Book Report: 'The Metaverse' by Matthew Ball
The three key points readers need to know about Matthew Ball's 'The Metaverse: And How It Will Revolutionize Everything'
The Metaverse? Really?
A few years ago, Matthew Ball was described to me as a “must read” writer for folks interested in the intersection of Tech & Media. To this day, I find his essays living up to that initial description, consistently among the most compelling in the industry and chock full of original analyses and insightful arguments.
That said, I would be kidding myself if my gut reaction to his first full-length book covering the hyper-buzzy Metaverse topic was one of excitement; candidly, it was one of skepticism. Counter to the headlines I was seeing each day, I was personally wary of consumer interest (e.g., AR/VR device adoption), the seemingly speculative nature of Web3 / Crypto / NFTs, and the suggested imminence of this virtual universe that business leaders’ statements seemed to imply. I put off reading the book, but time and time again, it resurfaced - from friends, social media, the news. Finally, I caved and am remarkably happy that I did, because the book did exactly what I hoped it would:
Provide a clear, unambiguous definition for the Metaverse
Focus on the “how” rather than the “why”
Address key skepticisms, such as those listed above
Today, I can confidently say that I better understand the Metaverse - what it is, what it is not, and why it is important. In reflecting on Ball’s book, there are three key learnings (in order of relative importance) that I will summarize today, which are especially relevant to the Entertainment industry and its future:
Building the Metaverse Will Be a Long Haul - The Key Blockers to Know
Gamers, The Pioneers of the Metaverse
What Media & Entertainment Can Expect
But first, a definition…
While Ball starts readers off with a few chapters of context setting, I’m going to cut to the chase with what I believe is one of the most important takeaways from his book: an answer to the question, “What is the Metaverse?”
In Ball’s words, the Metaverse can be thought of as:
“A massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”
He then thankfully proceeds to shine more light on each component of that necessarily thorough (yet admittedly hard to parse) definition.
Virtual Worlds: Computer generated environment, which in this case is 3D
Real-time Rendered: Programmatically generating objects or environments, at a speed that is imperceptible to the user (~120 frames per second)
Interoperable Network: Ability for various computer systems to “speak” to each other, requiring a common “language” or programming standards
Massively Scaled: Comprised of seemingly infinite number of virtual worlds
Said differently, a Meta-verse can be thought of as a massively scaled set of Meta-worlds
Persistence: Running consistently; changes made are maintained, not reset
Synchronous: Occurring simultaneously for all participants, enabling shared experiences
It is in comprehending this definition and its key components that a foundational understanding of the Metaverse and its key blockers start to become apparent.
Learning #1: Building the Metaverse Will Be a Long Haul
As I alluded to earlier, one of my main gripes with Metaverse-related buzz was its implied imminence (as Satya Nadella said in late 2021, “The metaverse is here.”). With a McKinsey-estimated TAM of over $5 trillion by 2030, the path to something of this scale would require a massive undertaking in my mind - especially when considering the market’s nascence today. Luckily, Ball appeased me with an in-depth assessment validating this intuition by outlaying the key technical and cultural blockers for the Metaverse.
Technical Blockers
In his thorough definition, Ball is describing the Metaverse in its absolute end state. Said differently, once all components of his definition are met, the Metaverse as he has defined it will finally exist. This will not happen overnight, and Ball’s definition is actually a great way to implicitly understand the major technical challenges that stand in its way.
Let’s start by grouping real-time rendering with synchronousness. These components of the Metaverse can be thought of as the product of bandwidth and latency. Ball likens these elements to a highway: Bandwidth can be thought of as the number of lanes on the highway and latency as the speed limit. Under this analogy, synchronous, real-time rendering requires users to send a “never-ending fleet of cars tethered together” to each other along the highway. In practice, this introduces constraints on the current state of both bandwidth and latency.
From a hardware perspective, bandwidth can be attained using a user-owned server (like those on a game console or phone), business-owned server (like Amazon’s AWS), or a combination of the two. For a suitable Metaverse solution, user-owned servers capable of storing necessary data and processing power (Ball cites Microsoft’s Flight Simulator game at 2.5 petabytes) are cost-preventative while shared business-owned servers are not sufficiently reliable for continuous, real-time rendering. Hybrid approaches are actively being assessed and employed by gaming companies, though on a much smaller scale than what would be required to power the Metaverse; that said, innovation in the space is promising.
Conversely, latency runs into some blockers which are harder to budge - namely, the speed of light. Simply put, the human tolerance for latency in environments intended to simulate reality is extremely low. We rely on the likes of wireless infrastructure (e.g., 5G) and fiberoptic cables to transmit this information today, but in seeking to achieve global scale with the Metaverse, we quickly buck against theoretical speed limits for cross-global data transmission such as the speed of light. That said, bandwidth and latency are a conversely proportional balancing act, and industry leaders (especially those in the gaming industry) are making strides against it each day.
What I believe to be a more testing challenge, however, concerns massively scaled interoperability. Underpinning these components of the Metaverse is some semblance of standardization. For users to be able to experience the Metaverse’s endless virtual worlds across different types of devices, the different worlds and devices must be able to understand each other via some sort of a standard programming language.
At its inception, the Internet as we know it today benefited from central development under the government. It was through this central ownership that the Transmission Control Protocol / Internet Protocol (or TC / IP) standards were established for the World Wide Web, enabling countless websites designed all around the world to be built on the same underlying infrastructure and hence speak to each other.
Today, initiatives in the Metaverse are seemingly being developed by individual companies in silos. Virtual worlds like Epic Games’ Fortnite and Meta’s Horizon World have been designed independently and operate on different infrastructure; a user could not import the Nike shoes their Fortnite avatar wears into their Horizon World avatar without some sort of “translation” exercise occurring (and this doesn’t even take into account the financial pretzel which importing could introduce).
Ball argues that as certain infrastructure takes hold on leading platforms, competing platforms will be forced to conform in order to reach larger audiences and achieve scale; however, I believe that this will be the long-tail from a tech perspective due to the varying motivations of early players in the Metaverse space today.
Cultural Blockers
Upon reading these detailed tech-oriented prerequisites, I found myself asking the seemingly important next question: Do people event want this Metaverse thing?
As alluded to above, there is no shortage of Metaverse-oriented devices and experiences available to the consumer today - provided via gaming, AR/VR hardware, and associated personal or professional experiences (e.g., virtual conferencing). In fact, companies like Meta (previously Facebook) have pivoted their entire businesses towards these devices and experiences. Meta invests tens of billions of dollars per year in its Reality Labs Division (which develops the company’s AR/VR products) while experiencing little to no traction with users, resulting in nearly $10B of losses to date.
In the book, Ball points out that this example speaks to the fact that these investments have not yet resulted in optimal customer experiences. For those who have tried out a VR headset, the common criticisms will be familiar: clunky or heavy headwear, laggy rendering, poor image quality, limited fields of vision, and, perhaps most troublesome, nausea. For similar reasons to those discussed in our technological barriers section, companies are struggling to build products that fully address these issues and are forced to front-load investment in developing the proper tech before consumer adoption catches up.
Though this felt counterintuitive (and perhaps fiscally irresponsible to me), Ball counters with a compelling case study: the iPhone.
Before its release in 2007, had consumers truly demonstrated appetite for a touchscreen-based, “smart” mobile phone without a keyboard? Based on the success at the time of options like the Blackberry, Ball would argue that they had not - at least explicitly. However, today, the iPhone sets the precedent for the mobile industry and generates over $40B+ in revenue for Apple - meaning the product alone would sit in the US Fortune 100. All that is to say, it is hard to argue that Apple’s bet on preempting consumer readiness did not pay off.
Though this parallel is perhaps a bit flimsy, I do think that it helps in summarizing the current state of the Metaverse and its barriers to date:
Technological innovation must come first, both in establishing an infrastructure that will permit the Metaverse’s end state and facilitating adoption along the way.
Consumers are not there yet in terms of Metaverse-readiness, though opportunities to test the waters are increasingly available
Driving the adoption curve will require “big bets” from companies in the space, and significant investments will continue as companies jockey for position
Learning #2: Gamers are the Pioneers of the Metaverse
In August 2020, Matthew Ball came on one of my go-to podcasts, Patrick O’Shaughnessy’s Invest Like the Best. It was in this discussion that I first heard the word “Metaverse” and what its implications may be for the Media & Entertainment industry (and beyond). Something that surprised me was Ball’s frequent references to Epic Games’ founder and CEO Tim Sweeney, as one of the preeminent leaders in the space and voices on the topic. I knew little about Epic, other than that its top game Fortnite had occupied much of my younger brothers’ time during the pandemic months. However, through this conversation and countless examples in Ball’s book, it became increasingly clear to me that Epic’s (and the gaming industry’s) importance extended far beyond “battle royale” style games.
While the podcast introduced me to the notion that gaming would be important in defining the Metaverse, Ball’s book explained why:
Developing Game Engines & Integrated Virtual World Platforms (IVWPs)
Defining Payment Rails & Their Limitations
Driving Virtual World Adoption
Game Engines & Integrated Virtual World Platforms
Ball describes game engines as the “things that establish the virtual laws of the universe - the rulesets that define all interactions and possibilities.” In short, these game engines enable games to be built and for users to access them. Today, the two leading game engines are Epic Games’ Unreal Engine and Unity Technologies’ eponymous engine which are licensed by the majority of game developers for a fee ranging anywhere from $400 to $4,000 in the case of Unity or ~5% of revenues for Epic (though larger companies like Activision leverage their own for cost efficiencies). What is interesting about these shared game engines is that they can be thought of as a “shared R&D pool for the industry” where investment in them furthers the development and innovation which are crucial to Metaverse-oriented adoption and technical progress.
If you have played a video game like Fortnite or Call of Duty, then you have experienced an Integrated Virtual World Platform (or IVWP). IVWPs can be built on top of game engines (or independently) and combine game rendering with simple interfaces for both developers and users. The current drawback with IVWPs is that they are game specific (like Epic’s Fortnite Creative or FNC), enabling Meta-worlds to exist but not the Metaverse. That said, investment from the gaming industry in building game engines and IVWPs is clearly providing key stepping stones toward the shared infrastructure required by the Metaverse.
Payment Rails & Their Limitations
As you may have seen in the news in recent months, methods of payment in gaming are a hot-button issue - perhaps best personified by the Epic Games v. Apple anti-trust lawsuit. Without getting too deep into the weeds, the crux of the issue argued by Epic’s CEO Tim Sweeney is that Apple’s 30% fee attributed to in-game purchases is squeezing gaming companies’ margins and ability to invest in innovation / better games in a meaningful way. This 30% fee is in line with industry standards and applies specifically to these one-time digital transactions (e.g., buying new shoes for your Fortnite avatar); however, it does not apply to the purchase of physical goods (e.g., shoes for yourself) or of recurring digital subscriptions (e.g., your Netflix subscription) where fees are typically zero. The argument follows that as more companies invest in Metaverse-like experiences and digital commerce continues in the space, this margin cut may prove somewhat stifling to growth. That said, gaming companies continue to pioneer “virtual world” payments and will likely continue to be on the cutting edge in exploring alternative payment rails such as crypto.
Virtual World Adoption
Perhaps the most intuitive is the gaming industry’s impact on consumer adoption of virtual worlds. Not so long ago, “gamers” or the people who spent their time socializing and building in virtual worlds were stereotyped in not the best light. However, as we see Gen Z adopt virtual worlds today (like Fortnite or Roblox), these stereotypes are being overturned, and (dare I say) gaming is even becoming cool. Led by this younger generation, socialization, commerce, and even live experiences (like Travis Scott’s Fortnite concert) are becoming increasingly popular in virtual worlds in a way we think is here to stay.
Learning #3: What Media & Entertainment Can Expect
I will keep this final section short and sweet, for two main reasons:
Firstly, I think this is where much of the Metaverse industry coverage to date has been focused - the “pie in the sky” applications of this tech once the Metaverse has achieved its end state. In reading Ball’s book, I sought to learn more about the path to getting there, rather than what “there” meant and was very pleased to find that he had allocated the pages of his book accordingly. For reference, just 18 pages of 309 total (~6%) in the book focus on business-related disruptions from the Metaverse.
Secondly, I’d prefer to avoid putting the cart before the horse. There is much innovation that needs to happen to reach the Metaverse’s end state, and it will take time to get there. In that time, I imagine current players may pivot, new players will undoubtedly enter, and new ideas will be introduced to shake things up. Who knows what will be in store?
That said, one of the reasons I set out to learn more about the Metaverse in the first place was so that I would be better positioned (and prepared) for when these changes do inevitably start to filter into the Media & Entertainment industry. Therefore, here are a few final tidbits to keep your eyes peeled for as we continue down this inevitable path of progress:
Interactive Storytelling: Increasingly, audiences will be able to participate in their entertainment, as opposed to just observing it. This will extend beyond simple immersion in virtual games and experiences via VR/AR (e.g., sitting courtside via your Oculus headset or watching Travis Scott in Fortnite), and may extend to having a hand in the storytelling itself as we are starting to see with Massively Interactive Live Events (MILEs) like The Walking Dead: The Last MILE.
Reductions in Production Costs: Content creators are increasingly looking for ways to reduce costs (especially as rising content budgets have been called into question). One way that companies have already started to explore this space is via digitally rendered production sets; Lucasfilms’ visual effects company Industrial Light & Magic (ILM) for example produced its hit Star Wars series The Mandalorian using this technology, resulting in costs ~25% of comparable productions.
New Avenues for IP Monetization: Lastly, and in my opinion most interesting, are the opportunities for licensing out digitally rendered IP. Again considering the cost pressures in the current Media & Entertainment environment, incremental cashflows from already owned franchises or IP could present an important avenue to explore from a P&L perspective, and a fun one for audiences as well. Though owners will likely have a say as to where and how their IP is used, imagine playing Mario Kart on a track at Hogwarts or doing a virtual cycling class through the Avengers’ campus; who doesn’t love a mash-up?
Wrapping Up!
I’d like to conclude with a final thank you to those of you who encouraged me to give this book a read and of course to Matthew Ball for putting pen to paper on another one of my favorite books of 2022.
If you have enjoyed reading these posts, I encourage you to share and subscribe as I have many more planned for the New Year. That said, thanks for reading, and stay tuned for what’s next!