. What will the value of a new “Metaverse economy” be? Who will lead it? And what will the Metaverse mean for society?
The Economic Value of the Metaverse
Although corporate executives can’t yet agree on exactly what the Metaverse is and when it will arrive, most believe it will be worth multiple trillions of dollars. Nvidia’s Jensen Huang predicts the value of the Metaverse will eventually “exceed that” of the physical world.
Trying to project the size of the Metaverse economy is a fun, albeit frustrating, exercise. Even by the time the Metaverse is “here,” there will likely be no consensus on its value. After all, we are at least 15 years into the mobile internet era, nearly 40 years into the internet era, and more than three-quarters of a century into the digital computing era, yet have no consensus answer for how much the “mobile economy,” “internet economy,” or “digital economy” might be worth. In fact, it’s rare that anyone even tries to value any of them.* Instead, most analysts and journalists just sum the valuations or revenues of the companies which primarily support these loosely defined categories. The challenge in trying to measure any of these economies is that they aren’t really an “economy.” Instead, they are collections of technologies which are deeply intertwined with and dependent upon the “traditional economy,” and as such, trying to value their would-be economy is more of an art of allocation, rather than a science of measurement or observation.
Consider the book you’re reading now. Odds are that you purchased it online. Does the money you paid for it count as “digital revenue,” even though it was physically produced, physically distributed, and is being physically consumed? Should some of your purchase be digital, and if so, how much and why? How does the ratio change if you’re reading an e-book? What if you were boarding a plane, realized you wouldn’t have anything to do while on the flight, and used your iPhone to download a digital audio–only copy—does that change the split? What if you only knew about the book from a Facebook post? Does it matter if I wrote the book using a cloud-based word processor rather than an offline one (or, dare I say, by hand)?
Things get even more difficult when we think of subsets of digital revenue, such as internet revenues or mobile revenues, both of which are likely to be the closest methodological comparison to “the Metaverse economy.” Does Netflix, an internet-based video service, have mobile revenues? The company does have some mobile-only subscribers, but isolating the revenue of these customers as “mobile revenues” does not address the revenues of subscribers who use mobile devices to watch Netflix some, but not all, of the time, and pay to access the service across all sorts of devices. Should “mobile” be allocated a share of a monthly subscription fee based on its share of a user’s time? Doesn’t that mean that a user places equivalent value on watching a film on a 65" living room TV screen as they do a 5" × 5" smartphone used on the subway? Is a Wi-Fi-only iPad that never leaves the home a “mobile” device? Probably, but why isn’t a smart television that connects to Wi-Fi considered a mobile device? And can you even say there are “mobile” broadband revenues when the bits they transmit primarily travel through fixed-line cables? For that matter, isn’t it true that most “digital devices” purchased today would not have been bought were it not for the internet? When Tesla updates a car’s software over the internet in order to improve battery life and/or charging efficiency, how, exactly, should this value be counted or measured?
We can see some presages of these issues now. If you upgrade from a three-year-old iPad to a newer iPad Pro solely for its GPU in order to engage in high concurrent user real-time rendered 3D virtual worlds, what is the Metaverse allocation? If Nike sells sneakers with a bundled NFT or Fortnite edition, are there Metaverse revenues, and if so, how much? Is there an interoperability threshold for virtual goods to be considered Metaverse purchases, rather than just video game items? If you bet in US dollars on a blockchain horse, or cryptocurrency on a real one, is there a difference? If, as Bill Gates imagines, most video calls on Microsoft Teams shift to real-time rendered 3D environments, what portion of its subscription fee falls under “Metaverse”? If a building is operated through a digial twin, what part of its expenses should be counted? When broadband infrastructure is replaced by higher-capacity, real-time delivery, is that “Metaverse investment”? Nearly all the applications that will use and benefit from this leap have little to do with the Metaverse, at least today. Yet the drivers of the investment in low-latency networking are the few experiences that require it: synchronous real-time rendered virtual worlds, augmented reality, and cloud game streaming.
While the questions described above are helpful thought exercises, they have no single answer. It’s particularly challenging to weigh in on those focused on the Metaverse, which doesn’t yet exist and won’t have an obvious start date. With this in mind, the more practical approach to sizing the “Metaverse economy” is to be more philosophical.
For nearly eight decades, the digital economy’s share of the world economy has grown. The few estimates that do exist suggest roughly 20% of the world economy is now digital, which would value the latter at roughly $19 trillion in 2021. In the 1990s and early 2000s, most but not all of the digital economy’s growth was driven by the proliferation of PCs and internet service, while the following two decades were primarily but not exclusively from mobile and cloud. These latter two waves meant that digital businesses, content, and services could be accessed by more people, in more places, more often and more easily, while supporting new use cases. The mobile and cloud waves also came to eclipse everything that preceded them. In most cases, “digital revenues” are not new. The dating services industry, for example, was negligible in size before the internet, and then grew by orders of magnitude through mobile. The recorded music industry more than doubled through digital compact discs, but then fell 75% through internet-based delivery.
The arc of the Metaverse will be broadly similar. Overall, it will help grow the global economy, even as it shrinks parts of it (commercial real estate, perhaps). In doing so, digital’s share of the global economy will increase, as will the Metaverse’s share of digital’s share.
Granting this assumption allows us to do some modeling. If the Metaverse is, say, 10% of digital by 2032, and digital’s share of the world economy grows from 20% to 25% over that time, and the world economy continues to grow at an average of 2.5%, then in a decade, the Metaverse economy would be worth $3.65 trillion annually. This figure would also indicate that the Metaverse constituted a quarter of the growth in the digital economy since 2022, and nearly 10% of real GDP growth over that same time (much of the rest would stem from population increases and shifting consumer habits, such as buying more cars, consuming more water, and so on). At 15% of the digital economy, the Metaverse would be $5.45 trillion annually, a third of digital’s growth, and 13% of the world economy’s growth. At 20%, it would be $7.25 trillion, half, and one-sixth. Some imagine the Metaverse might be as much as 30% of the digital economy of 2032.
However speculative, the above exercise describes exactly how the economy is transformed. Those who pioneer in the Metaverse will be over-indexed to the young, grow faster than the companies leading in either the “digital” or “physical” economy, and redefine our business models, behaviors, and culture. In turn, venture and public-market investors will more highly value these companies than the rest of the market, thereby producing many trillions more in wealth to those who create, work at, or invest in these companies.
A precious few of these companies will become critical intermediaries between consumers, businesses, and governments—multi-trillion-dollar companies in their own right. That’s the odd thing about saying the digital economy is 20% of the world economy. No matter how sound the methodology, the conclusion skips over the fact that most of the remaining 80% is digitally powered or informed. This is also why we recognize the big five technology giants as being even more powerful than their revenues alone suggest. Google, Apple, Facebook, Amazon, and Microsoft combined reported revenues of $1.4 trillion in 2021, less than 10% of total digital spending, and 1.6% of the total world economy. However, these companies have a disproportionate impact on all of the revenues they don’t recognize on their balance sheet, take a cut of many of them (for example, via Amazon’s data centers or Google’s ads), and sometimes set their technical standards and business models, too.
How Today’s Tech Giants Are Positioned for the Metaverse
Which companies will lead in the Metaverse era? History can inform how we answer this question.
There are five categories through which we can understand corporate trajectories. First, countless new companies, products, and services will be developed, ultimately affecting, reaching, or transforming nearly every country, consumer, and industry. Some of the new entrants will displace today’s leaders, which will either perish or decline into irrelevancy. Examples here include AOL, ICQ, Yahoo, Palm, and Blockbuster (the second category). Some displaced giants actually expand as a result of the overall growth in the digital economy. IBM and Microsoft have never had a smaller market share of computers, yet each is more valuable than at any point during their supposed heydays. A fifth category of companies will ward off displacement and disruption, and grow their core businesses. So who might be the case studies of the shift to the Metaverse?
Facebook, unlike MySpace, successfully navigated the transition to mobile. But the company must transform again, and at a time when regulators seem unlikely to support acquisitions similar to those of Instagram and WhatsApp, which facilitated the company’s pivot to mobile, and Oculus VR and CTRL-labs, which laid the foundation for its Metaverse plans. The company also faces strategic blocks from the hardware-based platforms upon which its services typically run—and, at the same time, its reputation has never been so negative. Still, it would be a mistake to discount Facebook. The social networking giant has three billion monthly users, two billion daily users, and the most used identity system online. It already spends $12 billion per year on Metaverse-related initiatives (and generates over $50 billion per year in cash flow on close to $100 billion in revenue), has a multi-year head start shipping VR hardware, and an in-control founder who believes in the Metaverse as much as any corporate executive.
But just as one can’t count out Facebook, investment and conviction do not alone ensure success. Disruption is not a linear process, but a recursive and unpredictable one. And as we’ve seen, there is a lot of confusion and open questions surrounding the Metaverse. When will key technological advances arrive? How are they best realized? What’s the ideal monetization model for it? What new use cases and behaviors will be created as a result of new technology? In the 1990s, Microsoft believed in both mobile and the internet and had many of the products, technologies, and resources needed to build what Google, Apple, Facebook, and Amazon did instead. Microsoft, it turned out, was wrong about everything from the role of app stores and smartphones to the importance of touchscreens to everyday consumers, and was distracted by the need to maintain its hugely successful Windows operating system and integrated Microsoft Exchange, Server, and Office suites. The Microsoft that is so valuable today is a result of a decision to finally shed its attachments to its own stacks and suites and instead support what the customer preferred.
In many categories, Microsoft was overtaken by Google, which now operates the world’s most popular operating system (Android, not Windows), browser (Chrome, not Internet Explorer), and online services (Gmail, not Hotmail or Windows Live). Yet what will Google’s Metaverse role be? The company’s mission is to “organize the world’s information and make it universally accessible and useful,” but it can access little of the information that exists in virtual worlds, let alone use it. And it has no virtual worlds, virtual world platforms, virtual world engines, or any similar services of its own. Notably, Niantic was originally a subsidiary of Google, but was spun out in 2015. Two years later, Google sold its satellite imaging business to Planet Labs. In 2016, the company began building a cloud game-streaming service, Stadia, which launched at the end of 2019. Earlier that year, Google also announced the Stadia Games and Entertainment division, a “cloud native” content studio. In early 2021, this studio was shut down. In the months that followed, many top Stadia executives, including its general manager, moved to other groups within Google, or exited the company entirely.
We can already see evidence of new disruptors in companies such as Epic Games, Unity, and Roblox Corporation. Though their valuations, revenues, and operational scale are modest compared to GAFAM, they have the player networks, the developer networks, the virtual worlds, and the “virtual plumbing” to be real leaders in the Metaverse. Not only that, but their histories, cultures, and skillsets have refreshingly little in common with the world’s current tech titans—even if all of these companies agree that the Metaverse is the future. For much of the past decade and a half, GAFAM has mostly concerned itself with other bets, including streaming TV, social video and live video, cloud-based word processors, and data centers. Nothing is wrong with this focus, but comparatively little attention was paid to video games, least of all to the idea that the best onboard to “the Metaverse” was battle royales, virtual playgrounds for children, or even just game engines. The tech giants’ relative disregard of gaming is emblematic of the challenges of preparing for—and predicting—a shift to a new era.
Not long after Mark Zuckerberg acquired Instagram for $1 billion in 2012, the deal was seen as one of the most brilliant acquisitions of the digital era. At the time, the image-sharing service had barely 25 million monthly active users, a dozen employees, and no revenue. A decade later, its estimated value exceeds $500 billion. WhatsApp, which Facebook bought two years later for $20 billion, at which point it had 700 million users, is seen in a similar light. Both are now widely considered not only brilliant acquisitions, but moves that regulators should have blocked on antitrust grounds.
Despite the widespread reverence for Zuckerberg’s acquisitions record, neither Facebook nor its competitors acquired Epic, Unity, or Roblox—even though these companies spent most of the last decade valued at the low-single-digit billions—less than a week’s profits for most of the GAFAM companies.† Why? The role and potential of each of these companies was simply too uncertain. The video games domain was considered niche at best, fringe at worst. Recall that Neal Stephenson didn’t originally envision the category as the only ramp to the Metaverse, either—but by 2011, he was stating that it was and nearly every tech executive in the West had at least heard of, if not played, Second Life and World of Warcraft.
To Zuckerberg’s credit, leaked memos show that in 2015 he pitched his board on acquiring Unity, which had not yet become a unicorn. However, there are no reports of an official bid even though it could’ve been had cheaply: it wasn’t until 2020 that Unity’s valuation grew above $10 billion. While Facebook did acquire Oculus VR in 2014, the platform has had fewer lifetime users than Epic, Unity, and Roblox will have in the next 24 hours. This doesn’t mean Oculus was a mistake; it may yet be transformative—but Facebook was not limited to a single acquisition (indeed, it has made dozens since). In addition, the ostensible core of Facebook’s Metaverse strategy is not Oculus, nor VR and AR, but the Roblox and Fortnite-like Horizon Worlds integrated virtual world platform (which is built on Unity). And Roblox has the exact consumers who threaten Facebook’s future—not those disengaging with the social network, but those who never even adopted it.
If Facebook is the most aggressive investor in the Metaverse, and Google the most poorly positioned, Amazon sits somewhere in the middle. Amazon Web Services has nearly a third of the cloud infrastructure market and, as discussed throughout this book, the Metaverse will demand unprecedented computing power, data storage, and live services. AWS, in other words, benefits even if other cloud providers take a greater share of future growth. However, Amazon’s efforts to build Metaverse-specific content and services have been largely unsuccessful and arguably less of a priority compared to more traditional markets, such as music, podcasting, video, fast fashion, and digital assistants. According to various reports, Amazon has spent hundreds of millions each year on Amazon Game Studios, which focused on Amazon founder Jeff Bezos’s goal of making “computationally ridiculous games.” However, most of these titles ended up cancelled before release (though not until their development budgets exceeded the lifetime budgets of most hit games). New World, released in September 2021, received strong reviews and initial interest (incredibly, it ran out of available AWS servers), but its monthly player count is estimated in the low millions. Another helpful example is Lost Ark, which Amazon Game Studios released to acclaim in February 2022. Success is always nice, but Lost Ark was not made by AGS, just republished. The title was developed by Smilegate RPG and released in South Korea in 2019, with Amazon striking a deal for English-language territories a year later. More hits are likely to come, but the several billion spent per year on Amazon Music and Amazon Prime Video (and the $8.5 billion acquisition of Hollywood studio MGM) stand in clear contrast. According to some reports, Amazon will spend more on a single season of its Lord of the Rings television series than it spends on its gaming studio annually. A similar example comes from Amazon’s cloud game-streaming service, Luna, which launched in October 2020, yet found even less of a market than Google Stadia and included almost no free content for subscribers (which again differs from other Amazon content offerings). Four months after Luna launched, the executive who oversaw the division left to become general manager of the Unity Engine. Amazon’s effort to build a competitor to Steam has also been unsuccessful, despite the ongoing strength and success of Twitch, the market leader in live video game broadcasting, and the Prime membership program.
Amazon’s most noteworthy gaming initiative started in 2015, when it spent a reported $50 million to $70 million to license the CryEngine, a middling independent game engine owned by CryTek, the publisher behind the game Far Cry. Over the next few years, Amazon invested hundreds of millions transforming CryEngine into Lumberyard, a would-be competitor to Unreal and Unity, albeit one optimized for AWS. The engine never found much adoption, with the Linux Foundation taking over development in early 2021, renaming it the “Open 3D Engine,” and making it free and open-source. Amazon may have more success in AR or VR hardware, but thus far, almost all of its efforts in and around real-time rendering, game production, and game distribution have disappointed.
As I discussed in the hardware and payments chapters, Apple is also an inevitable beneficiary of the Metaverse. Even if regulators unbundle many of its services, the company’s hardware, operating system, and app platform will remain a key gateway to the virtual world, which will send billions in high margin revenue its way, and amplify its influence over technical standards and business models. The company is also better positioned than any other to launch lightweight, high-powered, and easy-to-use AR and VR headsets, as well as other wearables, in part due to their ability to richly integrate with its iPhone. However, Apple is not known to be developing its own IVWP, such as Roblox, a category of application that might intermediate the company from many virtual world users and developers. Given that Apple lacks much gaming expertise and is also understood to be a hardware-, not a software- or network-focused, company, building a leading IVWP is unlikely.
The most interesting GAFAM company in the Metaverse era may well be Microsoft, one of the leading case studies for displacement in the mobile era. Since the very first Xbox released in 2001, investors and even company executives mused as to whether its gaming division was essential, or a distraction. Three months after Satya Nadella took over as CEO from Steve Ballmer, company founder and chairman Bill Gates said he would “absolutely” support Nadella if he wanted to spin off Xbox, “But we’re going to have an overall gaming strategy, so it’s not as obvious as you might think.” The first multi-billion-dollar acquisition Nadella made was for Minecraft—and in a move that now seems obvious but was unconventional at the time, opted against making the title exclusive to its Xbox and Windows platforms (or even better on them). Furthermore, the title’s playerbase has grown more than 500% since acquisition, from 25 million monthly users to 150 million, making it the second most popular real-time rendered 3D virtual world globally.
As we know, gaming experiences now sit at the forefront of the industry—including at Microsoft. Recall that Microsoft Flight Simulator is a marvel of both technology and collaboration. Though Xbox Game Studios developed and published the title, it was built in partnership with Bing Maps and leveraged data from OpenStreetMaps, a collaborative and free-to-use online geographic, with Azure’s artificial intelligence bringing this data together into 3D visualizations, powering real-time weather, and supporting cloud data streaming. The Xbox division also has its own hardware suite, the most popular cloud game-streaming service in the world, a fleet of first-party game studios, and a handful of proprietary engines. Although HoloLens is run by the Azure AI division, its adjacency to gaming is obvious. In January 2022, Microsoft agreed to buy Activision Blizzard, the largest independent game publisher outside of China, for $75 billion (the largest acquisition in GAFAM history). In announcing the deal, Microsoft said that “[Activision Blizzard] will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.”1
In many ways, Nadella’s approach to Minecraft embodied his overall transformation of Microsoft. No longer would the company’s products be designed for (or even optimized to work with) its own operating systems, hardware, technology stack, or services. Instead, it would be platform agnostic, supporting as many platforms as possible. This is how Microsoft was able to grow despite losing its hegemony over computing operating systems—the digital world grew more than Microsoft’s share contracted. The same philosophy positions the company well for the Metaverse.
Sony, which was founded in 1946, is another intriguing conglomerate. By revenue, Sony Interactive Entertainment (SIE) is the largest gaming company in the world, with this business spanning proprietary hardware and games, as well as third-party publishing and distribution. SIE also operates the world’s second-largest paid gaming network (PlayStation Network), the third-largest cloud game-streaming subscription service (PSNow), and several high-fidelity game engines. The company’s portfolio of original games, such as The Last of Us, God of War, and Horizon Zero Dawn, are considered among the most vivid and creative in industry history. The PlayStation is also the top-selling console of the fifth, sixth, eighth, and ninth console generations, and will launch its PS VR2 platform in 2022. Sony Pictures, meanwhile, is the largest movie studio by revenue, as well as the largest independent TV/film studio overall. Sony’s semiconductor division is also the world leader in image sensors, with nearly 50% market share (Apple is a top customer), while its Imageworks division is a top visual effects and computer animation studio. Sony’s Hawk-Eye is a computer vision system used by numerous professional sports leagues globally to aid officiating through 3D simulations and playblack (the football club Manchester City is also deploying the technology to create a live digital twin of its stadium, players, and fans during a match). Sony Music is the second-largest music label by revenue (Travis Scott is a Sony Music artist), while Crunchyroll and Funimation provide Sony with the world’s largest anime streaming service. It is impossible to review Sony’s assets and creativity capabilities and see anything other than enormous potential as the Metaverse emerges. However, many challenges remain.
Sony’s games are almost always PlayStation-only, and SIE has had limited success producing hit mobile, cross-platform, or multiplayer games. Though strong in gaming hardware and content, Sony is typically viewed as a laggard in online services, and has no leadership in compute and networking infrastructure, or virtual production. And despite Japan’s strength in semiconductors, the country has not produced any major contenders in this area—meaning Sony’s shift to the Metaverse will likely require the use of GAFAM services and products.‡
In 2020, Sony released Dreams, a powerful IVWP that the company seeded with many professionally produced games, but failed to attract many users or developers. Many critics argued that Dreams was always doomed and reflects Sony’s inexperience with UGC platforms. Unlike most IVWPs, Dreams was not free-to-play, but cost $40. In addition, the title did not offer developers any cut of revenues, and was limited to PlayStation consoles, whereas competing IVWPs were playable on billions of devices worldwide.§
Compared to GAFAM, Sony reaches a fraction of users, employs few engineers, and its annual R&D budget is outspent in months or even weeks. For decades the company has been a case study for missed opportunities. Though Sony was the global market leader in portable music devices through the Walkman, and owned the second-largest music label, it was Apple that revolutionized digital music. Despite the company’s strength in consumer electronics, smartphones, and gaming, it was also squeezed out of the mobile phone business, and altogether missed the connected TV device category. While Sony was the only Hollywood giant without a legacy TV business to protect, and launched its streaming service Crackle the same year Netflix pivoted from DVDs, it failed to capitalize on the opportunity. To lead in the Metaverse, Sony will need not just considerable innovation, but unprecedented cross-division collaboration—the sort that challenges even the most integrated of companies. And at the same time, the company will need to move outside of its own tightly integrated ecosystems, such as PlayStation, and connect into third party platforms too.
Then there’s Nvidia, a company built over 30 years specifically for the era of graphics-based computing. Alongside major processor and chip companies such as Intel and AMD, Nvidia will benefit from any incremental demand for compute. The high-end GPUs and CPUs inside our devices, as well as the data centers of Amazon, Google, and Microsoft, typically come from these providers. Nvidia, though, aspires for far more. For example, the company’s GeForce Now cloud game-streaming service is the second most popular in the world, several times the size of Sony, orders of magnitude larger than Amazon’s Luna or Google’s Stadia, and half that of market leader Microsoft. Its Omniverse platform, meanwhile, is pioneering 3D standards, facilitating the interoperation of disparate engines, objects, and simulations, and may yet become a sort of Roblox for “digital twins” and the real world. We may never wear Nvidia-branded headsets nor play Nvidia-published games, but at least in 2022, it looks likely that we live in a Metaverse powered in large part by Nvidia.
The danger in assessing the preparedness of today’s leaders for tomorrow’s future is that they always look prepared. And that’s because they are—they have cash, technology, users, engineers, patents, relationships, and more. Yet we know that some of these companies will falter, often because of these many advantages (some of which will turn out to be encumbrances). In time, it will become clear that many of the leaders in the Metaverse weren’t even mentioned in this book—perhaps because they were too small to be of note, or unknown to its author. Some hadn’t even been created let alone thought up. An entire generation of Roblox-natives is only now on the cusp on adulthood, and it’s likely they, not Silicon Valley, will create the first great game that has thousands (or tens of thousands) of concurrent users, or blockchain-based IVWP. Whether motivated by Web3 principles, emboldened by the trillion-dollar opportunity the Metaverse provides, or simply unable to sell to GAFAM due to regulatory scrutiny, these founders will ultimately displace at least one member of the GAFAM five.
Why Trust Matters More Than Ever
Regardless of which companies come to dominate, the most likely outcome is indeed that a handful of vertically and horizontally integrated platforms collect a significant share of total time, content, data, and revenues in the Metaverse. This doesn’t mean a majority of any of these resources—recall that GAFAM represents less than 10% of total digital revenues in 2021—but enough to collectively shape the economy of the Metaverse and the behaviors of its users, as well as the economy of the real world and its citizens.
All business, and especially software-based business, benefits from feedback loops—more data leads to better recommendations, more users means stickier users and more advertisers, greater revenues enable more licensing spend, larger investment budgets attract more talent. This general point doesn’t change in a blockchain future for the same reason audiences still converged on a handful of websites and portals, such as Yahoo or AOL in the 1990s, even though millions of other sites were available. Habits are themselves sticky, which is part of the reason even blockchain dapps are valued in the billions by venture capitalists—even though their authority over their users or their data is marginal compared to the “Web 2.0” era.
To many, however, the real war for the Metaverse is not between major corporations, or between these companies and the start-ups that hope to displace them. Instead, the war is between “centralization” and “decentralization.” Of course, this frame is imperfect because neither side can “win.” What matters is where the Metaverse falls between the two poles, why, and how its position shifts over time. When Apple launched its closed mobile ecosystem in 2007, it was betting against conventional wisdom. The success of this bet has doubtlessly led to a larger and more mature digital, and especially mobile, economy, while also creating the most valuable and profitable company and product in history. But 15 years later, with Apple’s share of US personal computers now up from less than 2% to more than two-thirds (with its share of software sales sitting closer to three-fourths), Apple’s dominance now holds back the entire industry by depriving developers and consumers with much of a choice. While testifying as part of Epic Games’ lawsuit against the company, Apple CEO Tim Cook told the judge that even allowing developers to have an in-app link that would send them to alternative payment solutions would mean “essentially [giving] up the total return on our IP.”2 No next-generation internet should be so constrained by such policies. And yet, Roblox, the most popular “proto-Metaverse” thus far, thrives for many of the same reasons that Apple’s iOS did: tight control over as much of its experience as possible, including forced bundling of content, distribution, payments, account systems, virtual goods, and more.
With this in mind, we should acknowledge that the growth of the Metaverse benefits from both decentralization and centralization—just like the real world. And again, just like the real world, the middle ground isn’t a fixed point, nor even a knowable one, let alone one that’s agreed upon. But there are some obvious policy approaches that follow if most companies, developers, and users accept the basic point that it cannot be one or the other.
For example, Epic Games’ Unreal license to developers is written in a way that gives licensees indefinite rights to a specific Unreal Engine build. Epic can still change its license for subsequent builds and updates, such as 4.13 and especially 5.0 or 6.0—and giving away such a right would be financially impractical and probably harmful to developers as a result. But the result of this policy is that developers need not worry that by choosing to use Unreal, they’re forever reliant upon the whims, desires, and leadership of Epic (after all, there’s no rent control board in the Metaverse, nor appeals court). And as Unreal’s license allows developers nearly free rein on customizations and third-party integrations, developers can choose not to use future updates and instead build their own in lieu of whatever Epic adds in 4.13, 4.14, 5.0, and beyond.
In 2021, Epic made another important modification to its Unreal license: it gave up the right to terminate that license, even in the instance where a developer had failed to make an outstanding payment or violated the agreement outright. Instead, Epic would need to take their customer to court in order to mandate payment or win an injunction that would allow them to suspend support. This made it harder, slower, and costlier for Epic to enforce its rules, but the policy is designed to build trust with developers, and Epic hopes it will be good business overall. Imagine if your landlord could lock you out of your apartment at any point by arguing that you violated your rent agreement, or you missed a payment by a day—or even 60 days. This would not only be bad for your psychological health, but it would also discourage renting and, well, living in the city in the first place. In the Metaverse, tenants can be locked out, or permanently banned without much cause, and their possessions permanently revoked. The tech libertarian answer is decentralization, likely through blockchain. Another, not mutually exclusive, answer is to extend the legal systems of the “real world” to reflect the materiality of the immaterial. Tim Sweeney argues that no one benefits from “powerful companies [having] the ability to act as judge, jury, and executioner,” able to stop a business from “building products,” “distributing their product,” or servicing “customer relationships.”
My great hope for the Metaverse is that it will produce a “race to trust.” To attract developers, the major platforms are investing billions to make it easier, cheaper, and faster to build better and more profitable virtual goods, spaces, and worlds. But they’re also showing a renewed interest in proving—through policy—that they deserve to be a partner, not just a publisher or platform. This has always been a good business strategy, but the enormity of the investment required to build the Metaverse, and the trust it requires from developers, has placed this strategy front and center.
In April 2021, Microsoft announced that games sold on its PC Windows Store would pay only a 12% fee, rather than the customary 30% (which remained in place on Xbox), and that Xbox users could play free-to-play games without needing to subscribe to the console’s Xbox Live service. Two months later, this policy was revised so that non-gaming apps could use their own billing solution, rather than Microsoft’s, and therefore pay only the 2%–3% charged by an underlying payment rail, such as those of Visa or PayPal. By September, Xbox announced that its Edge browser had been updated to “modern web standards,” enabling users to play cloud game-streaming services owned by Xbox’s competitors, such as Google’s Stadia and Nvidia’s GeForce Now, from the device and without using Microsoft’s store or live services.
Microsoft’s most significant policy change occurred in February 2022, when the company announced a new, fourteen-point policy platform for its Windows operating system, and the “next-generation marketplaces [the company] builds for games.” This included a commitment to support third party payment solutions and app stores (and not disadvantage developers who choose to use them), the right for users to set these alternatives as default options, and the right for developers to directly communicate with the end-user (even if the point of that communication is to tell the user they can get better pricing or service by cutting out Microsoft’s store or services suite). Crucially, Microsoft stated that not all of these principles would “apply immediately and wholesale to the current Xbox console store,” as Xbox hardware was designed to sell at a loss and generate a cumulative profit through software sold by Microsoft’s proprietary store. However, Microsoft said “we recognize that we will need to adapt our business model even for the store on the Xbox console. . . . We’re committed to closing the gap on the remaining principles over time.”3
When he was unveiling Facebook’s Metaverse strategy in October 2021, Mark Zuckerberg was clear about the need to “maximize the economy of the Metaverse” and support developers. To this end, Zuckerberg made a series of policy commitments which, at least based on the approaches taken by other software platforms today, benefit developers by marginalizing the power and profits of Facebook’s VR (and also forthcoming) AR devices. For example, Zuckerberg said that while Facebook’s devices would continue to be sold at or below cost, (similar to consoles but unlike smartphones), the company would allow users to download apps directly from the developer or even through competing app stores. He also announced that Oculus devices would no longer require a Facebook account (which had become a new policy in August 2020), and would continue to use WebXR, an open-source API collection for browser-based AR and VR apps, and OpenXR, an open-source API collection for installed AR and VR apps, rather than produce (let alone require) their own proprietary API suite. Recall from Chapter 10 that almost all other computing platforms either block rich browser-based rendering, and/or require the use of a proprietary API collections.
In the weeks that followed, Facebook also began to enable several APIs and integrations with competing platforms that had once been supported, but been closed for several years. One of the most noteworthy examples involved the ability to post an Instagram link to Twitter whereby the relevant Instagram photo would display inside a tweet. Instagram offered this API not long after it launched in 2010, but removed it only eight months after the company was acquired by Facebook in 2012.
It’s easy to be cynical about the maneuvers of Microsoft, Facebook, and other “Web 2.0” giants. In May 2020, Microsoft’s president Brad Smith said that the company had been “on the wrong side of history” when it came to open-source software, then in February 2022, he publicly endorsed a bill passed by the US Senate which would require Apple and Google to open up their mobile operating systems to third-party app stores and payment services (he said the “important” legislation “would promote competition, and ensure fairness and innovation”).4 Had the company thrived in mobile, as Apple and Google did, rather than been displaced by those companies, or had Xbox ranked first among consoles, not last, Microsoft may not have changed its view. If Facebook had its own operating system, rather than been stymied by its lack thereof, would it be so relaxed about sideloading? If it weren’t so late to building a popular gaming platform, would Facebook have really wanted to rely on OpenXR and WebXR? These points are fair, but they also ignore the many genuine (if undesirable) lessons learned by platform makers and developers over the past decades. And these two groups aren’t the only constituencies who are smarter today than in Y2K.
As the “trustless” and “permissionless” nature of blockchain programming suggests, much of the Web3 movement stems from a dissatisfaction with the last 20 years of digital apps, platforms, and ecosystems. Yes, we received many great services for free during “Web 2.0,” such as Google Maps and Instagram, and many careers and businesses have been built on top of and through these services. Still, many believe the exchange was not a fair one. In return for “free service,” users provided these services with “free data” that have been used to build companies worth hundreds of billions or even trillions of dollars. Worse still, these companies effectively own data in perpetuity, which in turn makes it difficult for the user who generated the data to use it elsewhere. Amazon’s recommendations, for example, are so powerful because they’re based on years of prior searches and purchases—but as a result, even with equivalent inventory, lower prices, and similar technology, Walmart (or other “upstarts”) will always have a harder path toward making an Amazon customer happy. Many people argue that Amazon should therefore have to provide users with the right to export their history and take it to competing sites. Instagram users can technically export all their photos into a downloadable zip file, then upload them to a competing service, but it’s not an easy process, and there’s no way to carry over each photo’s likes and comments. Overall, many people have also come to believe that companies built “off of their data” have dramatically worsened the real world, adversely affecting the psychological and emotional lives of those who use their services. A good portion of the reaction to Zuckerberg’s announcement of the name change to Meta consisted of derision. Why should a company like Facebook have even more reach into our lives? Hasn’t big tech already created too much of the dystopias described by Gibson, Stephenson, and Cline?
It should then come as no surprise that the terms “Web3” and “Metaverse” have been conflated. If one disagrees with the philosophy and arc of Web 2.0, then it’s terrifying to think of the power bestowed upon the tech behemoths when they operate a parallel plane of existence—when the “atoms” of the virtual universe are written, executed, and transmitted by for-profit corporation. Envisioning the Metaverse as dystopic solely because the term and many of its inspirations come from dystopic science fiction is misguided, but there’s a reason those who control these fictional universes (the Matrix, the Metaverse, the Oasis) tend to use it for ill: their power is absolute, and absolute power corrupts. Recall Sweeney’s warning: “If one central company gains control of the [Metaverse], they will become more powerful than any government and be a god on Earth.”
All of this leads to one of the most important aspects of any serious discussion of the Metaverse: how it will affect the world around us and the policies we’ll need to shape its impact.
* In case such efforts do seem familiar, it’s probably because I’ve mentioned several estimates throughout this book.
† Most of the major Hollywood companies bragged about how they “almost bought Netflix” or “thought about buying Instagram,” so it’s notable that had any of them bought Epic, Roblox, or Unity, it’s likely the acquisition would now be worth more than its parent company.
‡ In May 2019, Sony announced a “strategic partnership” with Microsoft to use its Azure data centers for cloud gaming, among other content streaming services. In February 2020, the head of Xbox said, “When you talk about Nintendo and Sony, we have a ton of respect for them, but we see Amazon and Google as the main competitors going forward. . . . That’s not to disrespect Nintendo and Sony, but the traditional gaming companies are somewhat out of position. I guess they could try to re-create Azure, but we’ve invested tens of billions of dollars in cloud over the years.” (Seth Schiesel,”Why Big Tech Is Betting Big on Gaming in 2020,” Protocol, February 5,2020, https://www.protocol.com/tech-gaming-amazon-facebook-microsoft.)
§ Limiting Dreams to PlayStation devices is partly why the title was so technically powerful, as mobile devices are obviously less capable computing devices. But by originally architecting the IVWP for its own high-end device, Sony has also made it more difficult to ever expand the title to other platforms.