Monetizing the metaverse

Opinion

There’s good reason Meta changed its name from Facebook last year.

It wasn’t only to better represent its other popular platforms—like Instagram and WhatsApp.

The big tech company also wanted to emphasize its growing focus on the metaverse.

It’s likely you’ve heard the term in the last year in the news—like how an individual paid US$450,000 to own virtual real estate neighbouring rapper Snoop Dogg’s virtual mansion.

That early hype around highly speculative metaverse investments like virtual real estate has cooled significantly.

Yet the metaverse — an immersive online environment where individuals can, for example, use virtual reality (VR) technologies like Meta’s Quest headsets — arguably should pique investors’ interest.

That’s particularly so as share prices of large tech companies in the space, like Meta, are down from their pandemic peaks.

What’s more, the metaverse’s potential is palpable.

Encompassing virtual worlds to play games, socialize and work, it also involves cryptocurrencies and non-fungible tokens (NFTs) to trade, buy and sell virtual items with supposed real value (including virtual real estate).

The metaverse can also be layered onto the real world using augmented reality (AR) technology to improve workplace productivity or enhance our day-to-day with useful information displayed on eyeglasses, for example.

In short, the metaverse offers a lot of different opportunities to different people and companies, including one in Winnipeg called Bit Space Development.

“We use VR to simulate not-so-safe environments in the real world,” says Fabio Hofnik, a metaverse consultant with Bit Space Development.

Developing workplace training and educational software where users can train in a virtual, three-dimensional environment, the small company is among many seeking to leverage the metaverse to change how people work and play, and to potentially turn a profit.

Yet the metaverse has yet to be fully envisioned, offering “multiple virtual environments connected together that users can navigate through carrying their virtual belongings,” he says.

Today it’s a fractured universe, largely divided among big tech platforms like Meta’s Quest, or gaming ones like Roblox whereby users interact via stylized virtual personas, or avatars.

Growing pains aside, the metaverse is expected to be profitable.

A recent report by research consulting firm McKinsey and Company, for example, forecast the metaverse could generate US$5 trillion in economic activity by 2030.

Today, though, potential is mostly all the metaverse offers, says Roshan Jhunja, head of retail at technology company Square in New York.

“No one can pinpoint where it’s going and how it might be successful.”

Still, Square’s customers are already considering its possibilities.

“Within Canada, about 37 per cent of retailers have or plan to have some sort of VR or AR approach,” he says based on findings from Square’s latest Future of Commerce report.

Jhunja points to several large companies already using AR technology to enhance the shopping experience. Among them is Ikea, which launched a mobile app using AR so you can see on your phone how furniture might look in your home.

For the most part, however, the metaverse remains a wild frontier, leading to a lot of wild speculation regarding sought-after virtual items—like special edition Nike sneakers.

Most of those ridiculously valued virtual assets have since come crashing down in price.

Yet even amid cooling speculation, metaverse gaming environments, like The Sandbox, still list virtual land for thousands of real dollars.

Indeed, it smacks of science fiction—as it should. The ‘metaverse’ was coined from a 1990s novel about a dystopian future after all.

Yet its underpinning technologies could change our world dramatically in years to come, says Jonathan Curtis, a technology fund portfolio manager with Franklin Equity Group in California’s Silicon Valley.

“Right now, the metaverse is in a phase similar to those pre-web-browser days (of the early ’90s of the internet) when we were still poking around with rudimentary tools.”

In fact, the metaverse is considered the latest iteration of the internet, often called ‘web 3.0’ following on ‘web 2.0’—social media— and before that, web 1.0 (i.e., web browsers).

The question today is “can we create rails between various (virtual) worlds” where metaverse users seamlessly move from Meta’s environment to The Sandbox’s?

“That (co-operation) often hasn’t worked well among big tech,” he adds.

Yet Curtis expects the interoperability issues will be worked out, leading to potentially rewarding returns for prudent investors — much like webs 1.0 and 2.0.

Winning companies will likely be the ones that can “capture more engagement and be an ecosystem for developers to build attracting brand names advertising within their environments,” explains Jennifer Chen, a research analyst with Franklin Equity Group.

She points to Roblox — which listed on the U.S. stock market in 2021 — as an early leader.

“It’s the furthest along having an engaged base” of 60 million users who spend about two hours a day on the platform, Chen notes.

Investing in its future certainly can be high risk, Curtis says.

Then again, “why would Meta and other big tech companies invest so much in it if they didn’t see an enormous pot of gold?”

Furthermore, while the metaverse is new, most key metaverse companies aren’t.

Many top holdings in a spate of newly launched metaverse focused exchange-traded funds (ETFs) are big technology companies, adds Winnipeg personal finance blogger Enoch Omololu at Savvy New Canadians.

“Right now, these funds are lagging the broader market.”

But given the initial investment craze has “evaporated,” investors with an appetite for risk may want to give the metaverse a look, says Omololu, who has written several blog posts on the subject.

“Most notable metaverse stocks are strong tech companies with growing revenues regardless of the metaverse.”

What’s more, buying a metaverse fund is undoubtedly a less risky strategy than speculating on virtual land, Omololu adds.

“Unless you’re willing to do tons of research, I would not recommend those virtual investments because you just don’t know—it could be a scam.”