An enterprise VC perspective on the metaverse 🚀
We have observed so much excitement in imagining the future that we didn't realize we can gather information from the past. In this article, I outline how history is repeating itself with new requirements, and where I see those needs coming up.
What we'll cover:
- Same old, same new: internet vs. metaverse
- New monetization opportunities:
- Infrastructure: decentralized doesn't mean siloed
- Security: new gatekeepers need new locks
- Wallets / accounts: creativity doesn't need to go off rails
- Social networks: bringing our whole selves
Same old, same new: internet vs. metaverse
The internet as we know it was built thanks to the success of four key building blocks, operating in sync over the course of a decade: infrastructure, identity/security, wallets/accounts and social networks.
Today, we are at a foundational moment in building out the metaverse - not unlike the way early internet creators must have felt in the 90s. When we look toward the metaverse and all its potential, it's helpful to analyze this new frontier through the lens of the very same building blocks.
The metaverse works to combine the existing technology of the internet and mobile web with virtual reality and augmented reality, connecting our physical and digital worlds. However you measure it, this emerging space is huge: by the end of 2021, roughly $10.4 billion VC dollars were poured into the metaverse across gaming, augmented reality, and virtual worlds. Citi analysts forecast the metaverse to eventually become an $8 to $13 trillion opportunity globally.
The internet and the metaverse have so much in common. Both are defined by a decentralized network where companies and platforms connect to create a community. Both require their own specific hardware necessary to access the platforms (i.e., physical computers for the internet, VR headsets for the metaverse). Both have early adopters that are technically-savvy, intellectually curious, and fascinated by the potential of technology. Both require early adopters to have a high willingness to purchase the expensive, and frankly not "user-friendly," technologies needed to access the respective platforms.
As the internet became mainstream in the late 1990s, the winning companies developed strategies that continuously latched onto key market trends (e.g., Microsoft launched Internet Explorer). At the same time, we saw marquee internet players emerge to address adjacent unmet needs in the industry (e.g., Google, Amazon). Shortly after, we saw the emergence of social companies (e.g. Facebook/Meta, YouTube, Twitter) that truly built out the interconnected internet. These platforms were built on top of the work the first internet wave developed, allowing for quick customer adoption and growth.
Not all internet startups were successful. The dot-com bubble blindsided entrepreneurs and investors as startups rushed to go public without proper product development or profit margins. Today, the winning internet players (e.g., Google, Amazon) are acting as a bridge between these ecosystems and positioning themselves at the forefront of innovation in the metaverse (e.g., Facebook's name change to Meta). However, similar to the internet in the late 1990s, the current players will be unable to address the exponential increase of use cases. New metaverse startups will emerge, and differentiating between the hype and reality is essential.
Let's use those initial four building blocks of the internet as a reference point in understanding the key components of the metaverse in the coming years:
-
Infrastructure
Internet: Apple, Windows
Metaverse: Solana, Avalance
-
Identity / security:
Internet: McAfee, Symantec, Palo Alto Network
Metaverse: stealth startups
-
Wallets/accounts
Internet: Paypal, Stripe, Venmo
Metaverse: Metamask, Ronin
-
Social networks:
Internet: Meta, Instagram, TikTok
Metaverse: Steemit, Status
New monetization opportunities in the metaverse
As we transition toward a more accessible and vibrant metaverse, investors will need to get exposure to changing enterprise and consumer needs. Based on my research, I wanted to highlight a few key areas:
Infrastructure: decentralized doesn’t mean siloed — not just the platforms, but the app development as well
● Broad infrastructure platforms that connect the real and virtual worlds: Decentraland and Genesis World are only a few examples of virtual worlds where users can create, experiment, and earn money from their content and/or applications. We haven’t seen the end of new platforming coming out: more companies will develop ways to integrate across platforms in the years ahead and give users a seamless way to experience the metaverse. The metaverse will be the connector that ties different virtual worlds, not one virtual world that is powered by a single platform.
● Metaverse app development platforms: as the IT infrastructure continues to evolve with the increased adoption of metaverse, the need for interconnected virtual worlds has increased. Similar to cloud native technologies, programming engines are being used to create ecosystem native tools. Some examples include Roblox, Minecraft and Mozilla Hubs. As new infrastructures develop, there will be more companies that emerge to integrate all of these inputs smoothly and quickly. A host of “ETL tools” might emerge to flow data around individuals’ unique identity.
Security: new gatekeepers need new locks
● Metaverse security / data privacy offerings: security and privacy risks in metaverse resemble those of the internet. Especially due to the metaverse’s reliance on hardware to experience the platform, securing both the devices and the firmware will be critical. Just as traditional internet security has evolved from network security to data protection to all devices, infrastructure, and end points, so too will security for metaverse enterprise players.
The critical pain point to keep in mind is that there is no one governing body in the metaverse. If, for instance, someone steals your identity in the metaverse, there is no obvious recourse. For that reason, security and privacy in the metaverse will be largely in the domain of enterprises to manage. That said, there is a growing movement of “self-sovereignty” in this space. That is, a growing interest among consumers in managing their own data and identity with their own tools and resources. This dynamic between enterprises and individuals in managing data will open the door for a new generation of startups to emerge in this space.
Wallets / accounts: creativity doesn’t need to go off rails
● Financial infrastructure to buy and sell on the metaverse: NFT sales volume totaled ~$25B in 2021, according to DappRadar. And that happened while today’s virtual purchasing experience is full of friction. Given the ever-increasing volume of transactions in the metaverse, whether to purchase virtual pieces of land or clothing or others, both smooth virtual integrations with legacy financial payment rails (such as credit cards) and single-wallet experiences within the metaverse will continue to become important.
● Specialized marketplaces to make virtual purchases: As the line between digital and real-life identities continues to blur, users have turned to marketplaces to make purchases of art, real estate, clothing and more. SuperRare is one example of a popular platform for NFTs. If we think about the previous version of web unbundling Craiglist, we can expect to see more specialized marketplaces to emerge (e.g., Lootex’s recent $9M raise) with a focus on specific verticals or product types to better adopt to customer needs.
Social networks: bringing our whole selves
● ***Event planning/entertainment (including concerts): ***especially as enterprises adopt to post-Covid ways of living, we will see an increasing need for virtual event planning, hosting and execution to minimize the limitations of physical distance and capacity constraints. Companies such as Party.Space and AllSeated are recent examples of companies innovating in this space.
● Avatar creation: As we move from an economy of participation to ownership, avatars that can move and talk realistically will be critical for building a better user experience in the metaverse. There are two key ways these avatars are formed: through studying motion capture and haptics, and using images and videos. TeslaSuit is a recent example of the first. On the other hand, D-ID, an AVP portfolio company, builds realistic avatars based on images and videos. These avatars today are used by marketing and customer service departments at enterprises to engage users on a personal level, as well as by social media conglomerates.
https://www.youtube.com/shorts/KjVgpjnIRDg
Final words
In so many of these cases, staying close to the end user will be critical for solutions to succeed. For all of the above, it will be important to keep a close eye on consumer preferences in order to differentiate between hype vs. reality in the enterprise state. Creating products that are easy to use and understand will be crucial to gaining consumer adoption on a larger scale.
The internet was built to be a tool to convey information. When social media came along, it brought along a more “human” interactive component to digital communication. Brands quickly understood the value of social media and began developing their own strategies to best reach target customers and their behaviors. We have moved from an economy of participation to ownership and immersion. As the metaverse continues to evolve, businesses will need to adapt their strategies once again to reach customers on a new level with new requirements and gain insights that they never were able to get before. And now is the time to lay the groundwork for what’s to come.
*About Secil Altintas: Secil is an investor at Axa Venture Partners (AVP), $1B global tech fund in New York, San Francisco, London and Paris, investing in Enteprise, Consumer, Digital Health and Fintech. If you enjoyed this, follow Secil on **Twitter *and LinkedIn where she’s sharing articles and her thoughts on enterprise and web3. If you’re a founder building in this space, feel free to reach out: secil@axavp.com