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INTO THE METAVERSE

August 25, 2022  |  9 Minute Read


Candice Tse

Global Head of Strategic Advisory Solutions

Candice Tse


 

What if you could be anyone, anywhere, anytime, in any body? The metaverse is allowing for that possibility and continues to capture attention from media and investors alike. This latest buzzword is taking over headlines, leading many to question if it is merely a fad or a truly transformative force. Understanding the excitement surrounding the metaverse in the past, present, and future may be important for a few reasons:

 

  • COVID-19 amplified the importance of virtual connections, accelerating the social acceptance of virtual existence in personal and professional settings.
  • Like with many new disruptive technologies, significant amounts of capital are currently being invested into this space across industries.
  • By 2024, the metaverse could potentially represent an $800 billion addressable market with multiple revenue opportunities not only in technology, but also across other industries like retail, education, and entertainment.1

 

 

What is the Metaverse?

The actual word “metaverse” was first coined in 1992 by science fiction writer Neal Stevenson, who used the term to refer to the 3D virtual world in his novel Snow Crash.2 Today, the metaverse is a convergence between real and virtual world experiences. The current metaverse can be likened to the internet in the 1970s and 1980s, when it represented the first form of enhanced digital communication via desktop computing. Now known as Web 1.0, the original format was read-only, where specific owners created content for a broad audience and everyone else was just able to search and consume that information. With the rise of mobile computing, the internet has since evolved to Web 2.0 which is currently in its mid- to late-stages.

 

Web 2.0 allows for anyone to create and share information online, with app development and social networking sites representing a couple of examples. Key features of Web 2.0 include compatibility with other electronic devices and systems, ease of usage, and increased participation. The leaders of Web 1.0 and 2.0 have been established over the last few decades. As we move into the metaverse, a new level of computing power, de-centralization, and content storage will be required to power this transformation.

 

The differentiated power of Web 3.0 lies in interconnectivity without the need for a centralized intermediary. While Web 3.0 is still in the nascent stages, we are starting to see more engagement as content can be accessed at the convergence of virtual 3D and physical experiences. There may be potential for dramatic shifts across industries on the back of such transformation.

 

Ultimately, the metaverse may be a continued evolution on the back of these technological shifts, likely underpinned by blockchain technology and extending across various currently closed-off networks. In other words, these networks would interact with one another as opposed to operating more independently. Going forward, that path is not likely to be linear to reach the “end-state.” Even the current concept of the metaverse remains abstract, with many definitions and visions likely to play a role in forming it. As such, it is likely to be of continued interest by investors, companies, and consumers.

 

 

 

Why is Everyone Talking About the Metaverse?

The Past

As COVID-19 disrupted in-person experiences, many people turned to virtual meeting spaces and online experiences, while others even created their own virtual worlds. At the same time, advancements in hardware technology allowed for significant adoption of augmented and virtual reality systems. These innovations catalyzed the rise of virtual existence, allowing individuals to connect digitally and positioning the metaverse to become a potential outlet to accelerate these trends.

 

The Present

As the digital economy shifts towards the virtual world, there has been a multi-year ramp up of investment by companies to build the necessary infrastructure to become a key player in the metaverse. The public listing of Roblox as well as Facebook’s rebrand to Meta Platforms are just two examples. Roblox’s success has been partially driven by its user identities, user-generated content, and platform scale. Meanwhile, Meta is vying to be one of the world’s largest and most successful virtual reality platforms with its acquisition of Oculus. In addition to virtual reality, Meta is also exploring non-fungible tokens (NFTs) and other potential uses of blockchain. These investments have helped broaden metaverse potential use cases beyond gaming to include virtual concerts, fashion shows, and more.

 

In 2021, companies in the gaming, augmented reality, and virtual world industries saw about $10 billion of capital raised in private markets.3 Meta announced plans to invest billions in the metaverse over the next few years, specifically in the computing space. The potential for total investments in this space overall could range from about 135 billion to $1.35 trillion over the next three years.4

 

The Future

Bloomberg estimates the metaverse to be an $800 billion market opportunity with multiple revenue streams across various industries by 2024.5 As the digital economy shifts to the virtual world, the metaverse has the potential to evolve into an $8 trillion market over the next two decades.6 Leading companies investing in the metaverse may be positioned to further facilitate engagement in interactive virtual worlds, creating new investment opportunities in the process. We have already seen early metaverse adoption across entertainment, retail, and consumer goods industries. For example:

 

  • Virtual Concerts7: Platforms have partnered with artists to host avatar-based performances and create virtual worlds with mini games and merchandise. In November 2020, a popular performer’s virtual world and concert resulted in approximately 37 million+ visits, 60 million social media views, and $10 million virtual merchandise sales.

 

  • Virtual Shopping8: A luxury retailer recreated a virtual version of their flagship gardens in Florence that included a store, museum, and restaurant. Players were able to try on and even purchase items to wear in the metaverse. While the experience only lasted for two weeks, nearly 20 million people visited.

 

  • Virtual Eating9: In October 2021, a fast-casual restaurant opened its first virtual location and provided vouchers to the first 30,000 users who visited the virtual restaurant in an inspired costume to receive a free burrito. In addition, they created a maze that unlocked exclusive virtual items.

 

The metaverse of the present includes tech advances in 5G and edge computing that may continue to push the boundaries on use cases. The potential metaverse of the future could include unlocking market opportunity across industries, such as:

 

 

Exhibit 1: Potential Metaverse of the Future

 

Household Net Worth Near All-Time Highs

Source: Goldman Sachs Investment Research and Goldman Sachs Asset Management, SAS. As of July 31, 2022. For illustrative purposes only.

 

Where Might the Metaverse Go From Here?

As with all trends, especially those in early stages, there come risks. There are still many challenges to full-scale adoption of the metaverse, and not all ideas will be successful or even possible in their current form. Technology needs to advance to enable high fidelity graphics, low latency, and robust volume all at affordable price points. From a behavioral perspective, the metaverse would have to credibly offer better, more attractive options than existing technology. For businesses, they would have to consider collaborating across platforms to participate in virtual experiences.

 

Moreover, the same regulatory concerns facing big tech platforms today may impact the metaverse, including on issues of privacy and data security. Specifically, the use of virtual reality headsets and other devices are likely to entail large amounts of data collection.10 As such, it will be incumbent for the implementation of these devices to occur in a way that protects consumer data and privacy, without compromising the usages themselves. Similarly, cybersecurity is likely to become of greater concern. Existing challenges, from phishing to malware and hacking, may extend to new devices central to the metaverse. The prospect of virtual crime and these broader concerns is likely to draw interest of regulators and broader stakeholders. While these represent a few risks, the list is not exhaustive as the metaverse continues to develop.

 

 

Exhibit 2: Potential Risks for Adoption

 

Household Net Worth Near All-Time Highs

Source: Goldman Sachs Asset Management, SAS. As of July 31, 2022. For illustrative purposes only.

 

 

While broad-scale implementation may still be years away, the potential of the metaverse is already leading many companies to create, facilitate, or start adapting to it. From creating virtual social experiences like music concerts or dance parties to using virtual reality and augmented reality to improve medical learning and expanding educational opportunities, there are many potential applications to the metaverse.

 

Across industries, companies will continue to innovate and find ways to position virtual and augmented reality for business and consumers. While tough to predict the leaders of tomorrow, Web 3.0 may drive a seismic shift in how we will interact with the world, with the metaverse as one potential byproduct. Though investors may need to exercise caution and patience with the evolving space as we dive deeper into the metaverse, we believe that excitement and attention will follow.

 

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1 Source: Bloomberg and Goldman Sachs Asset Management, Strategic Advisory Solutions (SAS). As of December 2021.

2 Source: CNBC and Goldman Sachs Asset Management, SAS. As of November 3, 2021.

3 Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management, SAS. As of December 10, 2021.

4 Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management, SAS. As of December 10, 2021.

5 Source: Bloomberg and Goldman Sachs Asset Management, SAS. As of December 1, 2021.

6 Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management, SAS. As of December 10, 2021.

7 Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management, SAS. As of December 10, 2021.

8 Source:Goldman Sachs Global Investment Research and Goldman Sachs Asset Management, SAS. As of December 10, 2021.

9 Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management, SAS. As of December 10, 2021.

10 Source: Source: European Parliamentary Research Service and Goldman Sachs Asset Management. As of March 2022.

Glossary

“Addressable market” refers to the total available revenue opportunity if 100% market share was achieved.

“We” refers to Goldman Sachs Asset Management, Strategic Advisory Solutions.

“Blockchain” refers to shared databases that are both decentralized and encrypted.

“Non-fungible tokens” refers to unique units of data stored on a blockchain, and may be associated with digital files such as photos, videos, and audio.

“Edge computing” refers to the process of bringing computation and data storage to a location closer to where it is being generated, as opposed to a central location or processer.

“Fidelity” refers to the level of representation or accordance with reality.

“Latency” refers to the delay between the command of an action or activity and the application of an action or activity.

Disclosures

Risk Considerations

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Cryptocurrency transactions can be subject to fraud and theft. Unlike US banks and credit unions that provide certain guarantees of safety to depositors, there are no such safeguards provided to digital wallets.

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For additional resources on the Metaverse from Goldman Sachs, please reference:

Goldman Sachs Research: Framing the future of Web 3.0 – Metaverse Edition

Metaverse-dedicated page -https://publishing.gs.com/content/themes/metaverse.html

Exchanges at GS: The Next Tech Battleground: Online Gaming & the Metaverse

For additional resources on Metaverse, contact - gs-digital-assets-desk@gs.com

Date of First Use: August 25, 2022. Compliance Code: 287391-OTU-165604.

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