Mostly Harmless

Hype and big money meet nonsense and opportunity.

It has taken over 30 years for the overnight sensation of the Metaverse, but now hype, money, and large technology companies are charging in. Most obvious and conspicuous is Facebook’s maneuver to change its name to Meta Platforms and commit $10 billion. Microsoft is making a $70 billion acquisition of Activision to mostly focus on Metaverse platform development. Following on top of these two elephants is tens of billions of dollars of venture capital.

It’s Convergence

The opportunity is considered comparable to the original iPhone. None of its component services – mobile phone, computer, camera, and operating system, were new or distinct. The iPhone revolution is the convergence into a single device (or platform) and, most importantly, the entrepreneurial spark that lit millions of application developers to create value from the iPhone platform.

The Metaverse can best be thought of as the intersection of technologies and users. It combines virtual and augmented worlds, virtual assets, digital assets, and gaming into a single platform.

A Metaverse platform or “world” gathers hundreds of millions of active users, and these users interact more seamlessly and easily thanks to powerful computing capacity, mobile phones and devices, and more powerful cloud services and mobile connectivity.

The Market

A potential mass market (and plausible) is augmented reality, virtual reality, and mixed reality – mostly experienced by headsets. These can be powerful experiences for gamers and hobbyists, but their mass-market appeal is still questionable. Do we want to be wearing headsets to have a specialized experience? There are some questions about this despite the beliefs of its most bullish backers.

Web 3.0 technology enables virtual assets which can range from NFTs to digital wallets and virtual real estate and assets along the way. There could be great potential here, but perhaps hype and unwarranted optimism is also reasonably plausible.

Untangling hype from reality and understanding where the true potential exists is important. While the dot-com meltdown is reasonably comparable, one cannot ignore the fact that from the dot-com meltdown came global e-commerce of approximately $5 trillion.

Predicting the same outcome seems a fool’s errand at this point, but companies are experimenting and investing, technologies are emerging, and potential valuable products, services, and operations may emerge.

Metaverse market estimates can be optimistic:

Is It Real? What Is It?

Most of the discussion around the Metaverse is like a conference room full of people asked if they understand something and everyone nods their head but no one has any clue what’s going on. The same seems to be true of the Metaverse.

Many see the Metaverse as the next generation of the Internet, a virtual world interconnected seamlessly with the physical world. However, if we simply replace Metaverse with the word “cyberspace” the meaning doesn’t change. What, if anything, is special?

Interconnection and Ecosystem

Interconnection to a real and virtual world, the argument goes, combines real and virtual worlds creating new consumer and business experiences that will be interconnected and valuable. Of course, videogame players are familiar with interconnected platforms, but the narrative is that games are only the beginning.

Virtual concerts, shopping malls, virtual currencies, and customized virtual homes have millions of users. There are innovative virtual experiences developing (such as Fortnite) and a sizable and growing virtual asset economy – buying, selling, and creating goods including art, real estate, clothing, and, most interestingly, currency. In 2021, more than $40 billion was spent on NFT and Goldman Sachs and Morgan Stanley each identify virtual monetization of the Metaverse as an $8 trillion opportunity.

Yes, That Was $8 trillion


This market opportunity seems hyperbolic. Decentralized finance certainly creates an interesting seamless and global disruption to the finance industry. There is a real opportunity here, but how much needs to be on a new platform versus simply an extension of existing platforms with some disintermediation is debatable.

Web 3.0 doesn’t seem to be 3.0 anything. It’s more like a derivative of the existing Web 2.0, an enhancement and extension of existing technologies, but not anything disruptive.

This seems an unsustainable financial bubble to many cynics.

Perhaps it helps to be most cynical about the bridge between digital or cryptocurrencies and the real economy. Central bank-governed currencies or fiat money still rule the financial world and doesn’t look like it’s going to be replaced by a cryptocurrency anytime soon.

What passes for the Metaverse is more like virtual meetings via zoom than anything fundamentally different. Perhaps we have more effective ways to experience reality, but a transition to a new world that is a completely new platform converging multiple experiences is still rudimentary at best, and consumers don’t seem to be globally receptive.

Is It Better Business, After All?

Virtual experiences have existed in gaming since its inception. Now, gamers are used to virtual interaction globally. Will the same apply to business interaction? Does the gaming experience transfer to a virtual business conference room? Microsoft advocates this and is building systems to enable the digitization of people, places, and things to interact. The business platform becomes a Metaverse platform.

Business communication and interaction will be more efficient, but that is not an $8 trillion opportunity.

Convergence, Divergence, and Resistance

Metaverse worlds are immersive applications offering the possibility to reach new audiences in diverse ways. Any media that has developed, from radio to television to the Internet has offered the opportunity to reach new audiences. A Metaverse world may simply be another media channel enabling brands and companies the opportunity to market products and services to audiences in a unique way.

That “different way” combines a live and synchronous experience that is immersive on a multiuser or contributor platform. It can be consistent and seamlessly transacted via digital currency and decentralized finance. This can be quite appealing and has the potential to create virtual communities with content and business models that are new, distinct, and profitable.

Currently, these are gaming applications. To be sure, gaming applications have added interesting features that attracted broader audiences as a result (Fortnite is the best example). More socially interactive games are being developed, the experiences broader, and the platforms attracting a wider range of participants. Virtual events are bringing in even larger audiences to these virtual worlds.

The economic models remain dubious, but monetization is building virtual asset economies. These can include more traditional approaches, such as subscriptions, advertising, and application purchases, and include monetization of Metaverse-generated data.

Big Tech Piles In

Larger technology companies, such as Meta are looking to integrate the virtual worlds in the Metaverse with their other Facebook and Instagram properties.

Even technology companies such as Nvidia are using a photorealistic Metaverse world, requiring massive and intense computing power (Nvidia’s core business) for a broader platform.

Microsoft is applying its software platforms to the company’s virtual reality platform and its HoloLens headsets.

The other large technology companies all have plans and development projects. Will any of this pay off?

Technology – Whether You Want It or Not.

Technological advances are enabling more realistic experiences, better digital displays, and more synchronized movements. Equipment costs are falling, and performance is improving. But will ten million active users be strapping on headsets, regardless of how effectively they work? It’s reasonable to be skeptical about a critical mass that becomes a self-sustaining ecosystem.

Of course, skepticism existed about the smartphone platform early on, but that was immediately overwhelmed by practical and valuable uses. It’s challenging to see the same with virtual reality or augmented reality headsets.

Six billion smartphones are in use today and three billion of those are powerful enough to enable augmented reality. Whether anyone wants to use it is another debate. Simply because the infrastructure and platform exist do not mean consumer adoption or even attention will follow.

Augmentation and Connection

There are applications.

Smartphones and augmented reality technology enable retailers to augment customer experiences. Social networks have additional services and commercial applications, such as augmenting engineering and collaborative interaction. Essential business communication can happen more effectively in a virtual and augmented world.

This helps connection, communication, and interaction. Although, it is more of a derivative and improvement to existing products and services rather than something truly disruptive and revolutionary.

There is value, but it is not disruptive, revolutionary, or an entirely new market of products and services.

Digital Content

Web 1.0, the initial iteration of the Internet, allowed users to consume digital content that publishers or others created. Web 2.0 allows users to both create and consume content but centralize networks control and profit from distribution.

Web 3.0 enables users to consume, create, and own content. The networks, and the money generated, are decentralized. The key to this is blockchain technology replacing centralized intermediaries, and providing security and trust that enables both consumption of products and the exchange of value.

This disintermediation is at the heart of the economic model of Web 3.0. While still early, a virtual economy that includes cryptocurrencies, NFTs, and smart contracts is emerging.

It’s not to be ignored.

It is estimated that in 2021, more than $50 billion in virtual goods were purchased. There are 30 million NFT wallets and approximately $40 billion was spent on NFT purchases in 2021. This may have crashed in 2022, but the question is whether the downward trend spirals to insignificance or if a truly interactive platform of digital assets will still ultimately emerge and be a robust participant in global economic activity.

How to Lose Millions

NFTs have certainly been overhyped. The NFT of the first tweet went from $2.5 million to essentially nothing in less than a year. Christies auctioned a digital file from the artist Beeple for $70 million and ushered in tens of millions of dollars more in NFT auctions. The NFT digital exchange, OpenSea, received a valuation of approximately $13.5 billion in 2021.

All this may be mostly gone – or is it? More than 70% of OpenSea’s NFT business was fraudulent, NFT collectors have mostly disappeared, and the value of any real NFT is questionable.

Companies have piled in, nonetheless. These include luxury brands like Louis Vuitton and Gucci, Adidas and Prada, and anyone else with a brand, it seems. While the initial marketing opportunities seemed potentially extraordinary, the valuation and opportunity have certainly been anything but a straight line upwards.

Co-existence and Survival?

NFTs are the most extreme example of hyperbole, but there is something underneath. Essentially an NFT is a verifiable and secure digital contract. This is a powerful tool in traditional finance, and perhaps co-existence is the ultimate evolutionary direction.

It’s not so much a new platform or even a convergence of disparate assets into a new economic model, but an enhancement of what currently exists. One cannot ignore that digitizing assets and digital commerce enable increasing economic power globally.

This is a more potent opportunity for existing players in finance and commerce as they find more efficient ways to reach larger markets. It’s debatable whether there is room for an emerging platform resulting from the creation of completely new assets and economic entities.

Convergence and a Closed Loop

The hope is that disparate economic models, products, services, and revenue sources will converge onto the Metaverse platform, like what happened with the iPhone (and smartphone) platform.

This remains to be seen. We are seeing cheaper and better technology enhancing a user base. Will that user base be large enough? If it is, it can create an ecosystem (Meta‘s stated goal) generating content and economic value on a large platform. That content and those virtual assets drive cheaper and better technology which enhances the user base, and the “closed loop” process continues generating substantial value.

Indisputably, the extraordinary valuations that have been achieved by companies like Apple, Google, Microsoft, Amazon, and Meta have been because the businesses are essentially closed loops. If a closed loop system can be created by the Metaverse, extraordinary value follows.

That is the hopeful narrative, but is it wishful thinking, or the beginning of an economic revolution? As the chart above shows, BCG projects that the Metaverse market can be $250 billion-$400 billion by 2025. The components consist of a virtual asset economy, comprised of augmented and virtual reality and networking cloud infrastructure essential to service this.

This is wishful thinking.

Virtual Assets, Picks, Shovels, and Arms Dealers

Just as the true winners of the railroad industry were the providers of picks and shovels, the winner of the virtual asset economy is more likely to be the providers of the networking hardware and software, along with the chips and services needed to enable a virtual asset economy versus the virtual asset economy itself.

Web 3.0 decentralized infrastructures are challenged to scale and seem more likely to be subsumed by existing players versus new and innovative companies.

The opportunity is for application software development to enable more effective use of virtual asset infrastructure, the communication backbone and networking services essential for more data-intensive communication, and more powerful cloud infrastructure as well as the networking edge and on-premises capability.

It’s Computing Power

The Metaverse is an example of global systems and services that require enormous computing power, global distribution, human-like video resolution, and virtual display. Significant network requirements for both wireless communication and connected fiber will be built on an enormous scale.

That is the opportunity.

Whether or not the Metaverse and augmented or virtual reality experiences drive this or are only a component is beside the point. Digital communication, global commerce, and enhanced smartphone capacity, and distribution will drive global network and infrastructure development. Innovative software designs, better use of networking, cloud services, and local area networks will be essential whether the Metaverse even exists.

The Real Beneficiaries

Technology, media, and telecom companies will benefit directly by providing technological capability, new operating systems, app stores, and platforms that will create more opportunities – whether it’s content creation, communication, or the enhancement of the digital economy.

Consumers may or may not participate in a Metaverse world, it may never be the new ecosystem, and blockchain technology and distributed ledgers may not disintermediate global banks, but the overall trend is real.

The Metaverse is a component of something larger. Communication networks must be more efficient and effective, and new products and services will emerge. Commerce, new experiences, and social and business interactions, whether they are in the Metaverse world or just augmented on a smartphone, create new experiences, and enable new exchanges of goods and services.

We are interacting in new ways, building communities, and creating areas of new and exclusive interest. These experiences are all enabled by smartphone and mobile technology, as well as enhanced computer capability.

There doesn’t seem to be anything too disruptive about the Metaverse or Web 3.0. It’s reasonable to be skeptical, and while there is an economic opportunity within the specific creation of Metaverse assets, the real opportunity remains with the infrastructure, intermediaries, picks, shovels, and “the arms dealers” of the global digital war.