It seems the buzz around social gaming and the implications it will have for consumer platforms has never been – for lack of a better term – buzzier. Before I get to this topic specifically, let me bring you back to Super Bowl Sunday, February 7th, 2021. When I saw the start of the Paramount+ ad during the Super Bowl, my first instinct was to believe it was mocking the number of streaming options we’ve been beaten over the head with and was going to be an ad for Doritos or Coca-Cola or something. How wrong I was. Paramount+ was just another streaming content service that, at least for me, felt like the straw that broke the camel’s back. Death by a thousand $4.99/mo cuts. I don’t know who was asking for this, or who has the time to consume all the content these services/platforms churn out, but the appetite clearly exists.
Netflix has added ~25 million net new subs in the last year alone and although I’ve been pretty skeptical of its growth going forward – the thesis being their head start in streaming was evaporating, content was becoming commoditized and competition for consumer attention was broadening beyond traditional media – the announcement that Netflix would be entering gaming seemed to be an admission that the company realizes it needs to adapt. Reed Hastings (Netflix CEO) admitted as much when he singled out Fortnite recently as a competitor for customer attention.
Ok that was a bit of a digression so let’s bring this back to what I think is most interesting and relevant to think about. Fortnite is a game. But it’s also increasingly becoming a social platform. One of the most common after-school activities for a lot of adolescents in the late 90’s & early 2000’s was to jump on AIM and start talking to friends. The same thing is happening today, it’s just happening on Fortnite. Yes it’s a game, but it’s also a place to hang out with IRL and virtual friends. Fortnite is free to play, which reduces friction for those just looking to hang out and yet, it generated more than $5 billion in revenue in 2020. Turns out people are happy to spend lots of “real” money for cosmetic improvements in virtual environments much the same as IRL (buying skins & emotes does not improve your avatar’s ability or success rate for battles – it’s purely cosmetic). As Fortnite has grown in popularity, from 20 million MAU in 2017 to 350 million in 2021, other brands, IP and culturally relevant stories have joined the action. Collaborations with Marvel, DC, Star Wars, professional sports leagues, John Wick, Travis Scott, Marshmello, etc. show you just how important this community is and how diverse the interests of its players are. There’s a ton of money at stake here; Epic Games (Fortnite developer) & Apple continue to publicly duel in court over how the pie should be divvied up.
Which brings us to the concept of the Metaverse. Below is an excerpt from a Matthew Ball post on what exactly the Metaverse will be:
The Metaverse, we think, will...
1. Be persistent*– which is to say, it never “resets” or “pauses” or “ends”, it just continues indefinitely*
2. Be synchronous and live – even though pre-scheduled and self-contained events will happen, just as they do in “real life”, the Metaverse will be a living experience that exists consistently for everyone and in real-time
3. Be without any cap to concurrent users, while also providing each user with an individual sense of “presence” – everyone can be a part of the Metaverse and participate in a specific event/place/activity together, at the same time and with individual agency
4. Be a fully functioning economy – individuals and businesses will be able to create, own, invest, sell, and be rewarded for an incredibly wide range of “work” that produces “value” that is recognized by others
5. Be an experience that spans both the digital and physical worlds, private and public networks/experiences, and open and closed platforms
6. Offer unprecedented interoperability of data, digital items/assets, content, and so on across each of these experiences – your “Counter-Strike” gun skin, for example, could also be used to decorate a gun in Fortnite, or be gifted to a friend on/through Facebook. Similarly, a car designed for Rocket League (or even for Porsche’s website) could be brought over to work in Roblox. Today, the digital world basically acts as though it were a mall where every store used its own currency, required proprietary ID cards, had proprietary units of measurement for things like shoes or calories, and different dress codes, etc.
7. Be populated by “content” and “experiences” created and operated by an incredibly wide range of contributors, some of whom are independent individuals, while others might be informally organized groups or commercially-focused enterprises
A lot to unpack there, and I would recommend you check out the full post here. So while Fortnite is probably the closest example we have today to a metaverse, this is a relative term. In absolute terms, it’s not close to being a metaverse. Importantly, Fortnite’s growing sub-economy is centrally managed – Epic Games controls it for all intents & purposes. Players can create their own content and monetize it sure, but everything passes through Epic Games at some point.
The natural extension of this is Roblox, which has been in the news enough over the past few months that I’m going to yada yada yada it. I would encourage anyone not familiar with Roblox to peruse the S-1 but my skepticism about its long-term potential as metaverse-relevant stem from the high churn it’s showing as players seem to age out of the game. Caveat: that could easily change, but for now I want to keep this moving to a more fascinating “game” and more broadly, the future of the metaverse.
I’m going to now contradict something I said just a handful of sentences ago: Fortnite is not the closest example we have today to a metaverse. Axie Infinity is. Lots more people now know what Axie Infinity is thanks to Packy McCormick’s recent post but I really want to focus on the long-term implications of what’s going on here.
Axie Infinity is building an ecosystem in which the players own the interactions, the property, the avatar, and in turn the whole virtual world they’re building. It isn’t owned by Sky Mavis (developer of Axie Infinity) in the same way Epic Games owns Fortnite. It’s not free to play and in fact there’s an incredible amount of friction for new joiners, making the hyperbolic growth (see below) Axie Infinity has seen even more impressive. My favorite takeaway from the Packy piece was this line: “if something is growing like crazy despite the design and UX, it must be delivering something truly innovative and meeting a previously-unmet need.”
So what’s so innovative about Axie Infinity & what unmet need is it now filling? For one, players in parts of Southeast Asia are quitting their jobs in droves to play Axie**. Some are earning incomes 3-4x as a result. That’s real-world impact! The value created by players in the Axie world is shared among those participating – it doesn’t go back to Sky Mavis. Incentive alignment is at the root of our real-world economy and Axie is projecting this same ethos into the virtual-world economy its players build. More value creation being shared among players leads to higher engagement for existing players, more incentive to further world-build and entices new players to join as well. The feedback loop is borne out in Axie’s growth numbers. There’s so much more behind why what Axie is building is different and innovative – I’ll plug the Packy piece again because of how in-depth it gets on this – but why is this all so important?
It’s in vogue to talk about social gaming, so much so that as I’ve worked on this post, Bessemer Venture Partners came out with a piece declaring “the next big consumer platforms are social games”. This is too narrow a focus in my opinion. VC’s are in the business of returning capital to LPs with attractive returns so I don’t doubt that BVP will likely continue to invest in startups in the social gaming space. But over a multi-decade time horizon, when the metaverse inevitably will take shape, it is likely to unlock unfathomable value as a computing platform and labor market. That’s both exciting for those working to make it a reality, and anxiety-inducing for existing platforms that currently harvest hundreds of millions of MAU. It’s not a coincidence that Mark Zuckerberg came out this week seemingly in favor of improving interoperability and repositioning Facebook.
“We will effectively transition from people seeing us as primarily being a social media company to being a Metaverse company”.
Facebook has a TON to lose from missing out on the Metaverse, so this makes sense. But there’s not going to be a light switch whereby Facebook, or any of the other technology giants today, flips the Metaverse on and all its existing users head over. Facebook can look at its own history to know this isn’t how it works.
Today’s tech giants are the platforms most would expect to build the Metaverse, but that doesn’t seem likely in the long-term. These platforms don’t exactly encourage interoperability, they don’t like ceding control to their users, and they certainly aren’t interested in letting their users reap much of the economic value they create. Compare Sky Mavis, which will cede majority control of Axie voting power sometime in 2023, to Facebook, where Mark Zuckerberg alone owns >50% of the voting power. I’m admittedly picking on Facebook a little, but the reality is that the Metaverse is likely to emerge in a similar way – it will start out with a tight-knit and active user base that is driven and incentivized to create things to do, experiences to have, modes of communication and other content to consume within that world.
I’m super interested in hearing from anyone building in this space or interested in virtual worlds, social gaming, and the path to a decentralized Metaverse.
Full disclosure: I own a small amount of AXS.
**Axie’s in-game currency is SLP which is exchangeable for fiat currency via ETH. AXS is its governance token.