Facebook’s October announcement that it would become a metaverse company and change its name to Meta created quite a stir. Elon Musk mocked the decision, saying people are unwilling to replace the physical world with a virtual one. Jack Dorsey called it dystopian, and others piled on. But Bill Gates said that most office meetings will be in the metaverse in 2–3 years. Gates is right: The metaverse is inevitable and will be as valuable and disruptive as the World Wide Web has been.
What is the metaverse?
Many definitions are floating around, but they have a few things in common:
- It is a network of online spaces, some of which interconnect.
- The spaces are visually three-dimensional.
- People move about and interact in real time.
- The spaces enable people to engage in entertainment, hold meetings, socialize, conduct business, and do other activities.
Why are there disagreements about the metaverse?
One reason there are disagreements is that innovation always contains discord: Everyone is at least somewhat wrong in the early stages, but a few people find viable paths forward. Then there is a shakeout and a small number of innovators get very rich. And everyone else in the economy gets even richer because, as Nobel laureate William Nordhaus demonstrated, markets spread to other people over 97 percent of the value that billionaire entrepreneurs create.
Disagreements also exist because of power struggles. Epic Games CEO Tim Sweeney is bullish on the metaverse, but he simultaneously accuses rivals Apple and Alphabet of seeking to own it. Dorsey’s tweet about rival Facebook characterized the company as seeking to create a “dystopian corporate dictatorship.” Both tech leaders might be engaging in mental projection.
And then there are battles over words. Musk seems to define “metaverse” narrowly as only virtual reality.
Will a few people or companies control the metaverse?
It is too early to tell, but it appears that the economics of the metaverse tilt toward there being large numbers of providers. Services such as Facebook and YouTube have grown to unprecedented sizes because worldwide user wants were nearly the same, which meant the network effects drove billions of users to these platforms. Each social media site faces competition because other platforms also attracted these same billions of users — this is called “multihoming” — but the similarities of customer interests steer each platform toward becoming quite large.
This doesn’t appear to be the case in the metaverse. Online games provide many current metaverse experiences, and customers have diverse preferences with respect to games. Moreover, metaverse providers are creating platform-specific network effects in several ways. One is by creating a platform-specific cryptocurrency, which incentivizes users to spend their currencies within that platform. Providers also reward users for spending time on their platforms. And providers encourage the development of non-fungible tokens (NFTs) that might be nontransferable to a rival platform or that at least lose some of their utility if taken to another platform. (NFTs include things such as avatar clothing, instruments to use in games, artwork, and music.) Finally, providers create user governance groups called decentralized autonomous organizations (DAOs) that set up rules and make decisions about the platform. Users vary in their preferences for DAO structure, scope of authority, and decisions.
What are the keys for success moving forward?
Experimentation, evolution, and accountability are important for creating a valuable metaverse. There remains much to learn about what experiences, business opportunities, governance systems, devices, and interoperabilities customers will value most, so liberty will be important. And while learning, success, and failure should create evolution, platform developers will struggle with balancing which rules to hard wire into the platform, which to allow to evolve slowly (like how DNA slows biological evolution), and which to allow to evolve quickly (such as business and political markets). The DAOs and developers will also have to confront dark practices such as abuse, illicit transactions, money laundering, and theft, which always find homes whenever a new space is created for human interaction.
Originally published by American Enterprise Institute. Republished with permission.