World Reimagined: The Metaverse, Explained, And How to Invest in It

If you’ve been following the developments in the cryptocurrency realm, in augmented/virtual reality, or in online gaming, you’ve probably heard the term metaverse. The term was coined in the 1992 science fiction novel Snow Crash by Neal Stephenson, in which avatars of real people interact with each other and software in a three-dimensional virtual reality based on a metaphor of the real world. When tossed around casually over cocktails these days (we can finally go out and do that again!), it can give the impression of either being super clued in or trying a bit too hard, so try to use with discretion.

Metaverse is a term used to describe a conceptual future of the internet which, through augmented reality technology, is an alternative digital reality where people work, play, socialize, and can find mind-blowing new forms of entertainment. It may sound ridiculously sci-fi, but infant versions of it already exist and are enjoying a thriving economy in which pioneering people work full-time.

Today, if you want to find a new couch, do some research, or connect with friends on the web, you have to use a device on which you use an application, such as a browser or an app, and type away at some sort of keyboard. In the future of the metaverse, while standing in your living room, you could visually sort through endless couch options which you could virtually place in your room, walk around them, and look at them from various angles without touching a single keyboard or looking at a monitor.

You could take a walk with a friend who is on the other side of the world, each of you in a different physical park, while at the same time enjoying watching the same fantastical imaginary beasts flying around, walking your virtual pet dragons.

Not quite seeing it yet in your mind’s eye? Click here for some inspiration from Adobe (ADBE) or watch the film “Ready, Player, One,” wherein the metaverse is in many ways the creation of its participants just as cities and countries are today.

The internet and semiconductors have made it possible to hold the entirety of human knowledge in the palm of one’s hand and given us the ability to connect and collaborate with people from all over the world in real-time. In just half a century, the worldwide web has connected around 63% of the human race to one another, impacting the meaning of borders and national identity. This ability to connect is sparking levels of innovation that are driving exponential advances in technology unlike anything before in all of human history.

The metaverse will allow us to create entirely new realities from sheer imagination. It will merge the physical world with the ever-expanding, ever-growing virtual world, completely changing the way we interact with and use information, how we solve problems, and even the way we create. It will have an enormous impact on global politics as in this virtual world, geographical identity need not have any meaning. This shift to a more immersive virtual world has been ongoing for more than a decade, but the pandemic has accelerated the pace.

History books may give credit for the birth of the metaverse to online multiplayer games. There are over 2.7 billion video game players around the world, which means translates to 1 in 3 of the world’s population. Games such as Minecraft and Fortnite have massed enormous user bases and have evolved well beyond just a game into virtual worlds where people socialize, transact, work, and even enjoy musical performances. This innovation was driven by the advent of free-to-play and micro-transaction, which accounted for nearly 80% of digital game revenue in 2020.

The evolution of these gaming platforms into virtual worlds has led to mass-scale events such as the estimated 10 million concurrent attendees, in avatar form, to a Marshmello concert inside Fortnite. If you were to ask anyone about the show, they would tell you they were there. Not that they watched it, but that they were there! And while that number sounds like a lot, by May 2020, Epic Games announced that Fortnite has 350 million registered accounts, with players spending 3.3 billion hours in-game during the month of April 2020. That number has been severely reduced by Epic’s battle with Apple (AAPL), but the point is there is already a massive population living at least part-time in the beginning versions of the metaverse.

Even candidate for mayor of New York City, Andrew Yang, held a campaign event in the metaverse.

Today there is no unified metaverse but a series of independent virtual spaces in which people are represented by digital avatars. There is considerable work being done to create a unified metaverse, connecting all these independent virtual spaces. As technology improves, people will be able to more easily and comfortably enter these worlds, interacting with the virtual and physical simultaneously in a mixed reality.

What does this mean for investors? It means that companies that ignore this emerging online marketplace will be left struggling in the same way that those who ignored the emergence of the world wide web and all that it implied were utterly hammered. For example, look up what happened to Kodak (KODK). These virtual worlds are creating new marketplaces that mirror those of the physical world and cannot be ignored as the two will influence one another.

Want to be the next hot fashion brand? Better think about designing not just in the physical world but also for your customers’ avatars, and think about what that means for margins. But don’t get too carried away, as scarcity will also have meaning in the virtual world. Companies will need to have brand management strategies for both the physical and the virtual worlds that will need to complement and support one another.

Think that sounds too far out? Well, guess what, there is already a podcast for that.

The evolution of this metaverse, the merging of physical and virtual realities into something completely new, will usher in an enormously digitized economy. Digital currencies will utterly dominate, and political borders will become increasingly difficult to enforce in a virtual world. Current tax codes and regulations aren’t prepared to handle a virtual designer selling virtual clothes to avatars that can then resell them to others in this metaverse – wear and tear will be a bit lighter than on the streets of San Francisco. What about the virtual architect that designs a virtual home that can then be moved to anywhere in the metaverse. Think buying a virtual home sounds crazy? Think again.

What this also means is that a mind-boggling amount of data will need to be flying around all over the world at speeds that make today’s high-speed look like a tricycle up against a Bugatti Chiron (author pauses to sigh wistfully). Tack on digitization of nearly every aspect of our lives through omnipresent sensors and increasingly computerized transportation and growth in demand for data centers will be enormous, which is good news for the likes of Digital Realty Trust (DLR), Equinix (EQIX), QTS Realty Trust (QTS), and Super Micro Computer (SMCI). All that data needs to move around and move around fast, which means growing demand for products and services from the likes of Arista Networks (ANET), Extreme Networks (EXTR), and Lumentum Holdings (LITE).

The bottom line is that while the world today is struggling with enormous levels of debt, challenging demographics, social strife, and a pandemic, a whole new world is evolving. Within it, the human potential to solve problems, collaborate, create, and meaningfully connect in ways that defy geography and social biases will ultimately result in medical advances beyond what we can imagine today, wealth generation that will overpower today’s global financial challenges, and greater compassion for one another.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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