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A Deep Dive Into Merging Multi-Billion Industries

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January 28th, 2022




Alexander Antic

Wired magazine described the articulation of “the metaverse” as akin to describing the internet in the 1970s before anyone could know what the internet would become.[1] One thing is certain: the metaverse looks likely to develop into a network of 3D virtual worlds with a social connection. Using virtual/augmented reality and an avatar, you will be able to interact with others socially or professionally, using 3D, real-time software. All of this may sound awfully familiar to the older ones among us. Remember Second Life, the virtual world from the early 2000s? Yes, that precursor of the metaverse that, at one time, had millions of users and fought problems around governance, pyramid schemes, and all other side-effects humans transported into the new digital world, only to be all but forgotten. Make no mistake, today’s concept of the metaverse is orders of magnitude more significant and more sophisticated. In December of 2021, Bloomberg estimated that the global metaverse revenue opportunity could be close to $800 billion in 2024.[2] USD 400 billion is estimated to come from online game makers and hardware, while the remainder would be opportunities from live entertainment and social media.

Opportunities for late-stage and pre-IPO direct investment access to the metaverse business model are popping up on investors’ radar screens. Join us as we take a closer look at the industry and its key players. The 3D gaming world is the closest experience in existence today, and it is this sector that investors are watching closely. A LUCRATIVE GAME PWC data reveals that gaming (PC and mobile) is the fastest-growing sector within the media and entertainment industry worldwide. The COVID-19 pandemic turbo-charged the popularity of gaming. Social distancing became the norm, and people enjoyed more leisure time. As a result, people who hadn’t previously been interested in gaming turned to the pastime to compete, but crucially, to connect and engage with others. As a result, user penetration is predicted to be 15.4% in 2022, reaching 16.6% by 2026. The Entertainment Software Association believes that an eye-opening two-thirds of US adults and three-quarters of children play video games weekly.[3] Statista estimates that revenue generated in the online games segment will reach over USD 26 million this year,[4] as game makers leverage 3D virtual worlds to boost customer engagement and create sales. TECHNOLOGY IS MERGING GAMES WITH SOCIAL MEDIA Technology has transformed games from charming time-thieves to engaging worlds allowing players to communicate in real-time. The convergence of gaming and socializing means these virtual worlds are competing with social media as places to meet and connect with friends. 3D technology makes it possible to stage live events like concerts, films and sporting events within these worlds. Epic Games and Roblox have hosted live events within their games with millions of attendees. Warcraft was an early proponent of players working together in “guilds”. Young people, especially, socialize within the gaming world – particularly those who are too young for social media. At the time of writing, Swiss rapper Didi is set to perform his first virtual concert on the “Decentraland” platform.[5] The Swiss branch of consulting firm PWC has been specializing in metaverse Legal & Compliance for some time now.[6]

5G, 3D, VR AND AR Further technological developments are accelerating the rush to the metaverse. For example, 5G technology will drive better multiplayer gaming, reducing latency for a greater streaming experience. It also supports more concurrent device connections for more comprehensive networks of gamers – useful in urban conurbations. In the past, heavy, clunky VR headsets with a resolution barely adequate for 3D experiences were barriers to adoption. Today, wearable tech, including gloves, trackers, motion-sickness-eliminating headphones, and even motion-capture haptic suits, makes engagement much more accessible and adds touchable, realistic elements to games. Former B2B suppliers such as VARJO[7] – a Finnish manufacturer of virtual reality, augmented reality and mixed reality headsets founded by former Nokia and Microsoft executives – are dipping into the prosumer and consumer markets with products previously only available to enterprise clients. Augmented reality has also become more common – consider Pokémon Go. AR has the advantage of appealing to a broader audience by removing the need for costly hardware enticing new gamers to the sector. In the same way, cloud-based gaming reduces the need to purchase expensive consoles. MASTERS OF THE METAVERSE A battle for metaverse territory is now taking place between the game makers, Big Tech and social networks. Meta (Facebook) has the scale and muscle for significant VR investments. Still, game makers like Roblox, Microsoft and Epic Games are also capitalizing on this movement, building the infrastructure that may form part of the metaverse. Game makers who can harvest greater customer engagement using virtual 3D technology will generate demand for the metaverse. Major players are exploring branded content, sponsorships and live 3D entertainment within the metaverse – with film, music, sport being revenue streams. Additionally, new media mergers are regularly reported as companies rush to consolidate and bolster their gaming products/services. Here are some of the key stakeholders: META Facebook rebranded itself as “Meta”, stating they were now a metaverse business, not just a social media company. Chief Executive Mark Zuckerberg has committed to spending USD 10 billion annually for the next decade on building the metaverse.[8] Meta’s share price has risen by 5%+ since rebranding, suggesting their metaverse plans are positively received. ROBLOX Roblox is a successful game maker focusing on user-created immersive worlds and games. Roblox has elevated its online experience by hosting 3D virtual concerts inside games and creating branded virtual spaces. In addition, Roblox has monetized virtual clothing and accessories, creating limited edition pieces to generate demand and revenue. For example, Roblox recently hosted the Gucci Garden art installation in a virtual recreation of a real-world event. Visitors were able to try on and purchase digital Gucci items. EPIC GAMES Epic Games is the creator of the phenomenally successful Fortnite game. Brownstone Research called it “one of the most valuable private companies in the world”.[9] Its distribution arm – the Epic Game Store – charges commission on sales and the company also runs the Unreal 2D & 3D development platform (the software upon which Fortnite is built). The Unreal gaming engine is licensed out for other companies to build on, and Epic Games earns royalties on all games produced using it. Epic Games is well-positioned to carve out a corner of the metaverse with these three vertical markets for itself. It has been at the vanguard of metaverse exploration, creating deeper interaction within its games and inviting collaboration. For example, upscale fashion brand Balenciaga installed a virtual boutique within Fortnite, where players could purchase digital merchandise or unlock items through gameplay. In the real world, clothing could be bought in-store or online, and buying real-life items also unlocked outfits in Fortnite. UNITY SOFTWARE Unity is a gaming engine business with cross-platform software that powers millions of games. This places the company in a strong metaverse-shaping position. Julie Shumaker, senior VP of revenue for Unity’s “Create” segment, stated, “We feel strongly that real-time 3D meets the internet is the metaverse”.[10] Unity recently went public and is now trading at a nearly USD 27 billion valuation. MICROSOFT Microsoft only recently announced its intention to purchase Activision Blizzard (Call of Duty, World of Warcraft and Candy Crush). Microsoft is a significant figure in the metaverse, partnering with Meta to align its Workplace business social network with Microsoft Teams, and it owns multiple gaming brands, including Xbox, Minecraft, and Halo. Microsoft CEO Satya Nadella stated this week, “Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms”.[11] If the competition rules allow the purchase to go ahead, Microsoft will play a significant role in the way we interact online. APPLE, GOOGLE, AMAZON ET AL. Other big tech companies are increasing their investments in metaverse-enabling tools. Many are looking to the cloud for inspiration – developing game subscriptions (rather than buying individual games/in-app payments/hardware) to create revenue. Apple’s Arcade game subscription service launched in 2019 and, in 2020, Amazon launched cloud-based Luna. IT’S GAME ON FOR INVESTORS Possibly fueled by the pandemic, the race to shape the metaverse has been supercharged by the explosive growth of the online gaming market. Technological advances mean the building blocks now exist to create a platform that looks set to be the successor to the internet. The development will take time, but technology investors are paying attention. Several Exchange Traded Funds (EFTs) have already been launched to track and benefit from the metaverse.[12] Accessing a high-potential segment like the metaverse, at this early stage, could be an exciting way to add a future-facing angle to an investment portfolio. Contact Stableton or sign up to explore our investment opportunities In the past, accessing a the opportunities the metaverse presents meant seeking early access through venture capital funds (which, once well-established, might not even be interested in your commitment). In addition, it involved high investment minimums, cumbersome paperwork, scarce information (often not even knowing what you will be investing in), and long holding periods. Today, there is an alternative. Accessing promising businesses via late-stage investment and pre-IPO investments is increasingly popular. For one, investors know the name of the company they are investing in. Secondly, as in the case of the disruptors in the metaverse, the product-market fit has already been established, and the path to profitability is clear. To hop on an investment at this stage means a lot of upside potential, while the risk level stays relatively moderate. Stableton is Switzerland’s leading provider for access to late-stage venture capital & pre-IPO Investments to smaller qualified investors. Our mission is to help investors get access to the otherwise secluded private investment market. With a minimum of CHF 10’000, this type of investing should be considered as part of a portfolio. This article only scratches the surface of the opportunities late-stage VC and pre-IPO investing present. Contact your Stableton representative now to learn more and find out about opportunities that exist right now.

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