Building the digital economy that will support the metaverse

No one knows what the metaverse will look like exactly, but a new coalition of technology companies, gaming studios and tech-savvy retailers want to help build the digital economy that will support it.

Hundreds of tech companies and online retailers — companies ranging from social media platforms to hardware developers and home furniture sellers — have come together under Metaverse Standards Forum, or MSF. Analysts see the forum as a positive development, noting increased collaboration will not only spur innovation but also give consumers a sense of the metaverse's potential.

"Innovation tends to come from the boundaries between professionals, or specializations," said 451 Research analyst Ian Hughes. "[The metaverse] will start to pull people together that maybe hadn't talked to one another before."

Retail therapy

Many of the companies that belong to MSF contain ecosystems that can give users a window into what the metaverse will look like, said Scott Kessler, global TMT sector lead analyst at Third Bridge.

Swedish home furniture retailer IKEA has deployed virtual reality showrooms using Oculus Rift, and online home goods retailer Wayfair Inc. has leveraged Apple Inc.'s augmented reality kit to help shoppers make buying decisions after visualizing a product in their space. Both IKEA and Wayfair are founding members of MSF.

Wayfair has worked to become "platform agnostic" to allow it to become interoperable with its peers in the metaverse, said Shrenik Sadalgi, director of research and development at Wayfair and founding chair of the Khronos 3D Commerce Working Group, a standards development organization.

In the future, a Wayfair customer will be able to purchase a piece of furniture, like a coffee table or red couch, for example, and obtain a virtual token that allows them to use a digital version of that physical piece in a game or other setting within the metaverse, Sadalgi said.

"If all of us can agree on what this 3D model is supposed to be, then we end up producing a more consistent experience for the end customer," Sadalgi said in an interview. "It's a natural extension of what we're trying to do, helping you visualize what your space would look like using these technologies in this metaverse setting."

Big Tech's role

Beyond online retailers, Meta Platforms Inc., the parent company of Facebook, as well as Microsoft Corp., Alphabet Inc. Sony, Adobe Inc., QUALCOMM Inc. and NVIDIA Corp. are among the high-profile tech companies leading the charge with MSF. Standards developing organizations involved with MSF are The Khronos Group, World Wide Web Consortium and Open Geospatial Consortium.

Big Tech's participation in MSF is critical, both for the companies themselves and for the long-term success of the forum, said CFRA Research senior industry analyst Angelo Zino.

"In the coming years, there's going to be a lot more interaction about the metaverse," Zino said. "It's going to come from the biggest and most important tech companies out there. It'll help accelerate endeavors into the metaverse."

This is especially true as the market for augmented reality or virtual reality headsets, which have emerged as one of the most popular devices for engaging with the metaverse, continues to grow.

As of 2021, there were 28.5 million headsets installed worldwide, and that figure is expected to grow to 86 million by the end of 2026, according to Kagan analyst Neil Barbour. Kagan is a media research group within S&P Global Market Intelligence.

While headset sales can be used as an indicator of demand for the metaverse, not all AR/VR content is integrated into the metaverse, and it is possible to interact with the metaverse on other devices, Barbour said. Still, the numbers are too big for most companies to ignore.

"That's an addressable device universe that rivals a successful game console, such as the PS4 or [Nintendo Switch]," Barbour said.

Alternative approaches

Notably absent from the forum is Apple Inc. The California tech giant has not yet released a VR headset or content designed for the metaverse. It also has not yet built and marketed its own virtual world-building enterprise that could pose as an alternative to the metaverse.

Leaders at Snap Inc. and gaming studios Take-Two Interactive Software Inc. and Niantic Inc. have been critical of the metaverse and, like Roblox Corp., are focused on mapping out their own virtual worlds. Tencent — which holds a controlling stake in Epic Games — is looking to lead the Chinese market's entry into the metaverse, and Beijing Byte Dance Telecommunications Co. Ltd., the parent company of TikTok Inc., debuted its own version of a metaverse app called Party Island in January.

Tackling hurdles

For those participating in the forum, those companies might have a better opportunity to tackle such sticking points as interoperability and payment protocols, analysts and executives said.

Major gaming-console makers do not allow games that use blockchain-backed currency or non-fungible tokens, largely because they open the door to transactions the platform holder cannot monetize, Barbour said. Sony and Microsoft are likely to allow other publishers and platforms to experiment with blockchain before committing to deploying it in the metaverse.

Sony announced in 2018 that it has been developing a contactless crypto wallet using a smart card with an RFID integrated circuit similar to the technology used in many credit and debit cards. In August 2021, Microsoft was awarded a U.S. patent for a crypto token-creation service.

As Meta builds out its own digital wallet and payment platform, fintech and blockchain companies like Coinbase Global Inc. could play a significant role in the metaverse, CFRA's Zino said.

"Building a metaverse for all will require an industrywide focus on common standards," said Vishal Shah, vice president of Metaverse at Meta. "Creators, developers and companies will all benefit from the technologies and experiences that will be made possible by common protocols."

Meta announced in February it had reached 300,000 monthly users on Horizon Worlds, its flagship VR game.

Meta CEO Mark Zuckerberg has said he hopes to draw 1 billion users into the metaverse by the end of the decade.

"People believe this is the next wave of technology," Third Bridge's Kessler said. "The big question is: When is this going to reach critical mass?"