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04 February 2022

Facebook Moves into the Metaverse

While the potential for a Metaverse had long been envisaged through sci-fi media such as Snow Crash and Ready Player One, such visions were often dismissed as nothing more than predictions of a distant future reality. This all seemingly changed very quickly in late October 2021 when Facebook acted in perhaps the boldest manner by abandoning its well-established brand in favour of a new look.

The group’s rebranding to Meta Platforms has already gone a long way towards legitimising the possibility of a Metaverse in the not-too-distant future. In the eyes of CEO Mark Zuckerberg, the Metaverse forms a set of virtual spaces where people can work, play, learn, shop, create and explore with other people who aren’t in the same physical space. Upon completion, Mr Zuckerberg stated that users will be able to conduct pretty much every aspect of everyday life within the Metaverse, portraying a maximalist view of what the Internet is to us today.

While rebranding efforts have helped legitimise the Metaverse as an idea, the task of bringing the idea to reality still requires significant investment. The greatest obstacle that prevented the Metaverse from becoming mainstream years ago was the subpar standard of virtual reality (VR) and augmented reality (AR) technologies. For wide-scale adoption to occur at the level envisaged by Mr Zuckerberg the demands from users will focus on the quality of the technology: such technologies need to be both comfortable and easy to use to allow these virtual worlds to play a central role in everyday life. At present, while the quality of these technologies has demonstrated rapid progression over the past decade, the greater challenge remains in finding a way to compress these supercomputers into lightweight frames that will allow for long-duration use.

Meta’s reality labs are sparing no expense in achieving such objectives, with US$5bn per year allocated to Metaverse-related development. The expansion into the Metaverse is set to change the revenue model of the business. In its current capacity, Facebook operates as a network with brands paying a fee to display adverts to users across the network. Core advertising revenue delivered US$28bn in the third quarter of 2021 and has long been the dominant revenue stream for the business. Moving forward, Meta expects hardware to account for an increasing portion of revenue due to the sale of VR/AR headsets that will allow users to gain access to the Metaverse. However, unlike many present-day hardware businesses, the focus will be on selling hardware at affordable prices to maximise participation within the Metaverse, as this will compound the value of the digital economy inside. Within this digital economy, advertising will retain a similar role to the platform as it does today with companies paying a fee for advertisement space, but the expectation is that commerce within this digital world will represent the greatest change to the current revenue model.

This article was taken from the November 2021 Market Insight. To continue reading please visit the issue. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Facebook Moves into the Metaverse
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