The Metaverse Primer by Jefferies Part 1: Why now?

 Introduction

It was October 2021, and I was perusing my favorite investment-related website, Seeking Alpha. All the sudden, there was an interesting bit of news that appeared on the right-hand side of my screen. It said, “Facebook has a new corporate name: Meta” and I thought to myself that this seems reasonable given the high amount of negative publicity Facebook was getting at the time regarding issues with censorship, discrimination, data integrity, privacy, and anti-trust issues [1] [2] [3]. But around this time, the term Metaverse appeared everywhere in the financial news, and I found this to be odd, and almost astroturfed [4] [5] [6]. It seems my assumption at the time seems spot on judging by the Google Trends Analysis chart shown below. So, I’m not sure how every financial media outlet and some mainstream media outlets became so enamored with the term. Some part of me thinks that Facebook gave money to outlets to run a campaign to popularize the concept.

Quick Summary on What the Metaverse is

In the crudest way I can put it, the Metaverse is a broad term that is being used to describe the increase merging between the digital world and the physical world. It often also refers to the increase in reality-changing technology such as VR, digital items, and augmented reality. But these are simply my personal definitions for the term. Luckily for us, there are others with much more credentials than me to define the Metaverse, and a single work will form the centerpiece of this blog and the next couple of blogs. This piece is titled Going Outside is Highly Overrated: Metaverse Primer by the Wall Street research firm Jefferies, link below. They define the Metaverse as:

The Metaverse is the convergence of physical and digital in a way that is persistent, real-time rendered and infinite in its ability to offer shared experiences allowing for total sense of presence to the point where it embodies us. Your virtual identity will become interchangeable with your physical and true economies will form around this immersion into virtual/augmented realities.
(p.1)

Link to original article: https://assets.website-files.com/61152de79f1b0a81f1dcf4b7/615e101cf1cda13c40ee4d13_Metaverse%20Primer.pdf

But our investigation so far is why here, why now? According to Jefferies, their rational is:

Evidence is widespread: Video games replacing social interaction, physical experiences shifting to the virtual, normalization of digital ownership, and virtual self expression seeping into the virtual is all happening. The economic opportunity is too large to ignore by legacy and new players as the internet is set to evolve one more time.
(p.1)

But I personally don’t really buy this argument, due to a few factors that I’ll lay out in the following sections.

The Metaverse isn’t new

While the term and it’s definition may seem new, the concept of it isn’t new at all. Jefferies notes that early metaverse concepts have been around since the mid-2000’s with the games Second Life and World of Warcraft which has elements of the Metaverse. For example, World of Warcraft has both its own in-game currency system, and potential to turn the in-game currency into real-world currency through trading and negotiation with other players [7].

But the Metaverse as being presented by Jefferies and developed by Facebook and other companies isn’t new either. For example, we know that Facebook, now Meta Platforms, has been working on the Metaverse for at least 4 years based on awkward footage of Mark Zuckerberg (The Zucc) attempting to demonstrate his virtual meetings platform during the aftermath of one of the many hurricanes that find their way through Puerto Rico in 2017 [8].

In this footage, The Zucc and a co-worker can be seen explaining how they are able to be inserted into live footage of the hurricane aftermath. They note how “real” everything appears to them and how they think they can deliver a form of impactful aid to the Island from their Silicon Valley offices. Needless to say, it’s an awkward video and worth watching within the article from The Verge.

Aside from VR, other aspects of the Metaverse mentioned by Jefferies aren’t new either such as augmented reality. For example, I had my first experience with augmented reality in 2014 as part of a research study on the use of Google Glass or other augmented reality glasses device to train medical students on surgical techniques. To begin the study, we were instructed to learn how to tie a bowtie using a pre-loaded video that was played in the Google Glass device to follow the instructions. The subjects like myself could request that the video be repeated by asking the staff to manually restart the video from their side of the study. I don’t know if I was able to do this myself, and I didn’t know enough to explore.

Anyways, back on topic, the other significant example of augmented reality was the Pokémon Go craze that swept throughout the world some time ago [9] [10]. In the game, people would use their phones to go out into the real world to find Pokémon that were marked on maps of the real environment around them. The players would then travel to the real world location to capture the Pokémon. To find the Pokémon, the player would need to turn their phone camera on and look around to find the virtual Pokémon taunting them and then initiate a battle sequence to capture them. Furthermore, there was a social aspect to the game where people could meet and show each other their Pokémon collections for fun and bragging rights. It seems almost a shame now that there wasn’t an extensive monetary scheme associated with it to have its own miniature economy.

Instead, the most well-developed of elementary metaverse programs is awarded to Roblox by Jefferies. In Roblox, player make their avatars and are greeted to a selection of servers that are hosted by Roblox, but with an environment generated by the users or 3^rd party developers [11]. The games/environment can take the form of pretty much what the creator demands. There are platformers, action-adventure games, first-person shooters, and role-playing games all within the Roblox ecosystem. To make sure that people who make environments for the ecosystem get paid, developers often have microtransactions that can be bought using the in-game currency Robux or Roblox pays out developers based on time spent by subscription paying members of Roblox in their environments [11]. What results is a service-based and semi-fused with reality economy where real money is used to fund digital currency that can be exchanged and spent within a single digital eco-system.

So…why the big push now?

As stated by Jefferies, they think that the big push is because the convergence and technology required is currently available to begin the sequence for developing a Metaverse, and is expressed in the excerpt from the paper below:

“…. Evidence is widespread: Video games replacing social interaction, physical experiences shifting to the virtual, normalization of digital ownership, and virtual self-expression seeping into the virtual is all happening”
(p.1)

But what I found more interesting is the quotes the selected from tech industry professionals and executives; it seems as if they are fatalistic and steadfast in their assertion that the metaverse is the future.

“..the ideal definition is "full interactive reality" layered across every segment
of our lives. It is the connective tissue between humanity that we have always
literally lucid dreamed of but until recently haven't had the infrastructure to
make it real." - Emma-Jane MacKinnon-Lee (CEO and Founder of Digitalax)”
(p.2)

"... This is the next iteration of the internet. And as dystopian it may sound, this is the next iteration of life.” - Elena Piech (Experiential Producer at AMP Creative)”
(p.2)

“…If the metaverse will become a large part of our lives, which it will, like the internet, then the closer to reality it becomes the more it will be abstracted in defining through all of our own relative experiences of it and with it.” - Ryan Gill (CEO and Co-Founder of Crucible)”
(p.7)

In my view, it seems that this push might be dwelling from a different place rather than the evolution of technology. It would help if they provided some dates for these quotes, that we could gauge how much of this thinking is COVID-related vs general condition related. Some of the various situations that I think are fueling this perspective are:

Automation Theory

Many of the tech and social elites are currently influenced by the concept of the “Fourth Industrial Revolution” proposed by the World Economic Forum a few years ago. One of the key concepts in the fourth industrial revolution is increasing automation of labor [12]. The automation of labor implies that many jobs that previously was held by people would be relegated to a machine.

The Great Resignation Theory

One of the more interesting events over the course of Pandemic America is the surprising amount of people who have either refused to return to their previous jobs if they were lost during the initial lockdowns. The other half of this phenomenon is the high number of people who have left their jobs throughout 2021 and a continued observable shortage on labor as we march onward to 2022 [13].

Looming Economic Collapse Theory

A hot topic of conversation since summer of 2020 that continues to today is the impact of the various stimulus packages that the US and other nations have released since the beginning of the outbreak[14]. This doesn’t even include anything else such as additional direct subsidies, increased social welfare benefits, government purchasing of supplies, or money spent on vaccine public service announcements[15]. There are plenty of people on every side of the aisle that are calling an economic collapse from all this additional spending, they’ll eventually be right, but the question is when?

The conclusion from each of these potential underlying scenarios that I think could be latently pushing the metaverse forward is the prospect of large amounts of people being unemployed. Whether it’s due to automation, voluntary resignation, or economic collapse the probability of high unemployment is inevitable in each case. If there’s something that should be apparent now particularly after more than a year of civil unrest and riots in the US and more around the world is that people without work are dangerous people [16] [17]. Creating a secondary economy with its own labor roles and currencies via cryptocurrency would shield from potential future civil unrest as well as provide a buffer against an economic collapse by providing a that sense of contribution to a larger picture that many crave while generating money for the monetary system as a whole. Whatever the philosophical motive for the metaverse is, it’s going to keep being pushed down our throats, and we better start thinking about the some of the consequences of such world where reality is an amalgam of digital and virtual.

References

[1]       Facebook has a new corporate name: Meta | Seeking Alpha [Internet]. [cited 2022 Feb 5]. Available from: https://seekingalpha.com/news/3760263-facebook-has-a-new-corporate-name-meta.

[2]       Facebook slammed by oversight board for its celebrity cross-check system | Seeking Alpha [Internet]. [cited 2022 Feb 5]. Available from: https://seekingalpha.com/news/3756183-facebook-slammed-by-oversight-board-for-its-celebrity-cross-check-system.

[3]       Facebook to rebrand company, dodging flak and aiming for future - report (NASDAQ:FB) | Seeking Alpha [Internet]. [cited 2022 Feb 5]. Available from: https://seekingalpha.com/news/3755308-facebook-to-rebrand-company-dodging-flak-and-aiming-for-future-report.

[4]       October 2021 - Jump into the MetaVerse - University of Wolverhampton [Internet]. [cited 2022 Feb 5]. Available from: https://www.wlv.ac.uk/news-and-events/wlv-blog/2021/october-2021/jump-into-the-metaverse.php.

[5]       Reuters. Explainer: What is the “metaverse”? Reuters [Internet]. 2021 Oct 21 [cited 2022 Feb 5]; Available from: https://www.reuters.com/technology/what-is-metaverse-2021-10-18/.

[6]       Milmo D, editor DMG technology. Enter the metaverse: the digital future Mark Zuckerberg is steering us toward. The Guardian [Internet]. 2021 Oct 28 [cited 2022 Feb 5]; Available from: https://www.theguardian.com/technology/2021/oct/28/facebook-mark-zuckerberg-meta-metaverse.

[7]       How to make money in World Of Warcraft [2021] [Internet]. Techshali. 2021 [cited 2022 Feb 5]. Available from: https://techshali.com/make-money-world-of-warcraft/.

[8]       Kastrenakes J. A cartoon Mark Zuckerberg toured hurricane-struck Puerto Rico in virtual reality [Internet]. The Verge. 2017 [cited 2022 Feb 5]. Available from: https://www.theverge.com/2017/10/9/16450346/zuckerberg-facebook-spaces-puerto-rico-virtual-reality-hurricane.

[9]       Pokémon GO Has Grossed $1 Billion Worldwide Since Launch [Internet]. [cited 2022 Feb 5]. Available from: https://sensortower.com/blog/pokemon-go-one-billion-revenue.

[10]     Sarkar S. Pokémon Go hits 650 million downloads [Internet]. Polygon. 2017 [cited 2022 Feb 5]. Available from: https://www.polygon.com/2017/2/27/14753570/pokemon-go-downloads-650-million.

[11]     What is Roblox? Everything you need to know about the latest craze [Internet]. AppleInsider. [cited 2022 Feb 5]. Available from: https://appleinsider.com/articles/21/03/19/what-is-roblox---everything-you-need-to-know-about-the-latest-craze.

[12]     The Fourth Industrial Revolution: what it means and how to respond [Internet]. World Economic Forum. [cited 2022 Feb 5]. Available from: https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/.

[13]     Cook I. Who Is Driving the Great Resignation? Harvard Business Review [Internet]. 2021 Sep 15 [cited 2022 Feb 5]; Available from: https://hbr.org/2021/09/who-is-driving-the-great-resignation.

[14]     The Coronavirus Stimulus Is Full of Wasteful Spending [Internet]. Reason.com. 2020 [cited 2022 Feb 5]. Available from: https://reason.com/2020/04/08/the-coronavirus-stimulus-is-full-of-wasteful-spending/.

[15]     All of the COVID-19 stimulus bills, visualized [Internet]. [cited 2022 Feb 5]. Available from: https://www.usatoday.com/in-depth/news/2021/03/11/covid-19-stimulus-how-much-do-coronavirus-relief-bills-cost/4602942001/.

[16]     Carothers BP Thomas. Worldwide Protests in 2020: A Year in Review [Internet]. Carnegie Endowment for International Peace. [cited 2022 Feb 5]. Available from: https://carnegieendowment.org/2020/12/21/worldwide-protests-in-2020-year-in-review-pub-83445.

[17]     Press TC Benjamin. The Global Rise of Anti-Lockdown Protests—and What to Do About It [Internet]. [cited 2022 Feb 5]. Available from: https://www.worldpoliticsreview.com/articles/29137/amid-the-covid-19-pandemic-protest-movements-challenge-lockdowns-worldwide.