Mark Zuckerberg is on a VR spending spree. “I don’t know if folks realize… Facebook’s largest
expenditure for multiple years now has been VR.” We don’t know exactly how much they are spending,
but most people think it’s around $5 billion per year. And that’s after they spent $2 billion to
buy Oculus in 2014. It’s now 7 years later and VR still hasn’t reached mass adoption. “The average
number of times people use a virtual reality headset is one” VR is an amazing technology,
but it just hasn’t gotten to the point where average people can enjoy it every day. But
Zuckerberg isn’t taking his foot off the gas. He now has 20% of Facebook’s employees working on
VR in some capacity. It’s a massive investment that sounds way out of line with the current
market opportunity. Both Oculus and Instagram were acquired around the same time for about the same
price, but Instagram brings in more than 10 times as much money for Facebook as Oculus and at a much
higher margin. So why is Zuck still so obsessed with VR? Well, there are a few different reasons,
but to understand them, we need to talk about the metaverse. So put lets on our VR headsets
and dive in. “So what is the metaverse? It's a virtual environment where you can be present
with people in digital spaces. You can kind of think about this as an embodied internet
that you're inside of rather than just looking at. We believe that this is going to be the
successor to the mobile internet.” For the past few months, everyone in tech has been talking
about the metaverse non-stop. There are lots of different definitions floating around out there,
but no one has done more work to popularize the term Metaverse than Matthew Ball: “The best way
to think about it is as a quasi-successor state to today’s mobile internet, in much the same way
today’s mobile internet built off the internet of the 90s.” Lots of people, especially engineers,
are extremely skeptical when a business blogger comes along and coins a phrase for a vague
collection of technology trends, but sometimes these terms do have a practical use. Think about
how we label generations. Terms like boomer, millennial, and gen z are all loosely defined
around a period of dates we can’t all completely agree upon. People typically use the birth years
between 1981 to 1996 to define the millennial generation, but is someone born on January 1st of
1997 all that different? Obviously not. But that doesn’t mean there isn’t value in having a term
to describe a new era. Technology has been through a few of these, and sometimes they are only clear
in hindsight. After mainframe computers were adopted by corporations, the personal computing
era brought technology into the homes of millions of people. It wasn’t long before these computers
were connected to the internet, which marked the beginning of the dot com era, and the last
15 years have clearly been defined by the mobile phone. Each era of computing has had huge winners,
but no one company can bring about a new era alone. And that’s why the metaverse is a useful
concept. It’s not just “Fortnite”, or “VR”, or “crypto”, the metaverse is an idea that ties these
concepts together and seeks to explain how they all interconnect. So, you’re probably wondering,
how will the metaverse be any different from today’s internet? Fortunately, Matthew Ball has
laid out a few key ideas that highlight what this evolved form of the internet will look
like. First, the metaverse will be persistent, meaning that it never resets, pauses, or ends.
Massively multiplayer online role playing games are the closest thing we have to this currently,
but not many other online experiences replicate this well. When you win a match in Fortnite,
the map resets entirely, and anything you built in the game is gone forever. Second, the metaverse
will be live. Much of the modern internet is built for asynchronous use. You can watch this YouTube
video at any time for example. And pre-scheduled events will take place in the metaverse for sure,
but everything will be designed to be live by default. Third, experiences will span both
digital and physical worlds. Pokémon Go was the first massively adopted augmented reality game
and that gives us a preview of what is to come. This theme isn’t restricted to gaming specifically
though. Microsoft is already helping companies build “digital twins” that represent physical
infrastructure in virtual spaces. ELABORATE HERE Fourth, there will be no cap on concurrent users.
This is one of the hardest problems to solve from a technical point of view,
but it’s critical. The biggest online games still restrict each session to around 100 players. Even
though millions might be playing at a given time worldwide, a single server will be capped. Massive
concurrency will make metaverse experiences feel very different from the present-day internet.
Fifth, the metaverse will have a fully functioning economy. Increasingly, the internet is simply the
best place to make money. Nearly every business has moved online, but there’s still a long way
to go until we have a digitally native economy. Most transactions are siloed in particular virtual
spaces and investment in digital goods is still in its infancy. Sixth, the metaverse will have
unprecedented interoperability. This means being able to bring a Fortnite skin into Minecraft and
vice versa. Tim Sweeney, who founded Epic Games and owns Fortnite has been talking about this for
years now, and it’s clearly an important goal. These days, most internet products are walled
gardens and users have no real way of moving data, items, content, or currencies between
services. Lastly, user generated content will play a massive role in the metaverse. This is basically
a requirement, since no single company could ever hope to produce enough variation in their games to
satisfy everyone. Roblox and Minecraft have been so successful because community members create
engaging and unique experiences for each other. Now, you’re probably thinking that those are all
pretty incremental developments, and they are! Individually, none of them are going to really
change anything about how we experience modern technology, but taken together, they can create
some pretty remarkable things. When multiple, loosely related technologies start to get better
at the same time, there are often surprising second-order effects. And we’ve seen this exact
thing happen several times in the past. Consider the second industrial revolution that occurred in
the late 19th century. Thomas Edison built the first electric power stations in 1881, but it
wasn’t until 40 years later that electricity really started being used to power machines.
That’s because factories weren’t designed around electricity when it became available.
Most plants just replaced their steam generators with electrical ones and called it a day. This
failed to take advantage of the full benefit of electrification. Older factories were designed
to have a single power source that was either completely on, or completely off. This meant
that when the factory was on, every machine was running, but electricity can be routed locally
and turned on and off based on the specific needs of the moment. Eventually, new factories
were built to take advantage of the true value of electricity, and productivity soared. Henry Ford
built the first moving assembly line which cut the production time for a single car from over 12
hours to just 93 minutes. This was only possible because electricity was available everywhere
throughout the plant and the factory could be designed for maximum efficiency. We tend to think
of Thomas Edison as single-handedly bringing about the electrification of America. It was literally a
“lightbulb moment”. But that narrative completely ignores the advances in power management,
manufacturing hardware, and production theory that collectively led to the real
impact of electrification. That’s why treating the metaverse as “just VR” is so wrong. VR might be a
foundational metaverse technology, but as we’ve seen, it’s clearly not enough. We’ve had decent
VR headsets for years now, but no metaverse. If Thomas Edison is a little old school for you,
don’t worry, we can learn all the same lessons from Steve Jobs and the iPhone. Most people
will point to the iPhone as the beginning of the mobile internet era, and just like the lightbulb,
they aren’t wrong. But the full story is much more complex. Even though the first iPhone did
have a web browser, it didn’t have a 3G modem, and most websites had yet to be optimized for mobile,
so the experience was pretty bad. It wasn’t until the second iPhone that the mobile internet really
started taking off, and even then, this was almost a full decade after the wireless
application protocol created the standards that allowed phones to access the internet.
Obviously there were lots of internet-connected mobile devices before the iPhone, and the impact
of mobile wasn’t entirely clear until apps like Instagram and Uber started creating businesses
that couldn’t exist before. The idea of a supercomputer in your pocket has been alluring
for decades. In 1976, the sci-fi author Arthur C. Clarke published “Imperial Earth.” In the book,
he described a mobile video phone called the “minisec” which had global data connectivity and
sounds an awful lot like the iPhone. And in the 90s a team of engineers spun out of Apple to start
a new company called “General Magic”. The goal of that company was to basically create an iPhone,
but they had to build everything from scratch and went bankrupt before launching it.
The iPhone was only possible because so many other technological visions had finally become
realities. Steve Jobs deserves all the credit in the world for the iPhone, but it was only possible
because other entrepreneurs had built foundational technologies. Screen manufacturers made the iPhone
durable. Chip designers made the iPhone powerful. And app developers made the iPhone useful. The
iPhone was the culmination of dozens of different independent technologies, working together to
produce a truly revolutionary product. Investors often talk about the “iPhone moment” as a key
turning point of any new technology. It’s the point where everything comes together and really
starts working and it often marks the dawn of a new era. In some ways, the “lightbulb moment” and
the “iPhone moment” couldn’t be more different. The lightbulb was merely an idea that sparked
decades of innovation, but didn’t have immediate consumer value. The iPhone on the other hand was
not just a single idea, it was the synthesis of dozens of technological trends. And that’s how you
should think about the metaverse. It certainly hasn’t had an iPhone moment yet, but there may
have been a lightbulb moment, even though we can’t quite put our finger on it yet. In a few years,
we might point to Oculus, Fortnite, or Ethereum as the true beginning of the metaverse,
but that won’t matter as much as what comes next. The iPhone moment for the metaverse
will only come after we have made significant progress in several key areas of technology.
Computers need to get faster in order to support more realistic rendering and physics calculations.
It’s no coincidence that the biggest games all have the most simplistic graphics.
Fortnite, Roblox, and Minecraft are all designed to run on basically any device,
so they have to be simple. Internet connections also need to get a lot stronger for the metaverse
to really work. Netflix is able to stream you HD video content because they can compress
the footage you're watching in advance and store the file on a server in your region.
We’ve all seen how difficult it is to maintain a stable connection even on a basic video call,
and I wouldn’t call zoom an immersive experience. Most video calls are 720p, highly compressed,
and 24 frames per second at best. In order for VR to feel immersive, you usually need two separate
streams of near 4k video running at 120 frames per second. If internet connections get faster,
the content you’re viewing in VR could be rendered on a server and then streamed to you,
like how Google’s Stadia runs games in the cloud and just sends you the resulting video feed.
So hardware will need to get better and smaller, but that might actually be the easy part. See,
computers basically get better every year. But the networks built on top of those computers
only get more complicated, intertwined, and entrenched. The real promise of the metaverse is
one of universality. It’s right there in the name. The verse in metaverse only works if we develop a
full-fledged world that is open to anyone and encompases everything. Tech companies are in
an interesting position right now. They want to help the metaverse become a reality, but only as
long as it doesn’t challenge their dominance. The reason that Zuckerberg is investing so heavily in
the metaverse right now is because Facebook has by far the largest user base of any tech company. 3.5
billion people already use Facebook, that’s half of everyone on Earth. And all those people are
creating and consuming content through Facebook apps already. This is a massive head start for
Facebook, which is why Zuckerberg is happy to invest billions of dollars to make sure Facebook
maintains a dominant position in what comes next. But Facebook has stiff competition. One of the
cornerstones of the metaverse will undoubtedly be payments infrastructure. The ability to buy,
sell, and most importantly own things in the metaverse could be the most transformative
part of this new era. Facebook hasn’t really been able to crack payments yet,
but crypto certainly has. The biggest gripe most people have with Facebook is that it’s essentially
controlled by a single person. Crypto has a lot of work to do if the plan is to defeat Facebook,
but metaverse-like projects are already starting to gain traction, although they are extremely
small at the moment. Even though metaverse-related crypto projects are still in their infancy,
it’s totally possible that one of these projects winds up being the biggest winner, instead of an
existing tech company. As we saw with the mobile internet era, there were tons of big winners,
but Apple was probably the biggest winner of all. Even though Apple had been around for decades,
they were in the right place at the right time and executed perfectly. Facebook wants to build
something so fundamental to the metaverse that they can capture that iPhone moment. And if they
succeed, the billions they’ve invested will look like pennies. All of this barely scratches the
surface of what’s going on with the metaverse, so subscribe for future videos. Thanks for watching.