What Business Leaders Should Know Now About the Metaverse
ALISON BEARD: Welcome to the HBR IdeaCast from Harvard business review. I’m Alison Beard.
The sci-fi novelist Neal Stephenson coined the term metaverse in his 1992 book, Snow Crash. He described a virtual world that people entered to escape the dystopian real world around them. And we’ve seen various versions of the same idea appear in other fiction and film since. What’s more companies like Second Life, Minecraft and Roblox have spent the past decade or two building their own metaverses. More recently the biggest tech industry players, from Microsoft to Facebook say they’re getting in the game. More recently, the biggest tech industry players from Microsoft to Facebook, now Meta, say they’re getting in the game.
But when we talk about the metaverse, what exactly do we mean? What will it take to build it? And do we even want one? Matthew Ball is the CEO of Epyllion, the former head of strategy for Amazon Studios and the author of The Metaverse and How It Will Revolutionize Everything. He’s here to talk about all things metaverse. Hi Matthew.
MATTHEW BALL: Hi.
ALISON BEARD: So you already heard my first question. What exactly is the metaverse? How do you define it?
MATTHEW BALL: So I define the metaverse as a massively scaled and interoperable network of real time rendered 3D virtual worlds, which can be experienced persistently and synchronously by an effectively unlimited number of users with an individual sense of presence.
What’s really important to understand is that is more of a description than it is a definition. The internet is actually defined as the internet protocol suite, but we find it more helpful to describe it. And what I’ve described is essentially a parallel plane of existence, a persistent virtual world that affords us most of the things that we can do in the real world. We’re all in it. It has infinite memory. We can take object A from store A to store B, and it’s a live experience rather than just a static virtual world, such as those we might see in a Pixar film.
ALISON BEARD: Is there sort of a immersive component to it too? I guess just walk me through what a day in the life would look like if I’m a user of this vision of a large metaverse.
MATTHEW BALL: Sure. So this is always a fun question because it is not an answerable one. I will do my best to provide some illuminating answers. Let me take a step back. There was nothing in the internet protocol suite, none of its technical capabilities, which clearly illuminated how life would be in 2005, nor 2022.
Almost all of the most powerful technology companies of 2022 were either birthed during the last 15 years or reborn. And that’s because the internet, we could understand its capabilities, its technical premises, the ways in which it united billions of applications, billions of servers, billions of people, tens of thousands of networks, but not know cleanly what we would build on it, how it would change human behavior, which use cases would be and what the monetization models would be.
But there are some use cases that we understand. The advent of 3D communication, which doesn’t require virtual reality nor augmented reality, but extends into holography. As an example is increasingly being shown to foster better connection, better memory recall, greater engagement than traditional two dimensional displays. The advent and proliferation of 3D simulation is being used to perform surgery, to operate infrastructure, in military training and also military deployment. And so we can see key use cases as we could with the World Wide Web, but exactly what that means our life is like in 2032, that’s unknown, but it’s also what provides the opportunity.
ALISON BEARD: So you have these early players like Second Life, which is 19 years old, Roblox, which is 16, Minecraft, which is 11. They’re not quite the metaverse you’re describing, but what have they done so far that the rest of us should take note of? How are they more than games?
MATTHEW BALL: We can really track 50 years of progression. Every decade we see remarkable increases in visual fidelity, in technical sophistication, in ease of use in the size of the user base, the revenue they generate and their cultural importance. That’s relevant because we often hear this narrative of, “Well, I remember Second Life from the cover of time magazine. I remember when it was going to change the world. What’s different now?”s
And I can give you an easy answer. Second Life at its peak in about 2006, 2007 had roughly 800,000 active users during the time in which we record this podcast, one and a half million people will log on to Roblox. In the average day, 55 million unique users, in the average month, 250 plus million users. And so comparing that to Second Life, visuals key, the economy key, the cultural relevance, very different, but we are talking about non-linear growth in the audience.
To talk about your question of what did they lack, these were not the metaverse, what they were, were platforms, which interconnected myriad different virtual worlds and experiences Roblox is itself a platform that spans over half a billion lifetime users and 70 or 80 million different worlds that are all interconnected, but that’s an application. To call it the metaverse would be to call YouTube, a UGC platform of video, the internet. The internet is a protocol stack, which supports the exchange and continuity of information across 40,000 networks, 200 countries, millions of servers, billions of websites, billions of people, 25 billion devices. It’s the reason why the Washington Post can embed a YouTube video in its page, why it can then provide a link to HBR, and why a user can seamlessly jump from all of those things. And so that’s the primary distinction.
ALISON BEARD: And the metaverse that you’re describing, how close are we that to that today? It seems pretty far away from my perspective, but you’re much more immersed in the metaverse than I am.
MATTHEW BALL: As with all technological transformations. It’s hard to provide a date in which it has started, a date in which it has matured, and a date in which it has terminated. Mainframes, for example, were the first large scale computing and networking paradigm, but most would be shocked to know that industry is larger than ever before, even though we’ve succeeded with the internet, the personal computer and mobile and cloud, and you’ll find that dating exactly when mobile began or the internet began is a bit of a tough challenge.
What we know is that the elements of the metaverse are now coming together very rapidly. And to use a term or a phrase from William Gibson who wrote Neuromancer, a classic antecedent to Snow Crash, and which has become an adage in Silicon Valley, the future’s already here, it’s just not very evenly distributed. Holography exists. Virtual reality devices are being deployed in live patient surgery at Johns Hopkins. When we talk about Roblox as a proto-metaverse network, 75% of children in the United States, UK, Canada, New Zealand, between the ages of nine and 12 use it actively. And so pieces of this experience still remain outside of our grasp, augmented reality as a consumer device far outside our current technological capabilities. But if you flex on the generation or the device or the application, we absolutely feel it coming into place now.
ALISON BEARD: And what are the technological pieces that still need to fall in place? For example, I think of VR or AR as something that’s been developing, but hasn’t really become something that sort of people can do on a day to day basis.
MATTHEW BALL: That’s quite right. There’s this quote from Mark Zuckerberg in 2015, where he says, “Within the decade, we’ll replace our smartphones with wearables.” Of course, that decade has come and gone three times in this decade, they have delayed the release of their first AR device. It now seems unlikely that if Zuckerberg’s prognostication is ever going to become true, it will be in the 2030s, another two decades after he originally estimated.
He’s not alone in having a accelerated forecast for these devices. Tim Sweeney has made similar remarks. That’s clear that Microsoft and Google thought that this opportunity was nearer. Reports from Apple show that they thought that they might be able to get the first edition out in 2018 or 2019. And we continue to speculate if 2023 will be the year. The challenges for these devices are extraordinary because we face more constraints than with any other category.
Think of a console. Consoles are, a video game console, historically the most technologically capable and sophisticated devices in the average business or home. The former Department of Commerce secretary said that today’s supercomputer is tomorrow’s PlayStation. It actually turned out that the reverse was true. In 2014, the US Air Force produced their biggest, most powerful ever supercomputer using 1,700 PlayStation threes. And they said it saved 90% of the estimated cost and 95% of the electricity. And so we should think about these devices as incredibly capable, but shrinking them into a wearable device is hard.
A PlayStation five weighs nine pounds. You can’t put nine pounds on your neck or face. It has two onboard fans to manage for heating. Well, you can’t have fans on your face, which means batteries have to be much smaller. They have to generate less heat. A PlayStation has constant access to an electrical source, whereas a wearable does not. In addition, your PlayStation does not need myriad different sensors to scan your hands, the local environment and a boundary. The challenge of miniaturization so that we can have the requisite computing power, the requisite battery life, enough space for myriad other sensors in a compact, wearable, lightweight device, still significantly exceeds what we are able to pull off.
ALISON BEARD: Any other technology that needs to be improved before the metaverse can happen?
MATTHEW BALL: One of the biggest challenges is actually networking infrastructure and arguably the internet protocol suite itself. This is actually the most important element when it comes to democratized access. Let me give some examples. We talk about the broadband rollout in the United States and the importance of bringing it to rural citizens, but even in the United States, only three quarters of households with broadband have reliable access to what we call a real-time rendered 3D virtual world. Fewer than one in four middle Eastern broadband homes has reliable access to these worlds. And in India, it’s less than one in 10. And by reliable, I mean sufficiently performant that you can have a good experience when you want one, if even a minimum viable experience. It’s often deep infrastructure, how cables are laid, how directly, what they have to navigate through. And it’s exacerbated by the underlying architecture of the internet.
ALISON BEARD: What needs to change in the way that companies interested in or building the metaverse deal with each other? How do their strategies need to change?
MATTHEW BALL: So the metaverse is premised upon interoperability. And so when we talk about the advent of the metaverse, about establishing new protocols, standards, file formats, and common exchanges of information for 3D, we need these for-profit entities – they need to agree, then they need to do, and they need to navigate the business concerns of it. This is one of the reasons why there is skepticism around the metaverse idea in the west in particular, and why some actually believe that in the east should governments allow the metaverse to emerge, it might come faster, be more comprehensive and more economically viable because of central capabilities, which can mandate or legislate interoperability. That’s not just in China, we’re seeing it in South Korea, for example.
ALISON BEARD: So what are some of the most important non-US companies that are working on a metaverse?
MATTHEW BALL: Tencent is assuredly the most significant company in this space. When you take a look at the company, of course it publishes merely all video games in China, Nintendo releases, and is operated by Tencent, Square Enix is Activision Blizzard, which is now being acquired by Microsoft. In addition, Tencent has WeChat, the largest communications platform in the world, which also operates its own defacto App Store and is the second largest mobile payments network in the country.
Last year, Tencent unveiled its take on the metaverse, which they coined hyper digital reality. This is a focal endeavor for them. And one can argue that the enormous scope of their operations so far exceeds anything else in the world, that they themselves can essentially mandate legislate force interoperability, to build the metaverse themselves. It is important to say that the classical definition of the metaverse is the metaverse, not a metaverse. That typically means that no one company can build it or is likely to. The exception would be Tencent because of the scope of their operations.
ALISON BEARD: But still they would have one in China, and then Facebook would be creating a US version?
MATTHEW BALL: Well, so again, even Mark Zuckerberg is quite clear. They don’t imagine it as a version. They imagine themselves as a primary beneficiary or driver of the metaverse, an unowned experience in much the same way Apple does not own the mobile internet, but in many regards you can say they effectively do. But while the correct terminology would be the metaverse, we do expect the Chinese metaverse and the American metaverse to be very distinct, not entirely, right? The internet itself is not American or Chinese. We’re both using the same internet protocol, data and traffic is still managed and routed differently. The criticality of the metaverse as a social medium, as a commercial medium, as an infrastructural enabler means that the current process of divergent internets from a regulatory perspective, US, but also EU the African continent, Southeast Asia, and the United States is likely to be exacerbated, i.e. make it more different.
ALISON BEARD: Now let’s talk about non-technology companies that are getting into the metaverse. Are we seeing some who have fully fledged metaverse strategies?
MATTHEW BALL: We certainly are. The most obvious example is in dating, though Match Group, which owns Tinder has recently said that they had a mistaken foray and took quite a large charge. They believe that the product was wrong, the acquisition was wrong and the strategy was ill-suited. But most in the online dating industry believe that the metaverse and the advent of 3D will transform dating. We see consumer products companies, and even most of all fashion labels, as they seek to reach out to younger demographics in new forums, selling new products, Balenciaga, Gucci, Prada are all moving quite firmly into the space.
ALISON BEARD: So it sounds like an area of great interest for consumer facing brands. For those who have done things on Roblox, for example, are those efforts bearing fruit or are they just sort of experiments at this stage?
MATTHEW BALL: I would say that they’re primarily experiments. At the same time we shouldn’t assume that they’re not bearing fruit. Of course, the biggest challenge for almost all consumer brands is fighting for the customers of tomorrow. And there are a few different challenges there of course. Young people are incredibly impressionable. That’s why you want to reach them, but it’s also why it’s hard to actually be the lasting brand that connects with the consumer. They also tend to have very different habits, spend their time very differently than the generations which precede them.
So the rush for many of these companies is not to have a profit center nor even per se a revenue center, but it’s to find a way to reach these younger audiences in a way that means something to those audiences and will continue to mean something to those audiences long after they move to another platform or they mature up the population pyramid. I mentioned earlier, the abundance of children ages nine to 12, that’s a hard category to reach. Disney doesn’t allow advertising. They won’t allow advertising on Disney plus for that age group. And so we’re actually finding through a bit of a loophole, but also just the general nature of the interaction, right? Buying a virtual good, as opposed to a generic one, that it provides a real opportunity for brands to reach the consumers they really want, but struggle to secure.
ALISON BEARD: Isn’t that one danger or worry about the metaverse though, just that it will become this giant advertising platform?
MATTHEW BALL: Certainly. I think when we take a look at the origination of the internet, it stands in clear contrast to the production of the metaverse. The internet was pioneered by government, by research labs. It was premised upon collaboration. And that was because those institutions, the research labs and governments were the only organizations with the capital, the technical talent and the conviction and the utility of an internet working standard.
That’s why the internet is a public good. And it’s not hard to imagine how the internet would be different had it been designed to collect a byte of data, present an ad or sell a widget. And yet that is indeed how the metaverse is being designed, not by government, but corporation, not in pursuit of collaboration or security, but to sell, to grow, to diversify a business. That is going to be expressed in the fundamental technical underpinnings of this new medium. And that is consequential.
ALISON BEARD: I mean, it sounds really bad. What are some of the biggest risks? How could this all go wrong?
MATTHEW BALL: Well, so I wouldn’t say that it sounds very bad. And in fact, I have a somewhat optimistic perspective, which is to say that inter-cycle change is very hard. If we’re dissatisfied with the state of the internet today, its conventions, its paradigms, its business models, perhaps the companies which lead it, or the individuals who lead set companies, it’s hard to make a change intro cycle. We’re not really changing social platform. We’re not changing SaaS provider. We’re not changing the smartphones that we use, but change is a feature of cycle shifts, which is to say that we as consumers, users, developers, governments, regulators actually have a rare opportunity to reset what we dislike about today and to have a future that is arranged more to the collective benefit. Now that doesn’t mean that it’s not without its cost. I just mentioned that.
We could go the other direction, but it’s also one of the reasons why I wrote the book, which was a desire to take knowledge, which I think is generally inaccessible, sits among the executive echelons and the founders deep in their technical fields. And to make it more widely available, to explain the timeline, the challenges, the companies, the thesis, so that we can have greater agency, but what can go wrong is simple. There are many problems with the internet today. I just mentioned I’m hopeful. We can start to correct them, but we don’t have good answers for them today. Myths and disinformation, radicalization toxicity, abuse, harassment, user rights, data rights, data security, data literacy, and most of them will become harder in the metaverse. Why? Because more of society is going to move online. And that means more societal challenges will move online. And each of the aforementioned areas will become at least more important if not also technically harder. But I also think it provides us with a reset opportunity.
ALISON BEARD: Microsoft, I think is talking about creating a corporate metaverse. So sort of our professional lives also in this virtual world. So what does that mean and how will it affect the way we work?
MATTHEW BALL: I think what we’re going to see in the industrial economy is going to be different than what consumer applications look like. And there’s a good example of that, right? We all remember 15 years ago, 10 years ago, when every company believed that they needed an internal social network of sorts, that you would have your own profile, you’d say what you like to do. You might even share some photos of your weekend. Those didn’t really take off. What took off were enterprise productivity tools. You have a Slack, but your Slack is in no way, shape or form a corporate version of Facebook. It’s premised upon API integrations and real time collaboration, productivity solutions.
And so I’m skeptical that we’re going to see the broad deployment of these technologies that look similar. Doesn’t mean that we won’t use a productivity application such as Workplace from Horizon or Meta, that we won’t do a presentation in VR, but they’re more likely to be organized around observing and working through a 3D simulation. But the broadest deployment of these technologies is purpose specific. It’s XR surgery. It’s using augmented reality in a assembly line to operate a construction site in real time. It’s going to look and feel very differently, less avatar centric, less game like, and more about real time simulation.
ALISON BEARD: So Matthew you say in the intro to your book, that it’s very rare that the world’s largest companies publicly reorient themselves around ideas like this very early on. We’ve talked about there needs to be big technological advances. There also needs to be a lot more collaboration. So why do you think this actually could happen? Why is the metaverse a different project that you think will be successful?
MATTHEW BALL: At the end of the day this progression is clear. I mentioned earlier that in each of the last several decades, we have seen new 3D platforms, technologies, capabilities grow. They’re more functional, they’re more practical.
I struggle to imagine that ever reversing, the secular trends here are clear on the consumer side, everyone born today is a gamer. That means 140 million new gamers each year. Gaming is not the metaverse, but it means we’re training a generation to be native to these environments, to choose to do so for socializing, which helps with the onboarding and all other activities. We also see the ongoing deployment of these technologies far beyond their traditional trappings. Into healthcare, into science, in the operation of a grocery store, as Amazon does with its Go retail facilities. It’s true that we need a lot more to foster interoperation. That can be slow and messy, but that progression is happening.
We saw the establishment of the metaverse standards forum a few weeks ago. It has more than 1,000 signatories, Microsoft and meta are there, Epic and Unity are there. Nvidia, Intel, Qualcomm. Now, establishing these organizations is the easiest part. Having individuals agree, harder and having them then action on standards that they don’t prefer and their competitors do is the hardest part. But every year we see progress here. We can sit around and believe that virtual reality remains far outside of our grasp as a mainstream device. That’s true, but as a result, we tend to underestimate the growth that we’ve seen in these devices already. The Oculus Rift in 2016, rendered one fifth as many pixels per second, as the current device, the current device is also 100 dollars cheaper. It’s also smaller. It’s equipped with four different sensors that can track your hand exactly. And it’s capable of mixing in the real world into that virtual simulation at the same time.
So we can feel that the ultimate manifestation of the metaverse is far off, that there are myriad societal, business, and technological impediments, but that trajectory is clear. The fact that at the start of this year, seven of the 11 largest companies on earth, Google, Amazon, Facebook, Apple, Microsoft, Nvidia, Tencent, were committing billions of dollars going as far as renaming themselves, reorganizing and prepping their largest product releases in the decade or more gives me faith that this problem is being solved.
ALISON BEARD: Well, Matthew, thank you so much. I learned a lot from this conversation and your book. You’ve made me slightly less of a skeptic about the metaverse. It was a pleasure having you on the show.
MATTHEW BALL: It’s my pleasure. Thank you for having me.
ALISON BEARD: That’s Matthew Ball, CEO of Epyllion, and the author of The Metaverse: and How It Will Revolutionize Everything.
If you liked today’s episode, we have more podcasts to help you manage yourself, your team and your organization. Find them at hbr.org/podcasts, or search HBR in Apple Podcasts, Spotify, or wherever you listen.
This episode was produced by Mary Dooe. We get technical help from Rob Eckhardt. Hannah Bates is our audio production assistant and Ian Fox is our audio product manager. Thanks for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Alison Beard.