Major tech companies like Facebook (FB), Microsoft (MSFT) and Nvidia (NVDA) are talking up the "metaverse" as the next-generation way that people will interact online. But will the concept really leap from the pages of science fiction, or is it all just marketing hype?
XThere are plenty of signs that would have you believe you'll soon be conducting a chunk of your life in this alternate reality. Hollywood films like 2018's "Ready Player One" and this year's "Free Guy" provide fanciful versions of the burgeoning phenomenon. Meanwhile, Silicon Valley is preparing for its eventual arrival as a number of companies strategize for it.
Facebook on Thursday even changed its corporate name to Meta to evoke the metaverse. And it's spending big money to make the concept a reality. On Oct. 25, the social network said investments in Facebook Reality Labs, which includes its metaverse ambitions, will reduce its overall operating profit in 2021 by about $10 billion.
But despite the corporate positioning and breathless media coverage, the real metaverse is a long way from happening, analysts say. They note other false starts, such as a venture called Second Life nearly 20 years ago.
"This stuff is years, if not decades, away," IDC analyst Tom Mainelli said. "But at the same time, if we don't start having conversations about this as an industry, then the pieces don't get built."
The Metaverse: 'An Embodied Internet'
What is the metaverse? Technologists describe the metaverse as a persistent, shared, 3D virtual environment. There, people meet for activities ranging from playing games to conducting business. It incorporates such technologies as virtual reality and augmented reality.
Mark Zuckerberg, now the chief executive of Facebook-parent Meta, describes the metaverse as "an embodied internet that you're inside of rather than just looking at."
You'll be able to access the metaverse from a range of devices from smartphones to PCs. There also will be virtual reality headsets and augmented-reality smart glasses, he says. While Facebook isn't doing a complete makeover for the metaverse right now, Zuckerberg sees his company immersed in it some day.
"The defining quality of the metaverse is presence, which is this feeling that you're really there with another person or in another place," Zuckerberg said during a recent conference call with Facebook stock analysts. "Creation, avatars, and digital objects are going to be central to how we express ourselves, and this is going to lead to entirely new experiences and economic opportunities."
Gaming Platforms Offer Taste Of Future
You can see glimpses of the metaverse today in the virtual worlds offered by Roblox (RBLX) and "Fortnite" from Epic Games. But what they offer is not the metaverse. Instead, these are "walled garden," metaverse-like experiences — 3D worlds they control that don't connect to the broader internet.
These early attempts at the metaverse are akin to early internet services such as America Online, CompuServe and Prodigy. Those companies offered walled-garden services that approximated the greater internet but weren't open. The internet didn't flourish until the walls broke down and it became an open ecosystem.
To be a true metaverse, all the individual virtual worlds being created will need to interconnect and interoperate, Gartner analyst Tuong Nguyen says.
"What I see now are potential metaverse companies," he said.
Still, it's hard to envision companies like Microsoft and Facebook willingly sharing their metaverse users, analysts say. It's even harder to imagine what this all means for Microsoft, Facebook or Nvidia stock.
Right now, companies touting the metaverse are positioning themselves as leaders in this next-generation version of the internet. Microsoft, Nvidia and Unity Software (U) are among those stocks making underlying technologies and applications for the metaverse.
Facebook Sees Itself As Metaverse Company
Zuckerberg has gone so far as to call Facebook a metaverse company. But the company's early demonstrations of the metaverse, such as the Horizon Workrooms virtual office, prompted some chuckles.
"Facebook today launched a test of its new virtual reality remote-work app, where employees can hold meetings using an Oculus Quest 2 headset," late-night comic Seth Meyers said Aug. 19. "It's great if the only thing you hate about Zoom meetings is that they aren't strapped to your face."
Facebook's demonstration featured cartoony avatars sitting around a virtual conference table and collaborating on a shared whiteboard.
"Yeah, it looked a little kludgy," IDC's Mainelli said. "And no, I wouldn't want to spend eight hours in there today."
Microsoft Aims To Serve 'Enterprise Metaverse'
Similarly, Microsoft's demonstrations of virtual collaborations using its Mesh and HoloLens technologies left some Microsoft stock analysts cringing. It showed people wearing HoloLens goggles who were awkwardly interacting with hologram avatars and virtual objects.
Microsoft Mesh is a mixed-reality platform powered by Azure cloud infrastructure. It allows people in different physical locations to join collaborative and shared holographic experiences on many kinds of devices.
"You can actually feel like you're in the same place with someone sharing content," Microsoft Technical Fellow Alex Kipman said during a technical demonstration in March.
Microsoft CEO Satya Nadella said he wants his company to play a role in the "enterprise metaverse."
Standards Needed
To build the metaverse, the industry needs to develop new technology standards and communications protocols, Facebook's Zuckerberg said. The metaverse also will require new hardware and software from many companies, he added.
"In addition to being the next generation of the internet, the metaverse is also going to be the next chapter of us as a company," Zuckerberg said.
He told the Verge in July it could take five years for Facebook to transition from a social media company to a metaverse company. Facebook stock will begin trading as Meta stock under the ticker MVRS on Dec. 1.
Each company touting the metaverse today is approaching it from where its strengths are now.
Microsoft sees it as a business and collaboration tool. Facebook and Roblox see it mostly for social interactions. Nvidia and Unity Software are interested in selling tools that will be the building blocks of the future metaverse.
How has this affected shares of Facebook, Microsoft and Nvidia? Facebook stock has slipped in recent weeks. But Microsoft stock is trending upward. Further, the same is true for Nvidia stock, which has broken out recently. Nvidia stock moved into a buy zone this week and remained there through Thursday.
From Gaming To Concerts and E-Commerce
The best representations of the proto-metaverse worlds are video game platforms. Roblox, Epic's "Fornite," Microsoft's "Minecraft" and Niantic's "Pokemon Go" all have grown organically to attract millions of users.
Some like Roblox and "Fortnite" are expanding beyond games into other entertainment, social and e-commerce applications.
"Fortnite" has held virtual concerts from the likes of Travis Scott and Ariana Grande, entertaining millions of users. In September, alternative rock group Twenty-One Pilots kicked off its latest tour in Roblox with a virtual concert.
On Roblox, consumer brands such as apparel firm Vans (VFC), Gucci, Netflix (NFLX), Warner Bros. and others have created interactive virtual world experiences on the platform.
"The metaverse is bigger than gaming," said Christina Wootton, Roblox vice president of brand partnerships. "We're ushering in this new category of human co-experience. It's an immersive place where people can come and connect with one another and have shared virtual experiences. They can do things together, such as work, learn, play, shop and experience entertainment."
Whatever Happened To Second Life?
But the Second Life hype from nearly two decades ago provides a cautionary tale.
Launched in 2003, Second Life promoted itself as an online virtual world. There, people could interact with each other using avatars. Residents in the virtual world could participate in activities, build, create or shop. They could also trade virtual property and services with one another.
Businessweek promoted it with a cover story in 2006. Other major media outlets flocked to cover Second Life as the next big thing.
Amid the media hoopla, brands like American Apparel, Coca-Cola (KO), H&R Block (HRB) and the NBA rushed into Second Life to establish a virtual presence.
But Second Life didn't live up to the hype. Within a couple of years, it was largely a ghost town. It still exists, but at last count had less than half a million active monthly users.
Linking The Virtual And Real Worlds
One unresolved question about the metaverse is how its virtual worlds will connect with the physical world.
Alphabet's (GOOGL) Google Maps points to the real-world possibilities of the metaverse. The navigation app combines the physical and digital worlds. It provides a digital twin of road networks with real-time traffic conditions shared by drivers using the app.
Users of Google's Waze app can even share detailed information like traffic accidents and police speed traps. With Street View imagery, people can virtually teleport themselves to practically any place in the world in Google Maps to look around.
Smartphone versions of map applications allow users to see directions and location-based information overlaid on what the camera sees, making for an augmented-reality experience.
More Marketing Hype?
Today, the metaverse is mostly marketing hype, Gartner's Nguyen says. It's designed to show that a company is on the cutting edge and has future technology in mind.
It's just like a few years ago when every tech company was hyping its artificial intelligence prowess, Nguyen says.
"Metaverse is that flavor du jour," he said. "Too many vendors are metaverse-washing. It's like the latest buzzword."
The actual metaverse might be years off. But that hasn't stopped Roundhill Investments from creating an exchange-traded fund on the theme. The Roundhill Ball Metaverse ETF (META) launched in June. Current top stock holdings include Nvidia, Microsoft, Roblox, Facebook and Unity Software.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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