While the metaverse has highly disruptive properties, it remains evolutionary. A revolution is likely in the long run. The benefits should be important catalysts in moving into the Metaverse, but they can also be a challenge in the long run.
© Janus Henderson Investors
Metaverse is on everyone’s lips. “It’s a deja vu idea for us as we’ve seen how companies and investors have been seduced by the latest trends over the past few years to create an investment story sell,” said Alison Porter, portfolio manager at Janus Henderson Investors. “Will it be different this time?” The metaverse is an ambiguous concept. Investors have developed many definitions and identify winners and losers. Basically, Allison Porter sees opportunities for long-term growth and some very disruptive features. However, it must be emphasized that the Metaverse has an evolutionary character in the near future and the revolution is likely to occur only in the long term.
Technological development is accelerating, fueled by the confluence of many long-term secular growth themes. The ultimate manifestation of this convergence are some of the themes of the Internet’s transformation, namely augmented reality (AR), virtual reality (VR) and platform proliferation, in the Metaverse. A virtual digital world coexists with, but also interacts with, the real world, providing safe work and work experiences.
Metaverse vs Internet: Key Differences
– synchronous and live
Decentralized – no limit for concurrent active users
Each user has an individual sense of existence
A fully functional economy
Virtual or augmented, a world of experience that includes both the digital and real worlds, private and public networks, open and closed platforms
Unprecedented compatibility of data, digital objects/goods and content
evolution and revolution
“We see the Metaverse as an evolution, just like previous developments towards the internet, mobile and cloud. The move to the Metaverse will also revolutionize some industries, with many potential implications both in the technology sector and beyond. Connecting the Metaverse with the blockchain and evolving into the next iteration of the Internet (Internet) 3.0) with less centralized networks is likely to be very disruptive to incumbent platform operators, as it will open up large addressable markets that technology can transform over the next 20 years. For the Metaverse it has no structural ceiling but is constrained by the preference of digital technology over physical experiences and can reach into trillions of dollars,” says Alison Porter.
The emergence of multiple use cases, devices, and platforms will cause many new and exciting companies to become leaders in the Metaverse and reinvent the existing tech “winners”. The proliferation of new wearable technologies and the Internet of Things will increase the potential applications. The increasing use of blockchain, digital twins, and identities will lead to major disruptions in social connectivity, entertainment, education, construction, real estate, as well as finance. Porter comments: “We are already seeing a growing demand for technologies such as mapping and asset tracking that drive the interaction between the digital and physical worlds, enabling omnichannel shopping and merchandise lifecycle management. Indeed, many millennials and Generation Z are already partly parallel to the digital universe.”
Metaverse development also has a very interesting interface with sustainability. In an inflationary world where resources are limited, hypothetical consumption rather than real consumption can become an important decarbonizing factor. Porter: “Digital consumption, especially when done on carbon-neutral platforms for large companies such as Microsoft and Alphabet (Google), can bring significant environmental benefits. However, such a rise in digital consumption and lower demand for goods and physical experiences can ensue. It has difficult social consequences that must be carefully monitored.”
What does Metaverse mean to investors
In the long term, the benefits of major platforms like Apple and Alphabet may diminish in importance, but in the short to medium term, they are likely to serve as important catalysts for the transition to the Metaverse. The competition between the major GPS technology companies in the Metaverse will be fierce. Companies will use their financial strength to invest in the opportunities offered by Metaverse. Porter and colleagues at Janus Henderson believe this will become more evident over the next 18 to 24 months. Meta Platforms is investing heavily in creating a new platform that, unlike Facebook, Instagram or WhatsApp, does not need to run on Apple (iOS) or Google (Android) devices and operating systems. The investment is both offensive and defensive for the company’s core business (such as Meta’s previous acquisitions of WhatsApp and Instagram).
Additionally, the Metaverse may not require a closed operating system or a censored application environment (paradoxically, security and privacy measures can benefit Facebook in developing a forward-thinking concept). Microsoft appears to be well positioned to move into the metaverse in the workforce and industry, while Apple, Google, and Facebook have an advantage among consumers. For example, Apple has a head start in managing technology changes and integrating its expertise into hardware and software as consumers and developers eagerly await the release of AR/VR wearables.
Predictions of a trillion-dollar addressable market will prove compelling for startups and emerging platforms such as Unity, EPIC and Roblox. “Every previous wave of innovation has been associated with cycles of hype that have inflated ratings, from the internet boom to botnets. We expect the Metaverse to be no different,” Porter said.
Dealing with the technological hype cycle
The black line represents the noise cycle curve, and the blue dotted line represents the innovation adoption rate over time.
Source: Janus Henderson Investors
While the Metaverse offers significant new investment opportunities, Janus Henderson experts believe investor expectations regarding the speed of adoption will be very enthusiastic (see chart above), while consumer acceptance of the Metaverse will be more consistent (blue dotted line). Porter: “We are concerned about the short-term hype around the Metaverse. However, in the longer term, we see it as a shift towards full digitization, opening up more and more opportunities for tech investors.” (kilobytes)