Last fall Meta Platforms lost 25% of its share value, as many will remember. The company’s Reality Labs was betting on the metaverse, but the efforts expended on that division were seen as excessive by the markets, also in light of the results published in the quarterly report.1 Recently the head of Reality Labs confirmed in a post that major investments would be made in 2023 too.2 But there was something curious about Andrew Bosworth’s message that drew widespread attention: the word “metaverse” was nowhere to be found. This fueled speculation around a possible about-face, but the more plausible explanation is that Meta, like many of us, is still looking for the right way to define this idea.
So what exactly is the metaverse? What are its future prospects? How far should a company go to invest in it? Our expectations will differ depending on whether we’re talking about the metaverse in a strict sense, the idea that Zuckerberg’s company initially embraced, or metaverse with a broader meaning, like the one we will try to define by going beyond the original concept in a way that seems to align with Meta’s new orientation.
Let’s start with three general considerations that represent big question marks for the future.
- The metaverse in the strict sense - an entirely virtual world - is a digital space where people can interact with one another, with objects, or with content. It’s not a simple product but rather a platform, a network where value springs from sharing resources. From an economic standpoint, the metaverse configures as a multi-sided market. That means it’s a domain in which value is created where supply meets demand (demand for entertainment, information, socialization, services, products, and so forth).
- This connotation naturally proliferates the complexity of the challenge for managers in the initial stages because both sides of the market need to be mobilized (supply and demand). For example, companies have to attract both content developers as well as consumers of that content. It’s a classic chicken-or-egg dilemma: without content, there are no users, but without users, no one is motivated to create content. It’s no coincidence that in recent years Meta’s special focus has been to provide support for creators so they will fill the company’s virtual worlds with content. Top priority is a platform called “Horizon Worlds,” a hub that offers multiplayer Virtual Reality (VR) experiences which are highly immersive thanks to the use of visors and other hardware (the third side of the market to develop).
- From a strategic viewpoint, Horizon Worlds is a closed platform as far as governance, which means Meta has total control over the rules of access. This is what we would call a walled garden: a closed, centralized ecosystem that multiplies profit opportunities for its owner. But with other supply-side actors (whether they be sellers of products or services, creators of content, or anything else), their motivation will be comparatively lower, because they will have less autonomy in decision-making with respect to the host. Going back to the vicious (or virtuous) circle of the chicken and the egg, less attractiveness on the supply side would clearly jeopardize the successful launch of the model.
To paraphrase an astute observation about apps, new technology is like a joke: if you have to explain it, it doesn’t work. The metaverse, from this point of view, is not off to a very good start, seeing as it still has no clear definition that everyone agrees on. Early studies on the dissemination of innovations revealed that the probability and speed of success are linked to various factors, including the immediate observability of the tangible benefits innovations offer, and how easily these benefits can be communicated to and trialed by the public (trialability). What’s more, the public that needs to get on board, in this case, is double (or triple, if we include hardware producers). The benefits should be clear, immediate, and tangible for players on both sides: supply and demand. The less the benefits of an innovation are recognized as such, the more problematic its adoption will become.
With the exception of certain segments of the population, most people feel a natural resistance to change. This means that for companies it’s becoming increasingly difficult to change habits entrenched in the “main market,” especially if no discernable dissatisfaction has emerged. For changes to take hold, especially those that require us to realign our sociocultural values or to bear sizeable initial costs (monetary, psychological or cognitive), there must be particularly compelling value drivers, in other words, triggers (or killer applications) which act like powerful motivators. At present, it appears that the metaverse still hasn’t found its killer application (whether that be in the sphere of media, socialization, or commerce), so once again, there is no incentive to activate our virtuous circles.
But despite all these doubts, the scenario turns less gloomy if we expand the definition of the metaverse and interpret it as a continuum of technologies that reach varying levels of “immersiveness” and “hybridization.” In other words, if we reach beyond platforms designed as totally virtual worlds to encompass any form of integration between the physical and digital realities, then our perspective shifts. In these terms, today we find ourselves on a journey that already began several years ago, travelling on a path that will likely branch out, more or less gradually, in different directions. And this is where the uncertainty lies.
On such a continuum, the metaverse would encompass a range of different types of technologies and applications, from simple AR filters trending on Snapchat and TikTok to retail apps like Esselunga’s. With this supermarket app, when we’re at home we can snap a photo of something we’re running out of, say laundry soap, and that item automatically goes on our shopping list for the next home delivery. And then there’s Burberry’s social store, Amazon Go’s automated store, social gaming platforms like Fortnite, and of course Horizon Worlds, where we need new kinds of hardware to partake in that virtual reality.
To navigate this new space, we can imagine at least two key dimensions that we believe warrant deeper exploration in the future.
- The first centers on the customer experience, which can be defined both by the level of hybridization between physical and digital realities, and the level of immersiveness of that experience. How can companies create new value (functional, social, or hedonic) by combining atoms and bits? Or by enriching the degree of sensorial engagement (cognitive and emotional) in new augmented spaces.
- The second dimension refers to the continuum running from centralization to decentralization in terms of the solutions companies offer, in other words, the degree of control (both technical and strategic) in the hands of each player. How will companies succeed in capturing a part of the value they generate? How much leeway will they have? This topic refers to revenue models as well as Web3, in other words, all the network transformations supported by blockchain technologies, with their distributed certification of ownership and rights.
In seeking the best solutions along this continuum, companies have to learn more quickly than their competitors. From this perspective, the decision to invest (or not) in the metaverse changes in terms of the nature and the degree of uncertainty and riskiness for different realities in different contexts, with nuances that will be interesting to explore further in the future.
