Why Your Kids Buy Digital Goods in Virtual Worlds — Business Models of the Metaverse

Sandy D
24 min readSep 13, 2022

Your first memory of an experience so overwhelmingly exciting that you couldn’t stop thinking about it and were jittery with excitement to experience it again — what was it? How many times since then has that occurred? For many people, the experience would have been multiplayer gaming and there are few comparables in the real world.

When I was 12, I remember booting up my PC, connecting to dial-up internet, and hoping nobody picked up the phone. The year was 1996, and my mind was on fire with excitement to play Command and Conquer — Red Alert online against an actual person somewhere else in the world. Unlike computer or AI opponents, people are unpredictable and each encounter was unique. This experience would be repeated with Nintendo 64’s Goldeneye 007 (1997), where a player would navigate 3D worlds in first person perspective and play characters with up to 4 friends. These were defining moments in gaming and key milestones on the path toward the Metaverse.

Introduction — Too late, we’re already in it

The Metaverse is an ambiguous term describing something many people feel does not exist and may never exist. Coherent, constructive conversation is often absent in favor of skepticism of the materiality, feasibility, and commercial viability of the Metaverse.

Why are we hearing about the Metaverse, why does it matter, and why will it influence our lives and the lives of our children? Prominent organizations of our time, such as Facebook — now re-branded as Meta, are committing billions towards realizing the Metaverse.

This article discusses why and how we got here, why the Metaverse is valuable today, and why the Metaverse will be exceptionally valuable going forward.

What the F is the Metaverse?

Defining a particular entity, experience, or place of origin for something as ill-defined and poorly understood as the Metaverse is challenging. I’ll offer a broad framework for thinking constructively about the Metaverse to give you greater interpretative and predictive power moving forward.

The Metaverse is shared experiences with digital identity and derivatives.

If you can understand and empathize with the thinking and decision-making of people in the real world, congratulations — you’re well on your way to understanding the Metaverse. All you need to do now is unbound your thinking to the limits of reality.

For example, the common trope of the mid-life crisis 40 yr old male buying a Porsche, a Rolex, and exclusive golf membership to signal social status, wealth, power, and sex appeal is broadly understood. Now imagine you wish to satisfy these human needs of signaling social status, power, and affluence to your peer group. However, your peer group is not present at the golf club, they aren’t in the parking garage, and they aren’t meeting in person to see your watch. Now what?

Well, the emotional needs that create the norms of status signaling and behaviors haven’t gone away — they are translated into digital representations.

The Porsche is now your mount, parachute, or other transportation in the Metaverse — and you can have an unlimited number of them. The watch is now part of your digital visual presence — wings, ornate armor, flowing capes, or silly cartoon costumes which signal your past experiences or accomplishments. The golf club membership becomes the 3rd space, the communities you choose to associate with — and you can be part of many linked or separate communities. Membership with communities and organizations in digital worlds carries the same sense of belonging, status, and hierarchy as in the real world. Understanding these parallels unlocks tremendous value and opportunity for product and service creation for the Metaverse.

With this framework, you realize that the Metaverse is more familiar than foreign. Human emotions, behavior, and purchasing drivers are alive and well represented. Most importantly, the model in which a single company or entity ‘owns’ or ‘develops’ the entire metaverse is intellectually dishonest. The infrastructure layers (the cloud infrastructure on which we access and experience the Metaverse) will be similar to railroads. They are the lowest cost, highest quality means of delivering recurring digital experiences to consumers and will be exceptionally valuable. Still not convinced? The following discussion and examples will provide clarity.

High Score — The Beginning

A suitable starting point for early examples of digital representations of identity and status is the High Score, as portrayed in 80s and 90s movies. The scene could be described as a series of arcade games, large boxes with screens and controls with crowds of youth to mid-30-somethings gathered around. One person plays until they win, lose, or run out of money. After the game is over the person enters a name, not their real name but rather an alias. The alias, their identity within the community, is then associated with their score. Then the next person plays and does the same. In this community, there is a social hierarchy based on ability in the game as reflected by the high score table. The identity would persist on the machine — the community that played with the same machine would value and respect the leaderboard determined by score and compete to one-up each other. Arcades are early examples of shared experiences with digital identity, associated with communities and viewers. Arcades also provide observations that the ratio of viewers to actual players is surprisingly high.

Crowds at an arcade playing Mortal Kombat and Street Fighter II.

Bringing it home

When gaming consoles were introduced, the same behavior from the arcade — competing for high scores — continued but in smaller groups inside the home. The scene would look like 1 to 4 kids to young adults playing console games in front of the tv. The community was much smaller at home however it was much more personal. The competitors would be your siblings or close friends. Growing up in the 90s you would have friends over, sometimes there would be more people than controllers or more players than slots available. In the early to late 90s, console games were not connected to the internet. When more players were present than controllers, it was common for you and your friends to watch others play. One of the most iconic and innovative experiences of the time was the release of Goldeneye 007 for Nintendo 64 (1997). Goldeneye allowed 4 players to play simultaneously and independently on the same screen — this shared experience with your friends made it truly special.

Kids playing 3 and 4-person Goldeneye 007 for Nintendo’s N64 console released in 1997. Goldeneye was one of the first simultaneous and independent 4-player console games. Image Source: lower right— Robert Triggs, Android Authority

The birthplace of live streaming

The living room, descendant from the arcade, is where live streaming started. You played host to your friends or siblings as they watched, cheering you on or wishing for your demise. Your performance and ability in the game were meaningful to your community of friends and onlookers. From this framework, you may better understand how the emotional drivers for status and identity connect to digital worlds and accomplishments. If your peer group is focused on and values your digital identity and representation — then that becomes the town square in which you signal your status to others. Any person who grew up with consoles and played with family and friends can understand the appeal of watching others play games.

Quad Damage — The big bang of multiplayer experiences

The big bang (the event before which there was nothing in our universe) or the Cambrian explosion (the point at which life forms as we know them today appeared on Earth) are appropriate analogies for what the mid-90s were to the Metaverse. The mid to late 90s were a special time in the history of connected multiplayer experiences. The consumer internet was entering mass adoption around 1995, when much of the world first started connecting to the internet and getting PCs that could run games in the home. The relative pace of innovation in multiplayer experiences and connected worlds in the mid to late 90s, in my opinion, remains unmatched to this day in 2022. Quake (1996) introduced multiplayer 3D navigable environments, Red Alert (1996) introduced top-down multiplayer real-time strategy environments, Team Fortress (1996) and Team Fortress Classic (1999) introduced team and role-based competitive multiplayer experiences. In all of these environments, people would assume an identity, an alias, and participate in online communities. The first competitions in connected digital worlds took place in the mid to late 90s. Clans, Guilds, Leagues, and well-funded organizations emerged as early forms of modern e-sports began to explode.

Ultima Online (1997) launched persistent 3D virtual worlds and started mass adoption of the massively multiplayer online genre. Half-Life (1998) blew people away with its single-player and multiplayer experiences. Starcraft(1998) came to dominate the real-time strategy genre leading to massive in-person tournaments. Everquest’s (1999) popularity created memes of what is now synonymous with the comical MMO player stereotype. Counter-Strike Beta (2000), a 3rd party modification to Valve’s Half-Life took over the team-based first-person shooter genre and lead to more failed high-school and university exams than people care to admit.

While we have been focused on online multiplayer experiences, for completeness it is important to remember the role of arcade and console games in the development of gaming communities and competition. The earliest gaming competitions focused on single-player experiences and competing for the high score such as Space Invaders (1981). In the early 90s, Street Fighter introduced player vs player direct competitions. Console games have continued to play an important role in multiplayer digital experiences. Today the boundaries between console and PC are blurry, as the physical devices used to access and interact with virtual worlds are becoming less relevant. The focus is shifting to the digital worlds, communities, and shared experiences themselves rather than specific hardware.

People playing Quake on a LAN. Source Killersinc.com
Counter-Strike Beta(2000), a squad and objectives-based first-person shooter modification for Valve’s Half-Life. Source Twitter.com
People playing Quake 3 Arena(1999) on LAN. Source Twitter.com

People pay to watch other people play games?

Yes. Amazon paid nearly 1 billion to buy Twitch in 2014, a platform facilitating the streaming and viewing of people playing games. People pay to change the look of their character, their alias, the visual effects of their character’s items, or transportation. The emotional drivers that lead people to signal status with clothes and vehicles in the real world are present in online worlds, and your kids are excited to pay for it.

While people passively watch their heroes on TV, live streaming allows communities to interact with their heroes in real-time. When a popular Metaverse personality uses a particular set of hardware, it has a similar effect as a sports idol wearing branded shoes. In addition to real-world consumer products, the Metaverse offers virtual goods, and the ‘items’ a Metaverse personality uses in a particular world can become highly desirable to the community. The key differentiator: digital goods have zero marginal cost of reproduction. We’ll return to this later in a discussion of business models and monetization.

Twitch revenue estimates. Data source: businessofapps.com, twitchtracker.com

Uh-Oh! Technology

Recalling our broad framework for understanding the Metaverse — shared experiences with digital identity and derivatives — we observe few remaining limitations. Technical barriers have been resolved for well over a decade. We’ll cover the core components of connectivity, communication, access, and interoperability in the remainder of this essay. These layers of technology address the human drivers of identity and social behavior. They enable business model innovation that differentiates the Metaverse from traditional opportunities.

The infrastructure layers of computing, storage, and networking (referred to as the cloud) are certainly critical to the Metaverse. They are present today and offer compelling business models analogous to railroads. Cloud technologies offer robust, reliable, low-cost, and high-quality delivery of recurring digital experiences. These technologies now form a foundation — the “rails” — on which instances of the Metaverse are delivered and experienced.

If you ask someone for a specific example of the Metaverse, the response likely won’t include products or services developed by cloud providers. Common responses may include 3D virtual worlds like Fortnite, Minecraft, or Roblox. Others focus on concepts, such as virtual real estate, ownership, or representing yourself as an avatar (such as a squirrel) in web calls. The Metaverse has many instances, each with isolated and overlapping communities. Each instance requires resources including computation, storage, and low latency. The greater the demand for resources that enable instances of the Metaverse, the more valuable cloud infrastructure becomes in delivering high-quality user experiences.

Connection and Communication

The mid-90s saw the emergence and mass adoption of home internet connections with America Online or AOL (1993). Communication through direct messaging gained popularity with the Internet Relay Chat client mIRC (1995). Uh-oh! This audio queue, familiar to many, was popularized with the direct messaging application ‘I seek you’ ICQ (1996). In 1995 mIRC introduced persistent group and direct messaging. People would use aliases, join multiple community channels, and assume roles and responsibilities as part of social or organizational hierarchies. Slack, Discord, and Teams are direct descendants of the mIRC model.

What truly changed communication in connected multiplayer experiences was Voice over Internet Protocol (VoIP). VoIP was introduced to the mass market with the Roger Wilco (1999) application. Roger Wilco enabled people to join channels and speak directly to each other from their PC, for free, from anywhere in the world. VoIP’s impact on multiplayer experiences was profound for a time when long-distance and international calling was expensive and difficult to access.

The late 90s and early 2000s saw a world where global connection, persistent messaging, and direct voice communication with an assumed alias were gaining broad adoption.

The mIRC client(1995) provided one of the original ‘3rd spaces’ for people to form communities and pursue interests. mIRC offered similar channel or room instances as we’re familiar with today in Discord and Slack.
Roger Wilco(1996) provided one of the earliest VoIP applications allowing anyone with an internet connection and microphone to communicate. The combination of mIRC and Roger Wilco was used for competitive and cooperative gaming experiences. The combined functionality of persistent group messaging and voice created the most popular community application — Discord.

Access and Interoperability

The ability for people to participate in Metaverse experiences was limited by hardware in the mid-90s. Awareness of PCs was constrained to urban technology centers and compared to consoles, PCs were expensive. If you were fortunate enough to have a PC you’d have experienced incredible innovation in software application development. In the mid-90s PC game development was the bleeding edge of hardware-efficient software design. The products developed by John Carmack and the team at ID software are truly incredible. Quake (1996) presented a step change in multiperson online experiences and was broadly accessible with available PC hardware.

The 2000s and 2010s presented rapid iteration and development of product and service offerings that can be considered instances of the Metaverse. Facebook (2004) started with a web application that allowed people to create a name, profile picture, and to connect with other people on the platform. Requiring a web browser and internet connection the platform was easy to access with few barriers to entry. Today we call this social media. We don’t think of social media as a massively multiplayer online gaming experience, but perhaps we should. Social media and multiplayer gaming have shared experiences with digital identity in common.

By the 2010s broad adoption of mobile phones enabled access to multi-person digital experiences. This period introduced persistent profiles and identities with Facebook, Instagram, Snap Chat, and TikTok. Digital multi-party interactions are central to each of these platforms.

The modern competition between Instagram and TikTok, Minecraft, and Roblox provides observational evidence to address the question: is there one Metaverse or a Multiverse? The answer can be found in the observation that there are many connected digital experiences shared by overlapping communities, each composed of people with real and aliased identities. Returning to our broad framework — the shared experiences with digital identity and derivatives — the Metaverse can be considered an aspiration to these properties at the limit of completeness.

The complete Metaverse will remain an aspirational concept as ideas and technology evolve. Instances of the Metaverse are very real and profitable today!

Open Ecosystems — Access

The challenges around access have persisted due to business models favoring hardware-bound or platform-bound ecosystems. Examples of these include Sony’s Playstation and Microsoft’s XBox for hardware, the closed realms of social networks, and proprietary multiplayer gaming ecosystems (such as League of Legends, Fortnite etc). A notable step in the right direction is the more open platform of Roblox (2006.) Roblox enables 3rd party development and monetization of ecosystem-enhancing products and experiences. This strengthens the platform’s offerings while outsourcing development risk, and improves the community’s overall enjoyment and revenue generation. Designing for communities and shared ecosystems are critical. Roblox can be observed as a leader in connected community development.

The challenge in 2022 is interoperability — the ability to transit connected digital experiences with a persistent identity and the ability to access and leverage one’s material derivatives of identity. In the real world, the benefits (or hindrances) of our identity remain with us as we move from one experience to the next. Proprietary communities, which proliferated in the 2000s and 2010s, created multiple disconnected identities across platforms. While highly profitable for the winner, closed models tend to stifle creation, innovation, and diversity. Closed models create perverse incentives leading to separate disconnected worlds and competing ecosystems. The thinking is analogous to a scarcity mindset or a ‘one pie to rule them all’ vs. a baking more pies model. The technology threatening a solution to the challenges of interoperable identity is commonly referred to as Blockchain, Smart Contracts, or Web3. A common goal among these technologies is shifting towards greater ownership and control for the user.

2022 is an exciting time for interoperability. We likely have the technology to create one or more solutions. Dapper Labs (2018) should be highlighted as leading technical advancement with interoperable digital identities and material derivatives. Dapper Labs launched the first blockchain and smart contract-based game with accompanying assets called Cryptpo Kitties (2017). Subsequent products exploring digital collectibles including NBA Top Shot (2020), UFC Strike (2022), and a $250M funding raise for LaLiga Soccer, demonstrate both Dapper’s impressive execution and the materiality of these emerging business models.

Linked Accounts

Account linking is an early experience of interoperability with connected digital identities. Account linking between Twitch (owned by Amazon) and League of Legends (owned by Riot) offers rewards to users who have separate accounts within both ecosystems. Prime members receive subscriptions that they can gift to digital community personalities, and Riot players receive digital cosmetics (skins). Account linking provides members of two separate communities an enhanced connected experience. Spotify’s 2021 addition of OAuth, an open-source authentication mechanism, allows creators to host subscription content on Spotify using their own external login identity. As a user of both Spotify and a subscriber to paid content communities (such as Stratechery), this provides a frictionless user experience. Account linking allows the community operator Stratechery to maintain independent control of member data and payments while enabling discovery, distribution, and ease of access on Spotify’s platform. Spotify could force community operators to adopt its payment system, however, they’ve taken a broader view toward a more open platform model.ever, they’ve taken a broader view toward a more open platform model.

The frictionless transit of digital identity across experiences and communities is the aspiration of many web3 projects.

Monetizing the Metaverse

Recall the framework of the Metaverse as shared experiences with digital identity and derivatives. We’ll now build on the previous examples of digital identity and the technology-enabled evolution of connected communities and multi-person experiences.

Gaming and social media engagement have driven technology development for the Metaverse. As the value of connected identity and derivatives is more broadly understood, we’ll see increasing adoption by more traditional industries.

Real World Observations — Metaverse Opportunities

For example, in the ‘real world’ of traditional media entertainment (sports, music, video) we observe the development of fan groups and the desire of people to associate and signal their affiliation with a community. Think of a sports team, a music personality, or popular TV series. We observe that one person can belong to many communities. We observe that derivatives of identity, which include community and behavior, result in people’s desire to signal affiliation and these values drive purchasing decisions. This results in the purchasing of merchandise, the desire for attending in-person events, and seeking ‘exclusive’ or collectible items and experiences related to that community. Traditional media entertainment offers familiar business models of ad-supported passive consumption, paid live events, and subscription content. Consider the enabling properties of technology — speed, scale, access, and persistence of data as applied to identity and derivatives.

Derivatives of Identity — Status and Signaling

Metaverse business models are differentiated in their engagement, community building, and monetization potential. They leverage technology to deliver and exploit shared experiences with digital identity. The Metaverse offers ad-supported viewing, real-time donations, direct subscriptions, gifted subscriptions, paid interactions, community rewards, linked product integrations, and personalized content occurring daily, often for 6+ hours at a time.

For example League of Legends (2009) is a free multiplayer game that according to the 2020 report by SuperData generated $1.75Bin revenue from the sale of digital goods. These digital goods are cosmetic in nature — a way for people to signal to others in the community. Roblox (2006) generated $2.29B and Pokemon Go (2016) generated $1.92B. The common theme with these businesses is their free open access, focus on community building, and monetization through the sale of digital goods. People buy because they value their digital identity and their association with the community.

The revenues demonstrate the present-day materiality of the Metaverse. The enabling properties of technology offer incredible scale and distribution to develop connected communities. These communities are often monetized through the sale of digital goods or products that have the wonderful property of zero marginal cost of reproduction: high margins with very low production costs. The challenge for these businesses is maintaining people’s interest in the community over several years.

Global gaming revenue by platform. Mobile spending is often on in-game purchases to improve player performance or cosmetics. The growth in mobile spending, its accessibility, always-on status, low barrier to entry, and global adoption make competing for the next major device platform (glasses) irresistible. Data source Sensortower.com

Developing and Monetizing Communities

Metaverse monetization has consisted of people buying digital goods, digital subscriptions for access, and selling ads in attention marketplaces (social media). The challenge for those looking to enter this market is developing a multi-person connected experience that will facilitate community growth and engagement for an extended period of time. For every Fortnite, there are several titles that struggle to gain distribution and build a large enough fanbase to be viable. The success of community development around multiplayer games appears to have similar properties as traditional media in that it is a ‘hits-based business’. Either you produce a large hit or your title and future monetization potential dies off.

Unlike traditional media, Metaverse properties are differentiated and advantaged by their ability to be iterated on. Updates, expansions, and pivots are common in connected digital communities.

Common properties of successful Metaverse communities:

  • Minimal hardware requirements (Access)
  • Ownership and customization of digital representation (Identity)
  • Shared multi-person experiences (Community)
  • Engagement with others (Communication)
  • *emerging property* Leveraging identity across communities (Interoperability)

Creating a vast new community and operating over a long time period is challenging. Dapper Labs and NBA Top Shot are great examples of the opportunity for existing brands to innovate by leveraging Metaverse models for their existing communities.

NBA TopShot total transaction sales, July 2020 — July 2022. TopShot has surpassed $1 billion in total sales as of May 2022. Data source: cryptoslam.io

Infrastructure Enabling the Metaverse

From the framework of connected digital representation of identity and derivatives, there are two broad approaches to monetization. Developing the multi-person experiences around which communities are formed and monetized or developing the enabling infrastructure and tooling.

Rails

The foundational infrastructure of compute, storage, and networking enables connected and persistent multi-person experiences. Amazon’s Web Services, Microsoft’s Azure and Google‘s Cloud Platform are all working to deliver the best performance for connected digital experiences. Nvidia’s GeForce Now, Google’s Stadia, and Microsoft’s Xbox Game Pass are examples of cloud providers removing the local hardware barrier to entry and streaming content directly to users. Nvidia’s GeForce Now has over 20 million registered users and over 1300 games. This represents a growth of 20x the 1 million users in 2020.

Access Devices

Locally, we access and experience the Metaverse with devices. These include mobile devices, PCs, consoles, VR, TVs etc. Traditionally the key piece of hardware was the GPU, often required for experiencing immersive 3D environments. VR headsets and AR glasses are continuing to gain a lot of attention and are often associated with the Metaverse. These are best viewed as access devices. Access devices have proven to play a critical role in how we experience and interact with connected digital communities. The leading mobile devices from Samsung and Apple gain tremendous advantages by controlling the interface between people and the digital products and services they access. Facebook’s pivot to Meta and focus on Oculus as the future of the company is a bet on the value of shared experiences with digital identity and the importance of the access device.

Tooling

The secondary infrastructure layers enable human-centric functionality. They enable experiences, communication, community, access, and interoperability. An example includes Twitch, which facilitates community and communication through its live streaming platform. Twitch as a platform hosts 140 monthly active users(MAUs) and monetizes attention through advertising. Additionally, the platform provides tools for digital native communities centered around aliased personalities including subscriptions, donations, and sponsored content. Discord, which facilitates persistent chat and voice communication for communities, monetizes through premium service subscriptions offering higher quality streaming and community management features. Slack and Teams can also be considered infrastructure layers — they cater to professional organizations that have been slower to adopt Metaverse properties.

Epic Games and Unity both offer game engines as part of platforms for building multi-platform digital experiences for games, education, and professional use. Interestingly these platforms also provide solutions for live voice, chat, and other multiplayer services such as anti-cheating and anti-harassment. The millions of logged interactions between people have provided ample training data for measuring and encouraging desirable community behavior. Graphics, modeling, and animation software such as Autodesk’s Maya and Blender help creators build the objects and visuals found in multiperson digital experiences.

OpenSea (2017) is the world’s largest NFT marketplace, i.e.the largest marketplace for digital goods. NFTs, web3, and smart contracts are all terms that share a common aspiration of enabling interoperability and ownership of assets between digital environments. NFTs in 2021 are experiencing their dot-com bubble moment. Remember that most of the ideas in 2000 were right but the timing, technology, market, and valuations were wrong. In 2022 the idea and potential of NFTs are great, however the user experience, market, and timing aren’t quite there — yet.

Old challenges — New Technologies

Monetizing traditional communities through Metaverse models offer the benefit of existing observable behavior and the opportunity to apply the benefits of technology. Consider social platforms such as Instagram and existing real-world communities around gyms and fitness. The behavior of sharing gym pictures and giving shoutouts to gyms and trainers are forms of signaling values and community association. People and organizations are creating digital community identities in the form of ‘teams’ coupled with subscription services such as workouts, training routines, and nutrition programs. Membership in these communities is shared over Instagram and other social platforms to signal values, association, and status.

Community operators in traditional industries, such as fitness, are aware that digital representations of identity and association are often more important to paying members than the training plans themselves. Our desire to signal community membership, values and status is alive and well in the Metaverse. The opportunity for brands, organizations, and individuals to create digital representations of identity and monetize their communities through Metaverse business models is present today.

The Path Forward

The discussion so far has made the case that the core of the Metaverse is already here. The path forward is increasing interoperability between digital identity across platforms and traditional real-world experiences. The opportunity in this shift is recognizing that consumers are increasingly placing greater value on shared experiences with digital identity and its derivatives.

Facebook → Meta

Mark Zuckerberg has stated he believes Meta is in “very deep, philosophical competition with Apple to build the metaverse” according to an internal all-hands recording. The origin of Facebook, as a web application with a name and profile picture, was Hot or Not scaled up with technology. When viewed through the lens of shared experiences with digital identity — we can see Facebook as one of the largest early instances of the Metaverse. Facebook monetizes by reselling attention through its attention marketplace — advertisements. Facebook is experiencing two broad disruptions: 1) the ability to interact directly with users and their data through the access device (mobile) and 2) the transitory nature of communities. Communities evolve over time. The challenge for community and brand operators is to remain relevant. Facebook as a community was declining with the shift to Instagram, and now Instagram is under pressure from TikTok.

Facebook understands the value of shared experiences with digital identity and is working aggressively to improve its platform offerings with payments, shops, live commerce etc. Facebook (i.e. evolved Hot or Not) as a product is failing. Meta as a Metaverse platform enabling shared experiences with digital identity for thousands of communities around the world is thriving.

The focus on owning and operating the next computing platform (Extended Reality — XR), or the access device, is to ensure greater value creation for their platform and users. The device we access the Metaverse from will come with default settings and applications. Apple and Samsung currently benefit tremendously from existing defaults, such as Apple Pay.

Devices Dictate Defaults

The defaults for the preferred Metaverse access device come with profound implications. How we view and experience shared digital experiences and soon real-world experiences will be greatly influenced by the device on our faces. Meta appears to be learning that communities are transitory but infrastructure and tooling are more enduring. The transition from Facebook to Meta is a bet on owning and operating the most valuable infrastructure platform on which users will build, own, operate, and experience instances of the Metaverse. The idea that Meta would build ‘The Metaverse’ as a single shared 3D world we all inhabit is intellectually dishonest. Meta is likely focusing on solving challenges around enabling creators to build, own, and operate Metaverse experiences using its platform and service offerings.

Imagine the infrastructure to create, buy, sell, and trade derivatives of shared digital experiences for communities of sports fans. Suppose these derivatives look something like baseball or hockey cards initially but, as digital goods, are enduring, connected, interoperable, iterable, enabling, and unlike private physical collections, highly visible. This is what Dapper Labs is doing with Flow and early products built on Flow such as NBA Top Shot.

The next platform of computing (XR) will influence our literal view of the world. There is great value in the device and its influence on visibility and interaction with real and digital experiences. Meta’s experience with some of the world’s largest attention marketplaces likely informs their sense of urgency on owning and operating the infrastructure layers enabling access and visibility for the Metaverse.

Layered Up

Scott Galloway has a great quote about VR as a prophylactic against people, referring to the headsets and that nobody would want to get near you while wearing one. Apple has repeatedly convinced us that prominently displaying their hardware on our person is valuable for signaling status as part of identity.

When the iPod 2001) came out, nobody wore white headphone cords. They were white, the highest contrast against any clothing a person would typically wear. These were anomalous and could be spotted from 50 ft away. The commercials (yes on TV) were of people dancing in black silhouettes with white headphones prominently displayed. These were not subtle and they weren’t intended to be.

iPod ads from 2005 were everywhere, TV, billboards, and plastered on public transit. image source billboard.com

As competitors shrunk the size of phones to go into your pocket, the iPhone was meant to be displayed. Apple Watch (2015) looked strange at first but soon became ubiquitous. Airpods (2016) initially looked like cigarettes stuck in your ears, but these quickly became desirable status symbols as well.

The next leap in hardware value capture is focused on inserting glasses or a headset between the real world and our ability to observe it. This will shift the wearer’s perspective and interaction with the world to the defaults of the access device.

The Metaverse and your Real World experience are already being enhanced with the benefits of interoperability and access. Augmenting the Real World with digital layers is an example of providing a shared experience with elements of blended real and digital identity. Niantic and Nintendo’s Pokemon Go (2016) introduced augmented reality (AR) games to the mass market with its stunning launch and initial user base of over 230 million people. Prior to Pokemon Go, Niantic had released Ingress (2012) as a proof of concept for AR-based games. In the same time period, Snapchat released AR filters (2014). While both of these applications are toys, a very tangible example of enhancing real-world experience with digital layers is Google Maps. Google Maps aggregates data from millions of smartphones to enhance decision-making in the real world as communicated through digital layers. Google Maps as a platform is licensed to companies such as Uber, which paid Google $58M between 2016–2018 for the usage of the service (CNBC).

Meta, Apple, Google, and Microsoft’s push for glasses, headsets, and XR experiences are often met with skepticism for the headset and the awkward previews of VR worlds. The devices we use influence our access, awareness, and the defaults of how we interact with the physical and digital world. The platforms, or communities, we interact with determine which shared experiences we contribute to and benefit from. The combination of devices and platforms hold significant leverage over our digital and real identities and how we experience the world.

The Metaverse is creating value for people who can leverage technology to enhance people’s shared experience with digital and real identity. Identity, status, signaling, and emotional drivers around purchasing decisions are well studied. We seem to lose sight of their value and influence when introducing new technologies. Nike recently acquired RTFKT Studios (2021) who created the RTFKT x Nike AR hoodie and associated NFT. This is a great example of creating value through identity, and its derivatives of status, signaling, and community. In the real world, people can only flex one set of clothing at a time, whereas in the digital world with web3 and NFTs you can flex all your goodies at once. Your participation in Metaverse events, membership in online communities, and ownership of digital assets will soon influence your access and experience in the real world — at sports events, concerts, airport lounges, restaurants, resorts, clubs, and so on. The question ‘do you even know who I am?’ will be answered by your device and the aggregation of your real and digital identity.

RTFKT x Nike AR hoodie and associated NFT. XR glasses provide access, visibility, and engagement with digital goods enabling people to signal their digital status in ‘real-life’. Source: opensea.io

Exit

Thinking about the Metaverse as shared experiences with digital identity and its derivates will provide you with greater interpretive and predictive power for where we are today and where we’re headed. The likelihood that we participate in one shared VR experience is as likely as our desire to play the same sports, listen to the same music or live in the same area. Experiences and communities will be transitory, but the infrastructure, tooling, and platforms that enable them are enduring, valuable, and being built today.

Thanks for reading and please reach out if you'd like to connect https://www.linkedin.com/in/aduxbury/

https://www.linkedin.com/in/aduxbury/

--

--

Sandy D

Data Science, Product Strategy, Machine Learning