The state of the metaverse is up in the air

The metaverse remains a fluid concept. Many of the biggest names in gaming and tech agree that the metaverse will likely be composed of one or many 3D virtual worlds with functional economies, persistent identity and some level of interoperability. But it’s still early days, and many fundamental questions remain unanswered: How important will AR and VR be, what role should concepts like the blockchain and NFTs play and how might we avoid the pitfalls of Web 2.0?

For clarity on these topics and many more, market research firm Newzoo set out to take stock of where the metaverse is today and where it might be going in its second metaverse report, and I caught up with the company’s metaverse lead, Mihai Vicol, to discuss the key findings.

Blockchain gaming is still untested. Some Web3 and metaverse proponents are convinced that blockchain-based video games sit at the forefront of the metaverse by pioneering approaches like pay-to-earn, NFT aftermarkets and decentralization. Vicol isn’t so convinced.

• “There isn’t really a market for blockchain games that goes beyond the financial speculation that takes place in these games,” he told me. “90%, not all of them, are played purely for financial gain. They feature mostly rudimentary gameplay.”
• Vicol said these games are not only badly designed, but they’re also doomed to crash. “These games are unsustainable in that they mostly rely on continuous influx of players into the game,” he said. “Once that influx stops, as had happened in the past few months, the economies of these games can essentially collapse.” Axie Infinity is the industry’s biggest cautionary tale, Vicol added.
• Vicol noted in his report that the market for these games is mainly in developing countries like the Philippines and Vietnam, and the biggest question going forward will be what business models end up proving most successful in pushing blockchain-based games into the mainstream and helping balance financial incentive with fun.

Brands are arriving early. The metaverse as we know it today exists mostly as a collection of existing social multiplayer games like Fortnite and Roblox; a growing industry of crypto-focused startups; and social network-like platforms, such as The Sandbox and Decentraland. Vicol says it’s savvy marketing that brands are spreading themselves across as much of it as possible.

• Pouring resources into the metaverse today has relatively low costs and low risks for mainstream brands, but there is a big opportunity for a major return on investment. “I think it makes sense for brands to try and do this because the upside is so big,” Vicol said.
• Any of the proto-metaverse platforms like The Sandbox may one day grow as large as a major mainstream video game, or gaming companies like Epic and Roblox might be able to beat Big Tech to the metaverse and grow their platforms to the size of something as large and influential as Facebook.
• If a brand owns digital land or sets up a functional ecommerce operation, it may become immensely valuable over time. “That virtual land is essentially ad space,” he said, though it’s now interactive.
• In that context, mainstream companies see the metaverse as a “win-win,” Vicol said, especially for luxury brands, like Prada and Balenciaga, that are trying to reach new consumers without diluting their high profit margins on real-world apparel.
• “As virtual worlds will be populated by 3D avatars wearing branded digital garments, we expect a shift from D2C to direct-to-avatar (D2A). Brands will serve not only consumers but also their digital representations,” Vicol writes in his report.
• “While many consumers are usually priced out when it comes to physical luxury garments, digital clothing is poised to change the status quo, allowing brands to extend their reach while decreasing their ecological footprint.”

NFTs have a promising future. Vicol said that while 2021 was largely a breakout year for NFTs as static pieces of art (or “profile picture NTFs,” as he put it), the concept of verifiable digital ownership is nowhere close to being fully explored.

• “I think we’ve only seen the tip of the iceberg. Most of the headlines were stolen by profile picture NFTs, but I think they have way more use cases,” Vicol said,
• Vicol said that over time, the role of NFTs in the metaverse will depend on how they evolve beyond vehicles for financial speculation. That could include implementation into popular gaming platforms, genuine use cases in other industries like music and sports, and turning art-focused NFT projects into global brands.
• “I think the concept of an NFT if you strip it down is a very powerful concept. The idea of owning a digital item that is verifiably scarce and verifiably yours — it cannot be faked and it exists as an original,” Vicol said. “I think game companies need to do more work and figure out how to best implement these NFTs in games.”

The metaverse as we know it right now is in its infancy. That means there are substantial issues that need to be worked out around everything from content moderation and IP rights to data privacy and the scope of potential government regulation, Vicol said.

“Today’s gaming and tech ecosystems are largely split along regional and cultural lines, and the same is likely to hold true for the early metaverse,” he writes in his report. “The potential for abuse of power in a centralized metaverse is also non-trivial, which is why several organizations are working to create open standards. We also need to keep in mind that, as with any new technology, the transition to the metaverse will happen gradually, and it is up to the individuals building it to do so in a responsible manner.”

— Nick Statt

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Overheard

“E3 said they’re coming back. Which I don’t know what that means, right? … I don’t know what E3 is. I think we got to define what E3 is before we can say if it’s competitive or not … We’re super happy with this experience. And the publishers who are really our partners on this seem really happy with this as well. So we’re just gonna kind of keep doing what we’re doing and scaling it up.” — Geoff Keighley spoke to The Verge earlier this month during an in-person demo day for Summer Game Fest about the fate of E3 and how it might affect his fast-growing event circuit.

In other news

Netflix adds Into the Breach. The streaming platform is continuing its trend of helping finance mobile ports of celebrated indie games, this time with Subset Games’ strategy hit Into the Breach. The game launches on Android and iOS on July 19.

PlayStation duo is working on a blockchain game. Days Gone co-creator John Garvin has teamed up with Naughty Dog veteran Michael Mumbauer to form Liithos. The duo is making a narrative open-world game dubbed Ashfall, with plans to release it on the blockchain-based Hedera platform.

Square Enix is still interested in NFTs. The Japanese developer says it’s eyeing the blockchain to develop new products like “story-focused” NFTs, but it conceded in a shareholder report that it may be “too early” to transition franchises like Dragon Quest or Final Fantasy to the blockchain.

Apple’s mixed-reality headset will run on M2. The long-awaited, but not yet officially confirmed, Apple headset will be powered by the company’s newest in-house chip, according to Bloomberg. Apple may unveil the device some time this year or next.

Axie Infinity hack victims won’t be made entirely whole. Players of Sky Mavis’ blockchain game that were caught in its unprecedented hack of more than $600 million crypto won’t be reimbursed in USD but instead in ether, which has plummeted in value since the hack.

Game company CEOs take pay cuts. EA CEO Andrew Wilson took a roughly 50% cut to his stock grant last fiscal year — though he still earned a whopping $18 million — as a result of a shareholder vote in 2021, Axios reported. Ubisoft CEO Yves Guillemot is giving up about a third of his salary, about $327,000.

Bungie sues YouTuber over fake DMCA claims. The active creator community around Bungie’s Destiny series was hit with a mysterious spate of nearly 100 takedown notices earlier this year, and now the studio is going after the YouTuber who impersonated it for $7.6 million.

The game industry finally stands up for abortion rights

After a draft opinion of the Supreme Court’s decision in Dobbs v. Jackson leaked to POLITICO in early May suggesting an end to federally protected abortion rights, the game industry was largely silent save for a small number of outliers, like Destiny developer Bungie. After Friday’s decision overturned Roe v. Wade, game companies ended their silence.

Virtually every major PlayStation studio that operates in North America and Europe released statements on Twitter affirming support for reproductive rights, and at least two of those studios — Naughty Dog and Santa Monica Studio — said they would assist employees with costs associated with out-of-state medical needs. The joint effort was especially notable after Sony forbade its internal developers from speaking out about abortion after the draft opinion, with PlayStation chief Jim Ryan telling employees to “respect differences of opinion.”

The rest of the industry has gotten off the sidelines, too. Ubisoft leadership posted a blog saying, “[W]e believe that women’s rights are human rights.” Electronic Arts, while not explicitly stated in its disapproval of the court decision, said it would help employees with expanded travel health benefits. The International Game Developers Association released a statement of support for abortion rights, as did Among Us creator Innersloth, Pokémon Go maker Niantic and Texas-based developer Certain Affinity, which also said it would go as far as covering employee relocation costs. Dozens more have spoken up since Friday.

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