The Metaverse

Here is what Mark Zuckerberg recently said on Facebook’s last earnings call,

“We believe that [the metaverse] is going to be the successor to the mobile internet. You're going to be able to access the metaverse from all different devices and different levels of fidelity from apps on phones and PCs to immersive virtual and augmented reality devices."

He also did an interview where he mentioned a particular article from Matthew Ball that does a great job explaining the metaverse.

This is my summary below of that great article from Matthew Ball.

Is the metaverse here yet? If it isn’t then when will it arrive?

Answering this question is like answering the question of when did the mobile internet era begin.

Most would probably say when the iPhone came out, some would say it was when the very first mobile phone came out and others might say it was when 2G (the first digital wireless network) came out.

In other words, it's hard to tell because technological shifts require lots of small technological changes to all come together and different people may refer to a different change as the starting period.

There are lots of those small technological changes occurring today that are contributing to the metaverse but Matthew Ball says that the idealistic vision of the metaverse is decades away.

Matthew is keeping track of the metaverse around the following 8 categories which can be thought of as a stack:

1. Hardware

2. Networking

3. Compute

4. Virtual platforms

5. Interchange tools and standards

6. Payments

7. Metaverse content, services, and assets

8. User behaviors

Hardware refers to the physical technologies and devices that access, interact with or develop the metaverse.

Some examples are mobile phones, headsets and haptic gloves on the consumer side and cameras, sensors, tracking systems that are used by enterprises to create augmented reality-based environments.

Mark Zuckerberg says that, "the hardest technology challenge of our time may be fitting a supercomputer into the frame of normal-looking glasses. But it's the key to bringing our physical and digital worlds together."

As per Matt, networking in the metaverse is defined as "the provisioning of persistent, real-time connections, high bandwidth, and decentralized data transmission by backbone providers, the networks, exchange centers, and services that route amongst them, as well as those managing 'last mile' data to consumers.

Bandwidth, latency and reliability are the 3 main areas of networking for the metaverse.

Bandwidth - the amount of data that can be transferred over a unit of time.

Latency - the time it takes for data to travel from one point to another and back. (This is the biggest challenge in networking) The metaverse will require low latency (little time for data to travel from one point to another).

Reliability- being able to rely on a quality network is important for the metaverse to operate.

Matt defines compute in relation to the metaverse as "the enablement and supply of computing power to support the metaverse, supporting such diverse and demanding functions as physics calculations, rendering, data reconciliation and synchronization, artificial intelligence, projection, motion capture and translation."

Since demand for compute (CPU and GPU) power has always outstripped supply, the availability and development of compute power will both be a constrain and will define the metaverse.

Fortnite and Roblox are the two most popular experiences that are similar to a metaverse.

Compute can be done in the cloud which is what Google Stadia and Amazon Luna do. These 2 cloud computing platforms do all the computing in the cloud and then they push this to the user by sending them a video stream and the user (gamer) only needs to press a button on their game to move. The drawback with this compute approach is that delivering this video requires a good network so if the network is poor then the gameplay for the user will be poor. This approach can allow a user with an old refrigerator that has WIFI and video to possibly play the game with the same experience as a user with a $1,500 iPhone since neither the iPhone or fridge are doing all of the compute. It's done in the cloud.

The other approach is to increase the compute of the local devices (the users' computer). This could be very costly since each user may have to upgrade to an enterprise-grade device.

Edge compute can be a good infrastructure strategy for the metaverse but the CEO of Cloudflare mostly sees their opportunity with cloud compute in compliance due to policies governing where the users’ data should be stored.

Increasing the number of players on a single game has always been limited. Right now, Roblox can do 200 and has up to 700 in beta testing but a fully imagined metaverse essentially requires no limit to this "number of players".

"The question of whether you can build one game that many millions of players can play, all in one shared world, together, that's a really interesting challenge for the game industry now."

- Tim Sweeney.

Mathew Ball defines virtual platforms in the metaverse as "the development and operation of immersive digital and often three-dimensional simulations, environments, and worlds wherein users and businesses can explore, create, socialize, and participate in a wide variety of experiences (e.g. race a car, paint a painting, attend a class, listen to music) and engage in economic activity."

The most popular virtual platforms today are GTA Online, Minecraft, Fortnite and Roblox.

Virtual platforms are a subset of virtual worlds.

Call of Duty is not a platform but a virtual world and a game.

According to Bill Gates, "a platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it."

And Tim Sweeney says that, "something is a platform when the majority of content [that] people spend time with, is created by others."

Matthew Ball says that "a virtual platform must have the technical ability for (relatively-unbound) creation (engine + studio + tools), services to support it (prefab and asset marketplaces, voice chat, player accounts, payment services), and operate a multifaceted economy (i.e. consumer spending that's shared with on-platform creators/developers, as well as creator/developer-to-creator/developer revenues).

As per Matthew Ball and Jacob Navok, "the tools, protocols, formats, services, and engines which serve as actual or de facto standards for interoperability, and enable the creation, operation and ongoing improvements to the metaverse. These standards support activities such as rendering, physics, and AI, as well as asset formats and their import/export from experience to experience, forward compatibility management and updating, tooling, and authoring activities, and information management."

If big corporations like AT&T and AOL led the development of the internet instead of public institutions, military research labs and independent academics then it would look a lot different today than it does. (AOL and AT&T tried but failed)

There are so many companies who see the potential of the metaverse today that it's possible they will lead the development of the metaverse therefore there needs to be what Matt says are "an ecosystem of 'interchange' solutions that interconnect, translate, and exchange information/users/assets across and between myriad different and competing platforms.

Video game platform standards:

DirectX --> Microsoft --> Xbox

GNMX --> Sony --> PlayStation

NVM --> Nvidia --> Nintendo switch

Metal --> Apple --> iOS

OpenGL --> Google --> Android

When companies get successful, like Apple in mobile phones, Sony in video games and Valve in PC games, they make it harder for other firms to compete so they can retain their dominant market share. This hurts innovation and would be bad for the metaverse.

It's very likely that the owners of the leading platforms on the metaverse will be much wealthier and powerful than Apple (iOS) and Google (android) with their mobile operating systems because the metaverse will likely span much more of the physical world while controlling more of the labor and creative product.

Matt gives a good example using the iPhone:

"Consider, as an example, the fact that while millions are hired through their iPhones today, and work using their iPhone, they don't literally (well, literally virtually) perform their work inside iOS. When your daughter attends school via Zoom, she accesses Zoom and her school through her iPhone, but the school isn’t operated by the iPhone. And when you make or edit an image on iOS, it's just stored there, not tethered inside of it.”

Payments is defined here as "the support of digital payment processes, platforms, and operations, which includes fiat on-ramps (a form of digital currency exchange) to pure-play digital currencies and financial services, including cryptocurrencies, such as Bitcoin and Ether, and other blockchain technologies."

Game consoles companies like PlayStation, Nintendo and Sega and Atari of the older years, collect 30% from game publishers because the owner of Pacman, Namco, agreed to pay Nintendo a 10% licensing fee to allow Namco to sell Pacman games on the Nintendo game console and another 20% to Nintendo for them to manufacture the game cartridges for Pacman. This 30% (10% licensing fee + 20% for cartridge manufacturing) became the industry standard even though the cost to manufacture games has gone down a lot due to digital downloads and lower cost CDs.

Game console companies will sell their console (Xbox or PlayStation) below cost to expand the total addressable market of players in order to collect higher platform fees from video game developers through the sale of video games.

Even Apple adopted the 30% licensing fee model for their app store even though they sell devices (iPads and iPhones) at a 35% margin unlike the gaming consoles who sell their consoles at a loss.

Gaming is where the majority of Apple’s app store revenues come from and this is the only category where all transactions are charged a 30% fee and Apple blocks all workarounds.

In 2020, an estimated $700B was spent on Apple’s app store.

Matthew Ball makes a great point about market power in the digital world by writing, “In the digital/virtual era, market power comes primarily from network effects and scale. And each of these platforms works hard to lock developers and users to their platforms by forcibly bundling separate businesses, such as hardware, drivers/APIs access, software distribution, payment solutions, services, identities, and entitlements.”

These network effects and high fees significantly constrain the development of a metaverse ecosystem.

"If value in the metaverse will be primarily driven through virtual world and virtual creations, rather than better phones, then we want most profits going to developers of the virtual platforms and the developers on them. However, you can’t access the Metaverse except through hardware, and every hardware player is fighting to be the (or at least a) payment gateway to the Metaverse. This is why Facebook, which lacks a major operating system, is investing so heavily in Oculus. And why Snap is developing its own AR hardware, while defending Apple's 30% take."

- Matthew Ball

The main reason for Epic Games lawsuit against Apple isn’t about profits because Epic is already profitable. It is about trying to make the payment rails of the metaverse cheap and easy to use because that is what will allow the metaverse to reach the full potential of its effectiveness.

Cryptocurrency helps mitigate the drawbacks of the payment rails in the virtual world today.

Most NFT platforms and blockchain games are browser based instead of mobile because Apple takes a 30% fee on each transaction on iPhones and this constrains development. Browsers aren’t subject to these 30% take rates.

"[Blockchain is] an indisputably neutral, distributed way of expressing individual ownership... the most plausible path towards an ultimate long-term open framework where everyone's in control of their own presence, free of gatekeeping."

- Tim Sweeney

Matthew Ball defines the content, services, and assets in the metaverse as "the design/creation, sale, re-sale, storage, secure protection and financial management of digital assets, such as virtual goods and currencies, as connected to user data and identity."