Chapter 2
FOR ALL THE FASCINATION WITH THE METAVERSE, the term has no consensus definition or consistent description. Most industry leaders define it in the manner that fits their own worldviews and/or the capabilities of their companies.
For example, Microsoft’s CEO Satya Nadella has described the Metaverse as a platform that turns the “entire world into an app canvas”1 which could be augmented by cloud software and machine learning. No surprise, Microsoft already had a “technology stack”2 which was a “natural fit” for the not-quite-here Metaverse and spanned the company’s operating system Windows, cloud computing offering Azure, communications platform Microsoft Teams, augmented reality headset HoloLens, gaming platform Xbox, professional network LinkedIn, and Microsoft’s own “Metaverses” including Minecraft, Microsoft Flight Simulator, and even the space-faring first-person shooter Halo.3
Mark Zuckerberg’s articulation focused on immersive virtual reality#x2021;‡ as well as social experiences that connect individuals who live far apart. Notably, Facebook’s Oculus division is the market leader in VR in both unit sales and investment, while its social network is the largest and most used globally. The Washington Post characterized Epic’s vision of the Metaverse, meanwhile, as “an expansive, digitized communal space where users can mingle freely with brands and one another in ways that permit self-expression and spark joy . . . a kind of online playground where users could join friends to play a multiplayer game like Epic’s ‘Fortnite’ one moment, watch a movie via Netflix the next and then bring their friends to test drive a new car that’s crafted exactly the same in the real world as it would be in this virtual one. It would not be (in Sweeney’s opinion) the manicured, ad-laden news feed presented by platforms like Facebook.”4
In many cases, the Metaverse discourse showed that executives see the need to use the buzzword before they have any real handle on what it means overall, let alone for their business. In August 2021, Match Group, the owner of dating sites such as Tinder, Hinge, and OKCupid, said that its services would soon receive “augmented features, self-expression tools, conversational AI and a number of what we would consider metaverse elements, which have the element to transform the online meeting and getting-to-know-each-other process.” No further details were provided, though presumably its Metaverse initiatives will involve virtual goods, currencies, avatars, and environments that facilitate romance.
After Chinese megacorporations Tencent, Alibaba, and ByteDance began positioning themselves as leaders in the vaguely defined but seemingly imminent Metaverse, their domestic competitors stumbled as they sought to explain how they, too, would become pioneers in this multi-trillion-dollar future. For instance, the head of investor relations at NetEase, another Chinese gaming giant, said on the company’s Q3 2021 earnings call that “The metaverse is indeed the new buzzword everywhere today. But then, on the other hand, I think nobody has actually had firsthand experience in what it is. But at NetEase, we are technologically ready. We know how to accumulate the relevant know-how, the relevant skillsets when that day comes. So, I think when that day eventually comes, we’d probably be one of the fastest runners in the metaverse space.”5
A week after Zuckerberg first detailed his Metaverse strategy, CNBC’s Jim Cramer found himself the subject of online mockery after he struggled to explain the Metaverse to Wall Street investors.6
Jim Cramer (JC): You have to go to the Unity conference call first quarter, which really explains what the Metaverse is, which is the idea that you you’re, you’re, you’re looking at basically you can be in Oculus, whatever. And you say, I like the way that person looks in that shirt. I want to order that shirt and it’s or ultimately it’s an NVIDIA uh, based on NVIDIA. And when I was out at NVIDIA with Jensen Huang, what happens? You could, it’s conceivable. Okay. David, listen to me. Cause this is important.
David Faber (DF): I’m reading what the Zuckerberg had to say about it—
JC:—he didn’t tell you nothing . . . no, he didn’t!
DF:—“a persistent synchronous environment where we can be together, which I think is probably going to resemble some kind of a hybrid between the social platforms we’ve seen today, but an environment where you’re embodied in it.” That tells me what it is: it’s The Holodeck.
JC:—It IS a hologram. It’s like the idea—
DF:—it’s like Star Trek—
JC:—ultimately, you could go into a room, let’s say you’re alone and you’re a little lonely, okay? And you like classical music, but you go into the room and you say to the first person you see, “Do you think that you like to do you like the Mozart, you know, the Haffner?” And then the second person says, “Before you listen to Haffner, have you listened to Beethoven’s ninth?” Let me tell you, these people don’t exist. Okay?
DF:—Understood.
JC:—THAT’S the Metaverse.
While Cramer was obviously confused, much of the tech community continues to dispute key elements of the Metaverse. Some observers debate whether augmented reality is part of the Metaverse, or separate from it, and whether the Metaverse can only be experienced through immersive VR headsets or is just best experienced using such devices. To many in the crypto and blockchain community, the Metaverse is a decentralized version of today’s internet—one in which users, not platforms, control its underlying systems, as well as their own data and virtual goods. Some important voices, such as former Oculus VR CTO John Carmack, argue that if the Metaverse is primarily operated by a single company, then it cannot be the Metaverse. Unity’s CEO, John Riccitiello, doesn’t subscribe to this belief, though he notes that the solution to the danger of a centrally controlled Metaverse are technologies such as Unity’s cross-platform engine and services suite, which “pulls down the height of the wall of the walled garden.” Facebook hasn’t said whether or not the Metaverse can be privately operated, but the company does say that there can be only one Metaverse—just as there is “the internet,” not “an internet” or “the internets.” Microsoft and Roblox, conversely, talk about “Metaverses.”
To the extent there is a common understanding of the Metaverse, it could be described as follows: a never-ending virtual world where everyone dresses up as comical avatars and competes in immersive VR games to win points, jumps into their favorite franchises, and acts out their most impossible fantasies. This was brought to life in Ernest Cline’s Ready Player One, a 2011 novel considered to be a more mainstream, spiritual successor to Stephenson’s Snow Crash, and which was adapted to film by Steven Spielberg in 2018. Like Stephenson, Cline never provided a clear definition of the Metaverse (or what he called “The Oasis”), but instead described it through what could be done and who one could be within it. This vision of the Metaverse is similar to how the average person understood the internet in the 1990s—it was “The Information Superhighway” or “World Wide Web,” which we’d “surf” with our keyboards and “mouse”—just now in 3D. A quarter century later, it’s obvious this conception of the internet was a poor and misleading way to describe what was to come.
The disagreement and confusion over the Metaverse, on top of its connection to partly dystopic sci-fi novels in which techno-capitalists rule two planes of human existence, result in a variety of critiques. Some argue the term represents little more than vapid marketing hype. Others wonder how the Metaverse will be any different from experiences such as Second Life, which have existed for decades and, though once expected to change the world, eventually faded from memory and was uninstalled from personal computers.
Some journalists have suggested that big tech’s sudden interest in the nebulous idea of the Metaverse is actually an effort to avoid regulatory action.7 Should governments around the world become convinced that a disruptive platform shift is imminent, this theory supposes then even the largest and most entrenched companies in history need not be broken up—free markets and insurgent competitors will do the work. Others have argued that, on the contrary, the Metaverse is being used by said insurgents so that regulators will open antitrust investigations into today’s big tech leaders. One week before filing suit against Apple on antitrust grounds, Sweeney tweeted “Apple has outlawed the Metaverse,” with the company’s legal filings detailing how Apple’s policies would prevent its emergence.8 The federal judge presiding over the lawsuit seemed to buy into at least part of the “Metaverse as a regulatory strategy” theory, stating in court: “Let’s be clear. Epic is here because, if relief is granted, it could turn the multibillion-dollar company into maybe a multitrillion-dollar company. They aren’t doing it out of the kindness of their heart.”9 The judge also wrote that regarding Epic’s lawsuit against Apple and Google, “The record reveals two primary reasons motivating the action. First and foremost, Epic Games seeks a systematic change which would result in tremendous monetary gain and wealth. Second, [the lawsuit] is a mechanism to challenge the policies and practices of Apple and Google which are an impediment to Mr. Sweeney’s vision of the oncoming metaverse.”10 Others have argued that CEOs are using the vaguely understood term to justify pet R&D projects that are years from public release, probably farther behind schedule, and of little interest to shareholders.
Confusion as a Necessary Feature of Disruption
All new and particularly disruptive technologies deserve scrutiny and skepticism. But current debates about the Metaverse remain muddled because—at least thus far—the Metaverse is only a theory. It is an intangible idea, not a touchable product. As a result, it’s difficult to falsify any specific claim, and inevitable that the Metaverse is understood within the context of a given company’s own capabilities and preferences.
However, the sheer number of companies that see potential value in the Metaverse speaks to the size and diversity of the opportunity. What’s more, debate over what the Metaverse is, how significant it might be, when it will arrive, how it will work, and the technological advances that will be required is exactly what produces the opportunity for widespread disruption. Far from disproving it, uncertainty and confusion are features of disruption.
Consider the internet. Wikipedia’s description of the internet (which remains largely unchanged since the mid-2000s) goes as follows: “The global system of interconnected computer networks that uses the Internet Protocol Suite (TCP/IP) to communicate between networks and devices. It is a ‘network of networks’ that consists of private, public, academic, business, and government networks of local to global scope, linked by a broad array of electronic, wireless, and optical networking technologies. The internet carries a vast range of information resources and services, such as the inter-linked hypertext documents and applications of the World Wide Web (WWW), electronic mail, telephony, and file sharing.”11
Wikipedia’s summary addresses some of the internet’s underlying technical standards and describes its scope as well as some of its use cases. The average person can read it today and easily map it to their personal usage and probably recognize why it’s an effective definition. But even if you understood this definition in the 1990s—or even after Y2K—it didn’t clearly explain what the future might look like. Even experts struggled to understand what to build on the Internet, let alone when to do so or through which technologies. The internet’s potential and needs are obvious now, but at the time, almost no one had a cohesive, easily communicated, and correct vision of the future.
This confusion leads to a few common error types. Sometimes, emerging tech is seen as a trivial toy. In other cases, its potential is understood, but not its nature. Most often people misunderstand which specific technologies will thrive and why. On occasion, we get everything right except for the timing.
In 1998, Paul Krugman, who would win the Nobel Memorial Prize in Economic Sciences a decade later, wrote an (unintentionally) ironically titled article “Why Most Economists’ Predictions Are Wrong” in which he stated: “The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”12
Krugman’s prediction, which predated the dotcom crash, as well as the founding of companies such as Facebook, Tencent, and PayPal, was quickly disproven. However, the internet’s significance was debated for over a decade after his pronouncement. It wasn’t until the mid-2010s, for example, that Hollywood accepted that the core of their businesses, not just low-cost, user-generated content such as YouTube videos and Snapchat Stories, would shift to the internet.
Even when the importance of the next platform is well understood, its technical premises, roles of related devices, and business models can remain unclear. In 1995, Microsoft founder and CEO Bill Gates wrote his famous “Internet Tidal Wave” memo, in which he explained that the internet was “crucial to every part of our business” and “the most important single development to come along since the IBM PC was introduced in 1981.”13 This rallying cry is considered the starting point of Microsoft’s “Embrace, Extend, Extinguish” strategy, which the Department of Justice argued was part of the company’s efforts to use its market power to catch up to and then eliminate market leaders in internet software and services.
Five years after Gates’s memo, Microsoft launched its first mobile phone operating system. However, the company misread the dominant mobile form factor (the touchscreen); platform business model (app stores and services, rather than operating system sales); the role of the device (which became the primary computing device for most purchasers, rather than a secondary one); the extent of its appeal (everyone); its optimal price point ($500–$1,000); and its role (most functions, rather than just work and phone calls). As is well known today, Microsoft’s mistakes came to a head beginning in 2007, when the first iPhone was released. When asked about the device’s prospects, Microsoft’s second-ever CEO, Steve Ballmer, infamously laughed and replied, “Five hundred dollars? Fully subsidized? With a plan? I said that is the most expensive phone in the world. . . . And it doesn’t appeal to business customers because it doesn’t have a keyboard. Which makes it not a very good email machine.”14 Microsoft’s mobile operating system never recovered from the disruptive force of Apple’s iPhone and iOS, nor of Google’s Android, which targeted many of Microsoft’s typical Windows manufacturers, such as Sony, Samsung, and Dell, but was free-to-license and even shared a portion of app store revenues with the device makers. By 2016, the majority of internet usage globally was via mobile computers. The next year—a decade after the first iPhone—Microsoft announced that it was discontinuing development of its Windows Phone.
Facebook, one of the biggest winners from the rise of the consumer internet, initially misjudged the mobile era too, but was able to corrects its mistakes before being displaced. Its mistake? Thinking that browsers, not apps, would be the dominant way to access the web.
Four years after Apple launched the iPhone’s App Store, three years after Apple’s famous “There’s an app for that” ad campaign, and two years after Sesame Street, of all things, parodied that campaign, the social networking giant was still focused on browser-based experiences. While Facebook did technically release a mobile app the same day Apple released the App Store, and it quickly became the most popular way to access Facebook on a mobile device, this app was really just a “thin client” that loaded HTML inside a non-browser interface.
In mid-2012, Facebook finally relaunched its iOS app, which was “rebuilt from the ground up” to focus on device-specific code. Within a month, Mark Zuckerberg said that users were consuming “twice as many newsfeed stories” and that “the biggest mistake we made as a company was betting too much on HTML5. . . . We had to start over and rewrite everything to be native. We burned two years.”15 Ironically, Facebook’s late shift to native apps is part of the reason the company is seen as a case study for successfully pivoting a business to mobile. Over the course of 2012, mobile’s share of Facebook’s total ad revenues surge from less than 5% to 23%—but this just demonstrates how much mobile revenue the company had lost out on by betting on HTML5 over the previous years. Facebook’s delayed shift had other consequences in the form of missed opportunities and multi-billion-dollar bills. A decade after Facebook made its switch, the Facebook product with the most daily users is WhatsApp, which the company acquired in 2014 for nearly $20 billion. WhatsApp had been developed in 2009 specifically for app-based messaging on smartphones; at the time, Facebook had a nearly 350 million monthly user head start. Many on Wall Street also consider Instagram, the mobile-native social network that Facebook bought for $1 billion in the months prior to its relaunched iOS apps, to be its most valuable asset.
While Microsoft and Facebook made fundamental mistakes about the technologies of the future, many others failed because they bet on the right technology but before there was a market to support it. In the years before the dotcom crash, tens of billions of dollars were invested in building fiber optic networks across the United States. Due to the low marginal costs in laying extra capacity, many backers built considerably greater capacity than was needed—hoping that they would corner a regional market by providing enough capacity for all existing and future traffic. However, this was based on the faulty belief that internet traffic growth would increase exponentially in the years to come. Ultimately, it was common for less than 5% of fiber to be “lit,” with the rest unused.
Today, the thousands of miles of “dark fiber” across America are a largely underappreciated enabler of the country’s digital economy, silently helping content owners and consumers gain access to high-bandwidth, low-latency infrastructure at low prices. But in the years between the laying of these cables and the present day, many of those responsible went through bankruptcy. These include Metromedia Fiber Network, KPNQwest, 360networks, and, in one of the largest bankruptcies in US history, Global Crossing. Several other companies, such as Qwest and Williams Communications, barely escaped. Though ultimately felled by accounting fraud, the infamous collapses of WorldCom and Enron were exacerbated by multi-billion-dollar bets that demand for high-speed broadband would rapidly exceed supply. Enron was so convinced of the imminent and insatiable demand for highspeed data that in 1999 it unveiled plans to trade bandwidth futures like oil or silicon, assuming businesses would want to book capacity up to years in advance lest they encounter enormous swings in per bit delivery costs.
What makes technological transformation difficult to predict is the reality that it is caused not by any one invention, innovation, or individual, but instead requires many changes to come together. After a new technology is created, society and individual inventors respond to it, which leads to new behaviors and new products, which in turn lead to new use cases for the underlying technology, thereby inspiring additional behaviors and creations. And so on.
Recursive innovation is why even the biggest believers in the internet 20 years ago rarely predicted much about how it would be used today. The most accurate forecasts were typically platitudes such as “more of us will be online, more often, using more devices, and for more purposes,” while the least accurate ones tended to be those that described exactly what we’d do online, when, where, how, and to what end. Certainly, few imagined a future in which entire generations would communicate primarily through emojis, tweets, or short filmed “Stories.” Or where Reddit’s stock investing forum, combined with free and easy investing via platforms such as Robinhood, would drive the rise of “You Only Live Once” trading strategies—which in turn saved companies such as GameStop and AMC Entertainment from COVID-19–driven bankruptcy. Or where 60-second-long TikTok remixes would define the Billboard charts, and with it, the soundtrack of our daily commutes. In 1950, IBM’s product planning department reportedly spent the entire year “insisting that the market would never amount to more than about eighteen computers nationwide.”16 Why? Because the department could not imagine why anyone would need such devices, except to use the software and applications IBM was developing at the time.
Whether you’re a Metaverse believer, skeptic, or somewhere in between, you should become comfortable with the fact that it is too early to know exactly what a “day in the life” might look and feel like when the Metaverse arrives. But the inability to precisely predict how we’ll use it, and how it will change our daily life, is not a flaw. Rather, it is a prerequisite for the Metaverse’s disruptive force. The only way to prepare for what is coming is to focus on the specific technologies and features that together comprise it. Put another way, we have to define the Metaverse.
#x2021;‡ “Virtual reality applications” technically refers to computer-generated simulations of three-dimensional objects or environments with seemingly real, direct, or physical user interaction (J. D. N. Dionisio, W. G. Burns III, and R. Gilbert, “3D Virtual Worlds and the Metaverse: Current Status and Future Possibilities,” ACM Computing Surveys 45, issue 3 [June 2013], http://dx.doi.org/10.1145/2480741.2480751). In modern usage, it most commonly refers to immersive virtual reality, in which a user’s sense of sight and sound are fully placed within this environment, in contrast to viewing it on a device such as a TV, in which only parts of their senses are immersed in the environment.