The Metaverse: And How It Will Revolutionize Everything

Both the Metaverse and Web3 are "successor states" to the internet as we know it today, but their definitions are quite different. Web3 does not directly require any 3D, real-time rendered, or synchronous experiences, while the Metaverse does not require decentralization, distributed databases, blockchains, or a relative shift of online power or value from platforms to users. To mix the two together is a bit like conflating the rise of democratic republics with industrialization or electrification—one is about societal formation and governance, the other is about technology and its proliferation.

Companies like Unity, Unreal, PlayFab, and GameSparks are in an enviable position. Most obviously, they become a sort of standard feature, or lingua franca, for the virtual world—think of them as the "English" or "metric" of the Metaverse. Just as it is likely that you use some English and some knowledge of the metric system when traveling internationally, odds are that if you’re building something online today, irrespective of what it is you’re building, you are using—and paying—one or more of these companies. But more importantly, who better to establish common data structures and coding conventions across virtual worlds than the companies that govern their logic? Who better to facilitate exchanges of information, virtual goods, and currencies between these virtual worlds than the companies that power the same inside them? And who better to create an interconnected network of these virtual worlds, as ICANN does for web domains and IP addresses?

As measured by the number of assets created, the fastest-growing category of virtual software may be those that scan the real world. Matterport, for example, is a multi-billion-dollar platform company whose software converts scans from devices such as iPhones to produce rich 3D models of building interiors. Today, the company’s software is primarily used by property owners to create vivid and navigable replicas of their real estate on sites such as Zillow, Redfin, or Compass, affording would-be renters, as well as construction professionals and other services providers, a better way to understand the space than allowed by blueprints, photographs, or even live tours.

Interoperability in the Metaverse is not binary. It is not about whether virtual worlds will or won’t share. It’s about how many share, how much is shared, when, where, and at what costs. So why am I optimistic that, given all these complications, there will be a Metaverse? Economics.

Interchange solutions are already emerging to tap into the "virtual gold mine" of previously created and fragmented asset libraries. A good example is Nvidia’s Omniverse, which launched in 2020 and enables companies to build and collaborate in shared virtual simulations built upon 3D assets and environments from different file formats, engines, and other rendering solutions. An automotive company might be able to bring its Unreal-based cars to an environment designed in Unity and have those cars interact with objects made in Blender.

Notably, Omniverse is built on Universal Scene Description (USD), an interchange framework developed by Pixar in 2012 and open sourced in 2016. USD provides a common language for defining, packaging, assembling, and editing 3D, with Nvidia likening it to HTML, but for the Metaverse.4 In short, Omniverse is driving both an interchange platform and a 3D standard. Helios, the proprietary real-time rendering engine used by the visual effects services company Industrial Light & Magic, is another good example, as it is compatible with only select engines and file formats.

For developers, Google produced a Cardboard software development kit, which helped developers create VR-specific apps built in Java, Unity, or Apple’s Metal. For users, Google created a $15 foldout cardboard "Viewer," into which users could place their iPhones or Android

However, these figures reflected evidence of consumer intrigue more than inspiration. In November 2019, Google shut down the Cardboard project and open sourced its SDK. (Expeditions was discontinued in June 2021.)

In 2016, Google launched its second VR platform, Daydream, which was intended to improve upon Cardboard’s foundation. The improvements started with the quality of the Daydream viewer. The $80–$100 headset was made from foam and covered in soft fabric (available in four colors) and unlike the Cardboard viewer, could be strapped to a user’s head, rather than requiring to user to hold it up in front of them when in use. The Daydream viewer also came with a dedicated handheld remote control, and had an NFC (near-field communication) chip that could automatically recognize properties of the phone that was being used and put it into VR mode, instead of requiring users to do so themselves. While Daydream received positive reviews from the press and led companies including HBO and Hulu to produce VR-specific apps, consumers showed little interest in the platform. Google cancelled the project at the same time as Cardboard was terminated.

Despite struggling with AR and VR, Google still appears to view these experiences as central to its Metaverse strategy. Only a few weeks after Facebook publicly unveiled its vision of the future in October 2021, Clay Bavor, Google’s head of AR and VR, was made a direct report to Google/Alphabet CEO Sundar Pichai, and placed in charge of a new group, "Google Labs." It contains all of Google’s existing AR, VR, and virtualization projects, its in-house incubator, Area 120, and any other "high-potential long-term projects." According to press reports, Google plans to release a new VR and/or AR headset platform in 2024.

AR devices have even greater limitations. The average person sees roughly 200°–220° horizontally and 135° vertically, representing a roughly 250° diagonal field of view. The most recent version of Snap’s AR glasses, which cost roughly $500, have a 26.3° diagonal field of view—meaning roughly 10% of what you can see can be "augmented"—and runs at 30 frames per second. Microsoft’s HoloLens 2, which costs $3,500, has twice the field of view and frame rate, but still leaves 80% of a user’s eyesight without augmentation, even though the entirety of their eyes (and much of their head) are covered by the device. HoloLens 2 weighs 566 grams, or 1.25 pounds (the lightest iPhone 13 weighs 174 grams, while the iPhone 13 Pro Max is 240 grams) and supports only two to three hours of active use. Snap’s Spectacles 4 weigh 134 grams and can only operate for 30 minutes.

Another class of haptic interface devices emit ultrasonic sound (that is, mechanical energy waves beyond the audible range for humans) from a grid of microelectromechanical systems (known as MEMS), producing what a user might describe as a "force field" in the air in front of them. The force field produced by these devices, which looks a bit like a short, perforated tin box, is typically less than six or eight inches tall and wide, but its nuance tends to surprise. Test subjects claim to be able to sense everything from a plush teddy bear to a bowling ball and the shape of a sandcastle as it crumbles, aided in part by the fact that fingertips contain more nerve endings than almost any other part of the body. Crucially, MEMS devices can also detect the user’s interaction, enabling its sound-based teddy bears to respond to the user’s air-based touch, or the castle to crumble if it’s touched.

The most common payment rails in the United States are Fedwire (formerly known as the Federal Reserve Wire Network), CHIPS (Clearing House Interbank Payment System), ACH (Automated Clearing House), credit cards, PayPal, and peer-to-peer payment services like Venmo. These rails have different requirements, merits, and demerits, having to do with the fees that are charged, network size, speed, reliability, and flexibility

For a game to run on a specific device, it needs to know how to communicate with that device’s many components, such as its GPU or microphone. To support this communication, console, smartphone, and PC operating systems produce "software development kits" (or SDKs) that include, among other things, "collections of APIs." In theory, a developer could write their own "driver" to talk to these components, or use free and open-source alternatives. OpenGL is another collection of APIs used to speak to as many GPUs as possible from the same codebase. But on consoles and Apple’s iPhone, a developer can only use those made by the platform’s operator. Epic Games’ Fortnite must use Microsoft’s DirectX collection of APIs to speak to the Xbox’s GPU. The PlayStation version of Fortnite must use PlayStation’s GNMX, while Apple’s iOS requires Metal, Nintendo Switch requires Nvidia’s NVM, and so on.

Each platform argues that their proprietary APIs are best suited to their proprietary operating systems and/or hardware, and therefore developers can make better software using them, which leads to happier users. This is generally true, though the majority of virtual worlds operating today—and especially the most popular ones—are made to run on as many platforms as possible. As such, they are not richly optimized to any platform. Furthermore, many games don’t need every ounce of computing power. The variations in API collections and lack of open alternatives are partly why developers use cross-platform game engines such as Unity and Unreal, as they are designed to speak to every API collection. To this end, some developers might prefer to give up a little bit of performance optimization in order to instead optimize for their budget by using OpenGL, rather than pay or share a portion of revenues with Unity or Epic Games.

However, less than 10% of this was billed by Apple. Of this 10%, nearly 70% was for games. Put differently, seven in every 100 dollars spent inside iPhone and iPad apps were for games, but 70 of every 100 dollars grossed by the App Store were from the category. Given that these devices are not gaming-focused, are rarely bought for this purpose, and that Apple offers almost none of the online services of a gaming platform, this figure often comes as a surprise. The judge overseeing Epic Games’ lawsuit against Apple famously told Apple CEO Tim Cook: "You don’t charge Wells Fargo, right? Or Bank of America? But you’re charging the gamers to subsidize Wells Fargo."8

High Costs and Diverted Profits

In the "real world," payment processing costs as little as 0% (cash), typically maxes out at 2.5% (standard credit card purchases), and sometimes reaches 5% (in the case of low-dollar-value transactions with high minimum fees). These figures are low because of robust competition between payment rails (wire versus ACH, for example) and within them (Visa versus MasterCard and American Express).

But in the "Metaverse," everything costs 30%. True, Apple and Android do provide more than just payment processing—they also operate their app stores, hardware, operating systems, suite of live services, and so on. But all of these capabilities are forcibly bundled and consequently not exposed to direct competition. Many payment rails are also bundles. For example, American Express provides consumers with access to credit, as well as its payment networks, perks, and insurance, while merchants gain access to lucrative clientele, fraud service, and more. Yet they are also available unbundled and compete based on the specifics of these bundles. In smartphones and tablets, there is no such competition. Everything is bundled together, in only two flavors: Android and iOS. And neither system has an incentive to cut fees.

This doesn’t necessarily mean the bundle is overpriced or problematic. But they certainly appear to be. The average annual interest rate on unsecured credit card loans is 14%–18%, while most states have usury prohibitions that cap rates at 25%. Even the most expensive malls in the world don’t charge rents that work out to 30% of a business’s revenue, nor do the tax rates in the highest-taxed nations’ highest-taxed states’ highest-taxed cities come close to 30%. If they did, every consumer, worker, and business would leave and every taxing body would suffer as a result. But in the digital economy, there are only two "countries" and both are happy with their "GDP."

Furthermore, average small-to-medium business profit margins in the US are between 10% and 15%. In other words, Apple and Google collect more in profit from the creation of a new digital business or digital sale than those who invested (and took the risk) to make it. It’s hard to argue that this is a healthy outcome for any economy. Considered another way, cutting the commissions of these platforms from 30% to 15% would more than double the profits of independent developers—with much of that money then reinvested into their products.

To summarize, Roblox has enriched the digital world and turned hundreds of thousands of people into new digital creators. But for every $100 of value it realizes on a mobile devices, it loses $30, developers collect $25 in net revenue (that is, before all of their development costs), and Apple collects roughly $30 in pure profit even though the company puts nothing at risk. The only way for Roblox to increase developer revenues today is to deepen its losses or halt its R&D, which would in turn harm both Roblox and its developers over the long term.

Many in the Metaverse community thus believe that the web and web browser should be the focal point of all Metaverse development. Several open standards are already being shepherded, including OpenXR and WebXR for rendering, WebAssembly for executable programs, Tivoli Cloud for persistent virtual spaces, WebGPU, which aspires to provide "modern 3D graphics and computation capabilities" inside a browser, and more.

Apple has frequently argued that its platform isn’t closed because it provides access to the "open web"—that is, websites and web apps. As such, developers need not produce apps to reach its iOS users, especially if they disagree with Apple’s fees or policies. Furthermore, the company argues, most developers choose to make apps despite this alternative, which shows that Apple’s bundled services are outcompeting the entirety of the web, rather than being anti-competitive.

To solve this problem, Facebook needs to do more than build its own low-cost, high-performance, and lightweight devices. It needs these devices to run independently of an iPhone or Android device—that is, without leveraging their computing or networking chips, as Apple and Google are likely to. The result is that Facebook’s devices are likely to be more expensive, technically limited, and heavier than those produced by today’s smartphone giants. This is, perhaps, why Mark Zuckerberg has said that "the hardest technology challenge of our time may be fitting a supercomputer into the frame of normal-looking glasses"—his competitors already put most of this supercomputer in a person’s pocket.

Another example is Helium, which the New York Times has described as "a decentralized wireless network for ‘internet of things’ devices, powered by cryptocurrency."5 Helium works through the use of $500 hot-spot devices which allow their owner to securely rebroadcast their home internet connection—and up to 200 times faster than a traditional home Wi-Fi device. This internet service can be used by anyone, from consumers (say, to check Facebook) to infrastructure (e.g., a parking meter processing a credit card transaction)

How to Think about Blockchains and the Metaverse There are, as I see it, five ways to think about the blockchain’s significance, both within the context of the Metaverse and within society at large. First, it’s a wasteful technology propped up by scams and fads, and it receives attention not because of its merits, but due to short-term speculation.

Second, blockchains are indeed inferior to most, if not all, alternative databases, contracts, and computing structures, but may nevertheless lead to cultural change around user and developer rights, interoperability in virtual worlds, and compensation for those who support open-source software.

Perhaps these outcomes were already inevitable, but blockchains may usher them in more quickly, and democratically.Third, and more hopefully, blockchains will not become the dominant means for storing data, computing, payments, LLCs and 501(c)(3)s, and so on, but they will become key to many experiences, applications, and business models. Nvidia’s Jensen Huang has argued that "blockchains [are] going to be here for a long time and [will] be a fundamental new form of computing,"13 while global payment giant Visa has launched a cryptocurrency payment division, with its landing page declaring "Crypto is reaching extraordinary levels of adoption and investment—opening a world of possibilities for businesses, governments and consumers."14 Recall from Chapter 8 the many problems which arise when one virtual world wants to "share" a unique asset with another, as would be the case with using an avatar bought in Epic Games’ Fortnite but inside Activision’s Call of Duty. Where is the asset stored when it’s not in use: Epic’s server, Activision’s server, both, or somewhere else altogether? How is the storer compensated? If the item is altered or sold, who manages the right to make such a change and record it? How do these solutions scale to hundreds, if not billions, of different virtual worlds? If all blockchains do is offer an independent system which partly addresses some of these problems, many believe it will still produce a revolution in virtual culture, commerce, and rights.

A fourth view holds that blockchains are not just critical technologies for the future but also the key to disrupting today’s platform paradigms. Recall why closed platforms tend to win. Free, open-source, and community-run technologies have been available for decades, and often promise developers and users a more fair and prosperous future, only to lose out to paid, closed, and privately owned alternatives. This is because the companies that operate these alternatives can afford enormous investments in competing services and tools, engineering talent, customer acquisition (for example, below cost hardware), and exclusive content. Such investments, in turn, attract users, producing a lucrative market for developers, and/or they attract developers, thereby attracting users who bring additional developers.

All business, and especially software-based business, benefits from feedback loops—more data leads to better recommendations, more users means stickier users and more advertisers, greater revenues enable more licensing spend, larger investment budgets attract more talent. This general point doesn’t change in a blockchain future for the same reason audiences still converged on a handful of websites and portals, such as Yahoo or AOL in the 1990s, even though millions of other sites were available. Habits are themselves sticky, which is part of the reason even blockchain dapps are valued in the billions by venture capitalists—even though their authority over their users or their data is marginal compared to the "Web 2.0" era.

The amount of information that Metaverse-focused platforms will actively and passively generate, collect, and process will be extraordinary. The data will span the dimensions of your bedroom, the detail of your retinas, the facial expressions of your newborn, your job performance and compensation, where you’ve been, for how long, and probably why. Nearly everything you say and do will be captured by one camera or microphone or another, then sometimes placed in a virtual twin owned by a private company that shares it with many more.

The future is hard to predict, even for pioneers. We are now on the cusp of the Metaverse, but consider, one last time, the last two eras of computing and networking. Even the most ardent believers in the internet struggled to imagine a future in which there might be billions of web pages across millions of web servers, 300 billion emails per day, with billions of daily users, and a single network, Facebook, counting over three billion monthly users and two billion per day. When he announced the first iPhone in January 2007, Steve Jobs described it as a revolutionary product. He was right, of course. But this first iPhone lacked both an App Store and there were no plans to allow third-party developers to make them. Why? Jobs told developers that "The full Safari engine is inside of iPhone. And so, you can write amazing Web 2.0 and Ajax apps that look exactly and behave exactly like apps on the iPhone." But in October 2007, ten months after the iPhone had been unveiled and four months after it went on sale, Jobs changed his mind. An SDK was announced for March 2008, with the App Store released in July of that year. Within a month, the million or so iPhone owners had downloaded 30% as many apps as the more than 40 million iTunes users had downloaded songs. Jobs then told the Wall Street Journal: "I would not trust any of our predictions because reality has so far exceeded them by such a great degree that we’ve been reduced to spectators just like you, watching this amazing phenomenon."