Raphael ThysThis is part II in the series on the tech world’s latest obsession — the Metaverse.
Part I is an introduction to what the Metaverse actually means and could look like in the future.
The Metaverse stack is broadly going to align itself around 5 mega buckets, each of which along with their subcategories are critical building blocks. This breakdown of the Metaverse can help us better grasp how the pieces will fit together in the stack, and what the “flow” of the Metaverse could look like, both, from a user and a developer perspective.
Tremendous amounts of private investment is already flowing into each of these blocks. Some are purely dominated by Big Tech and gaming companies currently. However, given that the Metaverse is only beginning to take form, there exist huge white spaces for innovation. The core principles of the Metaverse — those of universality and decentralization, and its all-encompassing vision of holding all of our identity, history, communications, and payments, among other things lends itself naturally as a massive opportunity space for startups.
Investments, protocols and decisions made in the next few years will determine what form the Metaverse takes — whether it fulfills the democratization dream of everyone contributing and getting a slice of the pie, or take the interim form of another wave of massive gatekeepers and rent-takers. We are already in the era of brands trying to to foster new forms of customer engagement in the Metaverse to sell more products, fintechs are jumping on the opportunity to capitalize on new financial needs, while a slew of startups are creating new virtual products entirely, from avatars to crypto collectibles.
Metaverse Value Chain and Components
The Metaverse can be best understood as the next generation of the internet: it will build upon and iteratively transform it. It requires extraordinary technical advancements (producing shared, persistent simulations that millions of users synchronized in real-time), and will involve a robust regulatory framework, business policies and change in consumer behavior.
Here, I have created a framework to make sense of the stack that needs to come together and organize to establish flow and enable the Metaverse. Information on each of these building blocks is scattered, and hard to entirely imagine a concrete end state of. I hope to use this framework as a reference point when tracking emergence of new technologies, activity of Big Tech and gaming companies, as well as track startups.
Given that the Metaverse itself is not a monolith, but is ever evolving and dynamic due to its several moving pieces, this framework will also continue to evolve.
Metaverse Building Blocks: A framework
For a user, all of the potential use cases lie within the user experience bucket — this is the layer encompassing creating and consuming content, games, attending live events, work, collaboration, and other enterprise applications. This is also where marketplaces will come into being in a big way — where users will be trading assets. All of these experiences will be underpinned by digital payments and financial services and hold tremendous potential for blockchain, cryptocurrencies and decentralized finance applications that are emerging today.
The interface to the Metaverse for the user will be provided through the hardware building block — from evolving smartphones, VR/AR, haptik to display technology.
At the center sits the mammoth “virtualization engine” — in simplified terms, the processor of the Metaverse. A tremendously high degree of computing power combining cloud, edge, local and blockchain computing will all have to come together to provide computing power. Programming engines will allow for developers to create applications for the Metaverse. This layer also holds virtual platforms — providing ecosystems of developers and content creators. Avatars and asset creators will enable virtualization of human identity, and generate virtual assets.
All of this will rest on the base, i.e. the network and hardware development from 5G to 6G, and evolutions in chips, tiny sensors and light technology.
All these building blocks will be guided by tools, protocols, formats, services, and engines which serve as standards for interoperability, and enable the creation, operation and ongoing improvements to the Metaverse.
Deep-dive into the Building Blocks and a Market Map of key players
Layer 1: Infrastructure | Network and Chips
The Metaverse will be built on the provisioning of persistent, real-time connections, high bandwidth, and decentralized data transmission by backbone providers, the networks, exchange centers, and services that route amongst them, as well as those managing ‘last mile’ data to consumers. 5G networks will dramatically improve bandwidth while reducing network contention and latency. 6G will increase speeds by yet another order of magnitude.
Network: Entirely new technologies, business lines, and services are being developed to cater to the growing need for real-time bandwidth application.
Players: AT&T, Verizon, T-Mobile, Vodafone, Jio, Subspace (Low latency network pathfinding), Fastly (‘Infrastructure-as-code’ based CDN optimized for low-latency applications, rather than just delivery reliability and bandwidth)
Hardware: Enabling high performance, and miniaturization required by the next generation of mobile devices, smart glasses, and wearables will require increasingly powerful and tinier hardware: semiconductors dropping to nanometer processes, tiny sensors and long lasting batteries
Players: NVIDIA, Qualcomm, AMD, Intel, Atomica (MEMS-based solutions in cloud computing, autonomous vehicles, cell therapy, molecular diagnostics, genomics, 5G)
The Metaverse: A Market Map
Layer 2: Virtualization engine
This building block is the computational, programming and platform engine of the Metaverse — encompassing computing, programming engines, virtual platforms, and asset creation.
Virtualization | Computing: The Metaverse will have the greatest ongoing computational requirements in human history, and the availability and development of computing power will constrain and define its various phases of development. The ever-expanding need for computing power and its scarcity will need to be addressed by a combination of all of the following:
- Cloud computing: Simulation-processing in the cloud, rather than on local computing devices. For example, Google Stadia and Amazon Luna
- Local computing: to improve on low-latency data delivery
- Edge computing
- Blockchain computing
Players: Google, AWS, Microsoft Azure, Oracle Cloud, Clearblade, Edgegap
Virtualization | Programming engines: Developer-focused engines, which allow users to create games or 3D worlds, among other virtual products. AI-driven 3D engines make it possible to generate gaming content (interactions with in-game characters, objects, or environments, among others) in real time to allow an infinite number of scenarios and make games more interactive.
- 3D engines to display geometry and animation
- Mapping and interpreting the inside and outside world — geospatial mapping
- Voice and gesture recognition
- Data integration from devices and biometrics
- Next-generation user interfaces to support concurrent information streams and analysis
Players: Unity, Unreal, Improbable, Manticore, NVIDIA Omniverse, Sandbox VR
Virtualization | Virtual Platforms: Immersive digital and often 3D simulations, environments, and worlds wherein users and businesses can explore, create, socialize, and participate in a wide variety of experiences, and engage in economic activity. Virtual platforms will be characterized by the existence of a large ecosystem of developers and content creators which generate the majority of content on and/or collect the majority of revenues built on top of the underlying platform.
Players: Epic Games, Roblox (Gaming platform), VRChat (Social world), Immersed (Workspaces), Wave (Online concert platform)
Virtualization | Asset creation: Tools to produce virtual content and assets, ranging from synthetic media to holograms to AR content to NFTs.
Players: Gravity Sketch (Offers tools to draw in 3D using AR), Marxent (Helps brands and retailers visualize product catalogs in 3D), Threekit, Cappasity, 8i (Volumetric holograms)
Virtualization | Avatars: Avatar tech for users to represent themselves
Players: Genies, CryptoAvatars, Replika, Uneeq, Crucible
Layer 3: Interface and Access | Hardware
Put simply, this is the layer that helps us access the Metaverse — everything from mobile devices to VR headsets to future technologies like advanced haptics and smartglasses.
Evolution of Smartphone: Smartphones are only getting more powerful. With further miniaturization, sensors, embedded AI, and low-latency access to powerful edge computing systems, they’ll absorb more and more applications and experiences from the Metaverse. Smartphone evolution has had distinguishable phases — from the ubiquity of the Blackberry, to the new era of the iPhone, and the Android vs. iOS operating systems’ dominance. I have no doubt that we are approaching another inflection point, making the industry ripe for further waves of disruption(s) and “category creation”
Players: Apple, OnePlus, Google, Samsung
VR/AR and haptic tech: Consumer and Enterprise-focused hardware to make virtual worlds more immersive and lifelike, such as VR/AR headsets and haptic sensors or devices
Players: Oculus VR (VR headsets, games and equipment), Magic Leap (Focuses on enterprise applications of mixed reality), Niantic (Developer of Pokémon Go), Varjo (Augmented, virtual and mixed reality headsets for professionals), Microsoft Hololens, Neuralink
Displays: Interfaces that allow users to consume 3D content, such as next-gen TVs, phones, and hologram displays
Players: Avegant (Develops light field displays that make virtual objects look more realistic), 3D Live (Designs LED display systems for more realistic holograms to be used at live events, concerts, amusement parks)
Layer 4: User experience and use cases
The creation, sale, trading, storage, payment and financial management of digital assets. This contains all business and services “built on top of” and/or which “service” the Metaverse, and which are not vertically integrated into a virtual platform, including content which is built specifically for the Metaverse, independent of virtual platforms.
It will be accompanied by a robust Creator Economy, i.e., everything that helps creators make and monetize things for the Metaverse: design tools, animation systems, monetization technologies, and the concurrent development of 3D ad networks.
Content, Games, Shopping, Movies, Work
Players: Meta, Fortnite, Niantic, Activision Blizzard, Nintendo, Zoom, Netflix, ByteDance
Asset marketplaces: Asset marketplaces provide exchanges for users to buy and sell digital goods, with several focused on non-fungible tokens (NFTs)
Players: OpenSea (NFT marketplace where users can trade virtual goods across categories like trading cards, CryptoKitties, and art pieces), Sorare, Rarible, DMarket
Payments: Support of digital payment processes, platforms, and operations, which includes pure-play digital currencies and financial services, including cryptocurrencies, such as bitcoin and ether, and other blockchain technologies.
Financial services: Financial services that are tailored to virtual currencies. The bulk of these companies focus on decentralized finance (DeFi) applications and leverage blockchain technology. This is a massive space, and requires a deep dive of its own to place the potential of DeFi application.
Some players: Algorand (Smart contracts platform), Uniswap (Marketplace of DeFi apps), Metamask (Retail and Institutional crypto wallets), Compound
Layer 5: Interchange Tools and Standards
The tools, protocols, formats, services, and engines which serve as actual or de facto standards for interoperability, and enable the creation, operation and ongoing improvements to the Metaverse. These standards support activities such as physics, AI, asset formats, compatibility management, tooling, and information management.
Each of these building blocks are trillion dollar industries in their own right. Interoperability and verticalization across these components will be a big theme, especially among the larger players that emerge from this phase of innovation. Currently, big players such as Unity Games, Roblox have offerings in the content (games), platform and programming engine environment spaces. In addition, Unity also provides a 3D development platform, a fully-integrated 3D engine and design studio for developers, supporting a large ecosystem of plug-ins and assets. Meta (Facebook) and Microsoft hope to translate into virtual platforms driving a variety of content experiences across social, enterprise and other use cases.
This entire flywheel will of course factor in the key component of the users themselves. Development cycles, verticalization and the use cases themselves will be driven by consumer and business behaviors (adoption, engagement, spend, capability and retention). It is these behaviors that will define the social significance of the Metaverse.
Thanks for reading! What did I miss? I’d love to hear from you — I can be reached on LinkedIn and Twitter.
I write about technology, investing and behavior, and have a very diverse global experience across tech, investing and consulting. (Morpheus Ventures, Uber, Boston Consulting Group).