The Metaverse is a good business move[Finance Fridays]
Once again, most internet commentators are shortsighted
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By this time we’ve all seen it,
Mark Zuckerberg (and Meta) have lost a lot of value, and the Metaverse is a huge reason why. Meta is taking money from its profitable ventures -Facebook, Instagram, etc.- and burning it on this tech-dystopian fever dream. Pretty much every tech commentator or investment analyst is jumping on this bandwagon and talking about why the Metaverse will fail.
In this article, I’m here to argue the opposite. The Metaverse is actually a pretty great investment and well-suited for the future. Furthermore, it will help Meta handle one of the biggest challenges it is dealing with. Since this is a complex issue, we will be breaking things down into two articles. Today, I will focus on why it’s a great business decision, and tomorrow, we will actually evaluate Meta’s advancement towards it. I hope you’re excited because there is a lot of interesting and important information to cover here.
AR and VR also have practical uses for city government. With the ability to provide data in real time, engage users, and simulate real-life experiences in extreme detail, AR and VR have massive potential to transform government services and citizen interactions.
—From Harvard’s piece on the applications of AR/VR. The claims that the Metaverse (which is just this) will not have uses is false.
What is the Metaverse- Simply put, think of it as AR/VR internet. The Metaverse would operate the same way the internet would, but it would be far more immersive.
Why Detractors Hate It- There are a few reasons why this has received as much hate as it has: People think Metaverse will be harmful to people’s mental health and will stop people from going outside; People think the Metaverse will be useless (it’s not going to have enough utility to justify the costs); they believe that the Metaverse will not be adaptable by the masses. We’ll also cover why these concerns aren’t as problematic as they originally seem.
How Metaverse solves Meta’s big challenge- Meta makes money through your attention. Currently, that battle is fierce, and it will only get worse. Metaverse will change the battle completely.
The skills to thrive in the Metaverse- We will look at the monetization of the Metaverse to identify what skills you will need to cultivate to make money from the Metaverse.
Also covered in this article will be a brief overview of TikTok, its connection to China’s ruling party, and why it’s positioned to be the ‘Meta Slayer’ if things go on as is. The Metaverse is Meta’s shot at survival. I know that sounds sensationalist but trust me it’s not.
What is the Metaverse
To evaluate the feasibility of the Metaverse, we first must have a clear idea of how it will operate. If you go to Meta’s official Metaverse website, it has this to say
Imagine a set of digital spaces that you can move seamlessly between.
Like the internet, the metaverse will help you connect with people when you aren’t physically in the same place and get us even closer to that feeling of being together in person.
Notice the wording- ‘Like the Internet. The phrase ‘set of digital spaces’ might seem a little weird, but it’s not too alien. Think of the Facebook platform. You have Games, FB Marketplace, Groups …. Technically, each of those could be classified as a digital space.
The big difference is merely the scale of Zuck is attempting. He’s trying to make the Metaverse have solution for everything. From work meetings, gaming, socialization, education, and shopping, Zuck wants to bring the Metaverse into every domain. These are all lucrative industries by themselves, so if we can accomplish this, then Meta will reach a new level of revenue. One that is less dependent on competitors Google, Microsoft, and Apple (you’re probably accessing this article on devices running on their products). Sounds great, doesn’t it? So why are so many people against it? Let’s cover that next.
Why everyone hates it
As noted in the summary, there are 3 major reasons people hate the Metaverse-
People think Metaverse will be harmful to people’s mental health and will stop people from going outside- We have seen that too much time on the screen destroys people physically, socially, and mentally. Already, there is an epidemic of overuse. Around 75% of adults in the US consider themselves addicted to their phones. A large part of the issues caused by the internet occur because we are terrible at distinguishing the internet from real life (hence why pornography is so addicting, and why you feel giddy when someone likes your posts on social media). Having a more powerful and immersive experience will make this worse.
People think the Metaverse will be useless (it’s not going to have enough utility to justify the costs)- The Metaverse requires a lot of investment to make a viable product for anyone. One of the biggest concerns with it is that it will not generate the returns that will justify the investments both to create and maintain the Metaverse.
They believe that the Metaverse will not be adaptable to the masses- This is a big concern. VR headsets are expensive. Expecting poor people in India to own them is unreasonable. What made Meta profitable was the fact that it could reach everyone. Not true for VR/AR which requires more expensive hardware.
These are all valid concerns that would compromise a business. However, they are not as big a concern as people are making them out to be. That is because-
The engineering required to make the Metaverse a complete replacement for physical reality would be massive (and sci-fiyyy). Most likely, we will just see AR/VR tools being used in various facets from everyday life. A far cry from the ‘Zuck wants to replace your world with another world’ that we hear. That being said, there is a significant chance that it will keep even more people inside, and worsen people’s health. The way to counter this is through mass public education and actually asking people to have lives in the physical world. Play a sport, have hobbies like hiking/pottery, and touch some grass. Similar to the internet, the problem is not the metaverse itself, but people using it as a clutch for their lives. The metaverse is a tool, and should people will need to be trained (from a young age) to use that tool while not being consumed by it.
Meta has sunk billions of dollars into this platform so far, and we haven’t really made too much progress. However, this is short-term thinking. Innovation is a costly and expensive process, especially when one is trying to build a platform. As I will cover later in this article, should this work out, the Metaverse will solve Meta’s biggest challenges. Tomorrow’s article will talk about some of Meta’s engineering developments that hint at how close it is to making a full-fledged system. You can make your judgments after that.
Facebook and IG are big because everyone can use them. This is not true for Metaverse. My mom is probably not going to be buying an Oculus headset to play video games. This is a valid point, but misses an important point- there are multiple use cases beyond leisure. Meta is acting on this by making investments in different kinds of hardware. More on this later on in the article.
Now for the part of the article that might seem sensationalist to some of you. But trust me, this is one of the most interesting things I’ve read up on in a while. So much so that I changed my writing schedule for this. Next week’s Friday post was originally going to be about how you can burn VC money (we’ll still do this, I promise). But now it’s been changed. Let’s talk about TikTok and how it’s become the Meta Killer.
TikTok, Meta, and other Big Tech
TikTok came into a very crowded social media game and carved out a niche for itself. Very quickly. It did so by providing one thing that most social media users want, but very few achieve- popularity. By giving people the chance to go viral, TikTok did not have to compete with the Tech Giants on engineering (better creator tools, recommendations, and content require a lot of time to nail perfectly). This was a perfect example of building products to optimize for user experience instead of performance metrics, which we covered here. The results speak for themselves.
TikTok reached one billion users in the third quarter of 2021 and is expected to reach 1.8 billion by the end of 2022.
Given Zuck’s terrible reputation and this growth, there is very direct competition to Meta from TikTok. To add insult to injury, TikTok is popular with the same demographics that Facebook was originally created for. But couldn’t Meta beat TikTok down by cloning it, the way he did with Snapchat? They have lots of money to burn till they starve TikTok out/just outmuscle them. TikTok’s parent company, ByteDance, is running at a loss of 85 Billion Dollars after all. They can’t afford a price war with Meta.
This is where things get interesting. The CCP (yes the Communist Party of China) has a stake and board seat in ByteDance. Furthermore, the company and Tiktok are crucial to their plans (more on this next week), which gives ByteDance the unlimited money hack. Meta might have money, but not enough to fight the CCP. Keep in mind, they’re also competing with other tech giants like Amazon, Netflix, Microsoft, and Google for your attention. This puts Meta in a tricky situation, as all the competitors have massive war chests and the ability to attract the best talent.
Even if Meta created an amazing feature for their users, competitors could copy it (the same way Meta does). This is common in social Media. Google and Meta copied TikTok through Shorts and Reels respectively.
This is compounded by another problem that Meta has to deal with. It is very reliant on Google and Apple. Think of how you access their apps. Most likely through your phones. Google and Apple are both very vary of the amount of data that Meta collects, so they’re always being a nuisance. After Apple made those infamous policy changes, Meta lost a lot of money. How much?
David Wehner, Chief Financial Officer of Facebook’s parent company Meta said that the company anticipates losing more than $10 billion in sales revenue
This is not fake, VC valuation money like we discussed here. This is actual cash.
Technically, Apple and Google could continue to make such changes to keep wrecking Meta’s revenues. And what if Microsoft joins the party on Windows laptops? What keeps Meta safe and allows it to keep getting all your juicy data?
This is where the Metaverse comes in. The Metaverse gives Meta 3 victories-
The VR and AR capabilities are hard to replicate. This gives them a natural moat against copying. By becoming the de-facto VR/AR platform, they also open up a whole new battle field and allow themselves to set the rules.
Meta can start collecting data from Hardware. Meta has already started to develop multiple kinds of devices. Don’t be too shocked if we see Meta getting into the tablet, game console, or smartphone business soon. Using Metaverse integration as a base, they can insane amounts of data that would not have been able to collect prior to this moment.
Meta will most likely release the Metaverse as a platform where people can create and publish their own universes (similar to how app devs publish apps onto the app store). This will allow them to benefit from the network effect and scale since they don’t have to build every app themselves.
All of this should show that the Metaverse is a worthwhile investment. Meta has been backed into a wall, surrounded by competitors. Instead of fighting their way out, they have decided to strap on an experimental jetpack to fly out of there. If this works, things will look much better for them.
Now for the final bit of this newsletter. How can you build up your skills to take advantage of this new frontier? Because make no mistake. Even if Metaverse doesn’t fully work out, AR and VR are here to stay.
Monetizing the Metaverse
The Metaverse is basically just going to be a collection of different AR/VR setups, like how the internet is a collection of web pages. Looking at the internet as a reference, there are a few ways to make money on the Metaverse-
Building the Metaverse itself. The most obvious one. If you’re one of the engineers that build the Metaverse (or maintain it), you will make money.
Making it more accessible- If you can make the Metaverse more accessible to more people, you will reap the rewards. This can involve building platforms to allow creators to jump onto the Metaverse without building their own ‘sites’(Substack, YouTube, etc). It can involve actually making better programming languages/tools to empower people to do more things. If you can bring the Metaverse to more people, you will see the benefits.
Creating ‘universes’- Think of how App Development was so hot at one point in time (it’s still desired by a lot of people). The App developers on the Metaverse platform will be very sought after.
Creators- The content on the Metaverse will be much better than what we have here. The videos and games would be a lot more immersive. But there are a lot of business utilities as well. The Metaverse would allow us to create more detailed and interactive documents, which would be a big win. For example, take my Machine Learning paper breakdowns. There’s a reason I have both videos and articles- both mediums lend themselves to different kinds of information. Businesses reach out to me for custom breakdowns, based on their challenges. The Metaverse would allow me to combine these mediums into one, letting me create more valuable breakdowns. Conversely, the ability to create engaging content will be a valuable asset.
When it comes to technical skills, the following skills will help a lot-
Machine Learning- Much of Metaverse relies on ML. This is my domain, so if you want to get into it, reach out to me.
3D Geometry- The backbone of VR/AR. Math Mondays suddenly looking a lot more appealing aren’t they? Refer to these slides for an example of the kind of math you’ll see.
Communication- Practice Practice Practice. YouTube has some great videos on this. University of Chicago has some top-tier content on writing and communicating effectively. Read, write, and speak a lot. You will get better.
ReactJS- As of now, React is the way to build VR/AR apps. You can test them on your browser. Meta has put a lot of money into making React good for VR/AR. I’m not a webdev, so can’t personally recommend any courses. If any of you know, share them in the comments/with me.
Software Engineering- As I covered in my conversation with Sajid, senior engineer at Amazon and OG cloud developer, cool new technologies require boring skills. The ability to write clean, scalable, and flexible code will be important. It’s a good thing you’re here. Read about our conversation here
To close, I believe it is useful to compare the Metaverse to the Internet. They do very similar things. While the Metaverse is much more powerful, it will have many of the similar issues and benefits that the internet got. Evaluating it from that perspective will help you stay ahead of the curve and foresee important developments. Keep your eyes open, because these are truly exciting times with a lot of opportunity. It’s going to be a good time.
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