What is the “metaverse” and what does it mean for investors?

(Image credit: Illustration by Adam Stower)

published 12 November 2021

What is the metaverse?

The metaverse is the overarching term used to describe the next big phase of the internet, in which advances in a range of new technologies – including virtual and augmented reality – are predicted to transform the online world into a more immersive, 3D experience, blurring the physical and the digital.

Facebook boss Mark Zuckerberg (who has just rebranded his company as Meta Platforms to position it as a “metaverse company”) describes the metaverse as “an internet you’re inside of, rather than just looking at” – a place where you, or your avatar, will be able to “get together with friends and family, work, learn, play, shop, [and] create”.

Most fundamentally, the metaverse is two things: a grand vision of the future, encompassing new technologies that may not come to fruition for decades – and also a buzzy new way of encapsulating, under one conceptual banner, a range of changes that are already happening.

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What kind of changes exactly?

Zuckerberg’s pitch focused on his terrifically dull vision of an “infinite office”, while Microsoft is focused on an “enterprise metaverse” at work. But the more exciting current developments are in the world of gaming. Videogames such as Roblox, Fortnite and Animal Crossing: New Horizons, in which players can build their own worlds, have “metaverse tendencies”, as does most social media, says John Herrman in The New York Times.

Early videogames such as The Sims (which launched in 2000) and Second Life (2003) can be seen as early iterations of the metaverse, in that they involve virtual worlds and digital avatars. And today, the bosses of Roblox Corp. and Epic (the maker of Fortnite) specifically describe their creations as “metaverses”.

If you own a non-fungible token or some cryptocurrency, then you’re already “part of the metaversal experience”. Virtual and augmented reality are, at a minimum, “metaverse adjacent”. And if you’ve attended a meeting or a party using a digital avatar, then you are very much in “the neighbourhood of metaversality”.

Where did the word originate?

It’s from Snow Crash, a 1992 science-fiction novel by American writer Neal Stephenson. In his book, the Metaverse (always capitalised) is a 3D virtual-reality world where humans take refuge from the dystopian reality. It’s a shared “imaginary place” that’s “made available to the public over the worldwide fibre-optics network” and projected onto virtual-reality goggles.

A similar idea was developed in The Matrix films, and in Ernest Cline’s 2011 novel Ready Player One, in which people living in 2045 escape their nuclear war-torn environment via vast networks of artificial worlds called the Oasis.

The Covid-19 pandemic has obviously not been quite that hellish, but the social isolation foisted on much of the world has meant that the “idea of escaping into a fully digital space” no longer seem that outlandish, says Richard Waters in the Financial Times. “If workers took to Zoom so easily, why not congregate in a digital office?”

So is this just souped-up virtual reality?

No. Some sceptics do regard “metaverse” as marketing jargon chiefly aimed at helping Mark Zuckerberg shift millions of Oculus VR headsets. Facebook bought the company in 2014 for $2bn, but it has never quite lived up to its promise.

But most commentators define the metaverse much more broadly than just VR. Matthew Ball, a venture capitalist who has written extensively on the metaverse (his nine-part The Metaverse Primer, available online, is a detailed and eloquent exploration of the idea) sees it most simply as “a quasi-successor” to the mobile internet. It will “slowly emerge over time as different products, services and capabilities integrate and meld together”.

What will be the key features?

Ball’s own “best swing” at a brief definition is that “the Metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments”.

The key concepts here are, first, “persistent” and continuous: the world must not reset, or freeze, or pause, or end. Second, even more crucial, is “interoperability” of digital assets between different platforms.

For all the uncertainty about how the metaverse will evolve and develop, that will certainly mean massive commercial opportunities relating to hardware, networking, computer power, virtual platforms, content, services and assets – and payments services.

Any ideas for investors?

Oculus is “just one maker of unwieldy metaverse headgear”, says Jack Hough in Barron’s. Other makers of “preposterous-looking” units include Sony, HP and HTC.

In terms of augmented reality – using glasses that allow graphics to be overlaid on the real world – Google is now beta testing its Google Meet videoconferencing on its Glass Enterprise Edition 2 (the new name for Google Glass). And Facebook, which has taken on 10,000 staff in Europe to focus on the metaverse, is partnering with Ray-Ban on its own smart glasses, Ray-Ban Stories. Microsoft and Apple are gearing up to fight for metaverse territory.

Other opportunities for metaverse investment mostly range from “outrageously valued to financially nihilistic”, says Hough. The metaverse will need real-time rendering, or image-drawing, which favours chips from Nvidia (trading at more than 20 times sales) and programs from the likes of Unity Software, closer to 40 times sales.

Better value might be found in Immersion, which specialises in haptic feedback that can give the illusion of feeling in virtual worlds, and goes for six times sales.

Finally, Qualcomm, valued at four times sales, makes chips for mobile devices, including smart glasses.

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Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.