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The Metaverse: The most important thing Microsoft and Meta have in common after the letter M and wealthy, white founders with limited social skills.
This article was originally going to be about Activision blizzard's crucial importance to Microsoft going forward. But as we all know, a lot has changed since then.
The most relevant of these changes is Zuckerberg losing 31 billion dollars in a single day and being surpassed on the Forbes List by two Indian billionaires: falling behind one Indian billionaire is accidental; falling behind two looks like carelessness.
Meta's share price freefall comes just a few months after the company took the first giant leap into the metaverse by changing its corporate name from one of the most recognizable brand names in history to the prefix of a 3D hallucination project.
Which means that what should have been a simple essay about Microsoft's significant business deal becomes a far more valuable newsletter about what the metaverse even is, where it is going, and why it's so important.
So, you will understand why I'm filing this new and improved newsletter as one of the benefits of procrastination.
In an earlier newsletter I wrote about the metaverse, I drew attention to the fact that the metaverse was another venture pursued by billionaires who wanted to recreate elaborate fantasies because they had spent too much of their childhood doing unproductive things like reading advanced science fiction rather than the infinitely more productive things we did in our childhood like playing Hide and Seek.
That part is still true.
It's also completely irrelevant.
After all, Alexander Graham Bell created the telephone because he wanted to help deaf people - both his beloved mother and wife were fully deaf and were the driving force of his work. Ironically, the only people the telephone didn't end up helping were deaf people. It took another 22 years before Miller Hutchison invented actual hearing aids.
So, the reasons why we create anything are only useful for biographies and Wikipedia articles. What matters are the effects these things go on to have.
People commit this error a lot. We greet proposals to solve poverty and starvation with fanfare and hardly ever go on to ask whether these proposals are worthless or even dangerous.
I call this kind of bias teleological irrationality: the idea that the quality of our actions should be judged by the intentions that preceded those actions. Foreign Aid programmes, for instance, hardly ever work so people recommend foreign aid proposals that are even more ambitious.
We never manage to meet the UN's tiresome development goals so we draw up even more comprehensive goals.
When it comes to plans, we act on the assumption that it's sufficient that if they work, they would be massively beneficial, and then everyone promptly forgets about the if.
But even worse than understanding the irrelevant is misunderstanding the crucial. I completely misunderstood the important part. And I find that many people commenting on the metaverse are guilty of the same misunderstanding.
A lot of people are going around with the idea that the metaverse will be like the real world, merely virtual; and with real world assets, merely virtual; and with real world properties, merely virtual.
Take, for instance, a popular New York Times Opinion essay by Joanna Novak. Novak writes quite well which may have something to do with being a professional poet. She also completely misses the point:
Meta advances a fundamental human disconnection: it removes our bodies from the equation. I, for one, will not go gentle into the metaverse … if we lose touch with ourselves, we lose touch with the world.
It’s not just Joanna Novak. There have been a slew of articles comparing the Matrix to the Metaverse. In John Mac Ghlionn's What the Matrix reveals about our grim Metaverse Future, he writes:
People will work, date, and shop there. Many will, in essence, live there.
Even Matthew Ball, the venture capitalist whose perceptive thirty-three thousand word analysis on the metaverse is recommended reading, still makes this mistake:
It’s moving into what people call ambient computing. It’s about being within the computer rather than accessing the computer.
I don't know why a lot of very intelligent people are thinking like this but they probably got the idea that the metaverse will be a full-blown alternate virtual reality from playing games like Ready Player One and Second Life, and from watching films like the Matrix.
In case you do not know, The Matrix is a first-year philosophy visual essay where people wear black for absolutely no reason, and Artificial Intelligence that’s capable of simulating an entire universe fails to understand the basic importance of camouflage: they never manage to kill any of their enemies because it's so easy to just run away since you can always recognise them coming.
They also shoot a lot. Because, you know, the mark of an advanced intelligence is the ability to immediately resort to gun-related violence.
In the Matrix, human beings are harvested for the energy consumption of artificial intelligence in what's either a really cruel joke or a guideline on how not to develop a renewable energy project.
The point of the movie is there’s an alternate reality simulated exactly like the real world and the only difference is there are sentient programs who stop people from revealing the truth while dressing exactly, EXACTLY, like the Men In Black.
All of this doesn't mean the Matrix isn't a good way to spend two hours and fifteen minutes of your lifetime. The problem is when people start to take it seriously. Most of the time, these people don't even know it.
So, let me state for the record: The Metaverse Won't Be An Alternate Reality.
I will repeat for emphasis: An Alternate Reality, The Metaverse, Will Not Be.
First off, even if the metaverse became this virtual reality wonderland full of virtual land and virtual assets and virtual offices and avatars, that would definitely be sensational for a while. It would even have some recurring value as entertainment. And then people will get used to it.
This is not just armchair philosophizing. There is precedent. Second Life was a smash hit virtual reality world in the first decade of this century and is considered the first true precursor of the metaverse. Now, virtually nobody cares (bad pun intended). As Scott Galloway explains:
By 2007, Second Life's GDP was larger than those of several small countries. It processed more than 3 billion dollars of in-game transactions … But then it faltered. There wasn’t much to do in Second Life, once the thrill of customizing your avatar … had worn off.
The simple truth is people will get used to anything. Honestly, people will get used to having balls thrown at their head for no reason as long as it happened everyday. They would probably even go through the trouble of inventing a religion around why it was so spiritually meaningful to daily get hit on the head.
The same dynamic applies for the best of all possible worlds: the appeal of paradise fades into perfect oblivion the day you truly understand hedonic adaptation.
The genius of capitalism is in harnessing this understanding; it is in realizing that you can eliminate every human problem except dissatisfaction. So, there will ALWAYS be a market for something new.
Ironically, this explains why you can't build a successful business around novelty alone because novelty fades. Novelty might draw people in but real value has to keep them there. If not, all you have built is a future case study for Harvard business school undergraduates.
So, if all the metaverse is offering is the novelty of a perfect simulation, there would be zero point.
Instead of an alternate reality, the Metaverse will be a supplementary reality. And the change in adjectives makes all the difference.
In 2019, William Omeron, a senior staff writer at Slate, wrote a prescient essay. In it, he argued that Virtual Reality would be best suited at providing certain kinds of experiences. These experiences fell into one or more of the following categories:
Rare.
Expensive.
Dangerous.
Impossible.
To test the strength of Omeron's hypothesis, I conducted an unscientific experiment. Oculus gaming appstore, Meta's armoury of Virtual Reality games and applications, constituted a perfect opportunity.
Job Simulator is one of the most popular games on the Oculus platform today and has been a consistent best seller for years now.
If Omeron was right, the appeal of Job Simulator would not be in playing virtual doctors, engineers, or lawyers, but in accessing those categories of experience within the format of a virtual workplace.
Well, on the Oculus platform, Job Simulator is presented for download with the following key jobbing features:
● Throw a stapler at your boss!
(A combination of all four categories, with legally and financially dangerous the easiest to come to mind)
● Learn to 'job' in four not-so historically accurate representations of work-life before society was automated by robots!
( Impossible in real life)
● Use your hands to stack, manipulate, throw, and smash physics objects in an inexplicably satisfying way!
(Also, impossible, under the laws of physics. And if it were, in the real world, quite expensive).
● Aggressively chug coffee and eat questionable food from the trash!
(Dangerous)
● Gain valuable life experience by firing new employees, serving slushy treats, brewing English tea, and ripping apart car engines!
(Rare. Not many people get the privilege of living this life)
● Work the never-ending night shift with Infinite Overtime mode!
( Impossible, and to the extent that it is, very dangerous).
I'd add one more category to Omeron's hypothesis: Inconvenient.
Whatever is inconvenient, expensive, rare, dangerous, or impossible, or a combination of these attributes will be the appeal of virtual reality.
People won't want the metaverse to access experiences they can already have. They will want it to access experiences that are:
Inconvenient ( think daily back and forth travel to the workplace eliminated with virtual reality collaborative office software)
Expensive ( think access to a first class masseuse while relaxing on the islands of Java). In fact, this is, for those who know, the exact concept of the hit VR game, Supernatural
Dangerous ( think the experience of being in the belly of a whale or the interior of a volcano).
Rare (think the ability to experience life as a different gender)
Impossible ( think anything that is not permitted by the basic laws of thermodynamics, biology, and chemistry. The Great Jared Lanier's absurd desire to experience life as a lobster falls here).
The Deal Between Silicon Valley and Gaming Companies.
Meta and Microsoft have been buying lots of gaming companies for relatively different reasons. The constant factor in these acquisitions is that gaming is such a natural fit with virtual reality
Let me be clear: the metaverse is not virtual reality any more than the Internet is fiber optic cable networks and interoperable protocols like HTTP and TCP/IP.
The Metaverse is instead the interplay between the users who will participate, the infrastructure that will enable this participation, the platforms that will intermediate between the two and possibly own the infrastructure, and the economic & societal changes that will result. It's a big deal.
But gaming is crucial because virtual reality is the centre around which everything else will revolve.
A restaurant is the menu plus the chairs plus the kitchen plus its financial resources plus the customers plus its GDP contribution plus the thousands of reviews it has on Yelp. But if you remove all the cooking utensils, everything else collapses: it's no longer a restaurant if it can no longer make food.
And the metaverse is no longer the metaverse if it cannot be virtual. As such, gaming platforms are the first chapter of this adventure.
Gamers already play extremely photorealistic 2D games like Fortnite and World of Warcraft. It's only a natural leap from there to fully immersive 3D games. The appeal to go from remote participation to direct participation is huge for the gaming community.
But before we go into the metaverse related reasons, we need to understand the non-metaverse reasons too. Microsoft's motives have already been explored in my last newsletter, but Meta has reasons of their own.
You see, once you take out the still fledgling Oculus, Meta has no hardware ecosystem or app platform of their own.
Facebook, Instagram, and WhatsApp are a powerful triad, but they are only available as apps on other competitors' playstores. Ordinarily, this is not a problem: it's a scratch my back, I'll scratch yours relationship. But then Apple changed its mind.
The common story going around is Meta's stock declined by twenty-six percent because it was massively overvalued.
But, Aswath Damodaran, the Dean of Valuation and NYU professor of finance, released a fairly comprehensive analysis of the Big Tech stocks last week and concluded that Meta was the most undervalued of the six companies. It's not just empty talk either cos he's holding on to his Meta stock.
So, the reasons for Meta's decline appear to be twofold:
a.) Apple gave iPhone users the option of opting out of being tracked by Facebook and co. for the pleasure of having ads follow you about. Unsurprisingly, 62 percent chose to opt out. For a company that makes most of its revenue with advertising, it's a big blow.
b.) TikTok has taken over as the home for the young and the Internet-Savvy.
If you look close enough, these two problems are deeply intertwined with Meta having no hardware ecosystem and no app platform of its own.
There is no way Meta would have prevented users from seeing ads if those users were using Meta devices. And there's also no way TikTok would have risen to the heights it did if Facebook could have strangled its growth on a Meta appstore.
You see, even if you are a whale, you are still limited if you are swimming in someone else's ocean. Virtual Reality is such an attractive proposition to Meta because it lets them kill two virtual birds with one virtual stone: Oculus headsets and haptic suits will become Facebook's killer hardware products.
And Meta is betting that the Oculus app store would become the most important app store of the future.
While all of that is important, everything comes back to advertising money. Meta and Microsoft are overpaying for every gaming company they can find because the metaverse represents the new frontier for advertising capital.
The Metaverse Is Advertising's New Best Friend.
If you want to have an accurate sense of how the future is going to look like in a capitalistic society, my one piece of advice is very simple:
Follow The Money, Not The Hype.
People can say pretty much anything. They can promise you that crypto is the decentralized salvation that will usher in an utterly new, completely fair, and fully democratic political and economic system.
Pffff.
Crypto will develop into the most profitable version it can be. And that version will be incompatible with those lofty ideals.
Indeed, this is already the case. There is already extreme consolidation and centralization in these platforms and most of these 'democratic ventures’ are backed by an impressive amount of the very same old money crypto promises to make irrelevant.
So, when people delve into fancy talk about alternate realities and the mindbending new possibilities of the metaverse, denote all of that to the footnotes and keep your eye on the money. Because the metaverse promises lots and lots of money.
But, while there's an extraordinary range of moneymaking to be pursued: virtual assets, subscription services, metaverse consultancies(trust me), the cash cow of the new internet will be the same as the old one: advertising.
It’s easy now to forget that in the early rudderless years of the internet, it was difficult to see how profits would be made. Clever people realized early on that if the internet were to truly scale, it would need to be free. This wasn't a matter of generosity; it was sound economics: digital assets can be infinitely replicated without error so the marginal cost of distribution is near zero.
But if you give away the product for free, what are you going to charge for? The key was advertising. The transition from Web1 ( decentralized, text-heavy, low performance) to Web2 (centralized, multi-content, high performance) owed a lot to advertising revenue. Ads are the fuel of the digital age.
Surprise surprise, Meta and Microsoft already know this. In July of 2020, Meta pioneered advertising in virtual reality games. The backlash was furious and immediate, so in an uncharacteristic example of contentment, Meta retreated. But you should rest assured that they will be back.
And while the press went wild or simply plain confused over the metaverse, Meta was busy silently patenting a host of technologies that would help track eye and body movements in the metaverse - these patents already exceed two hundred in number. They instinctively know that to sell you ads, they have to track what you are looking at.
Microsoft, which is less reliant on advertising for its own revenues, is pursuing a slightly different tack with a subscription model in mind. But Microsoft won't exclude itself from the advertising gravy either. Indeed, the whole point of Microsoft's willingness to overpay for Activision is to not miss out on the spoils of the metaverse.
To understand why these companies and others are so excited, it's necessary to take a step back into the roaring 1920s.
At the time, Cigarette companies had already saturated the male market, but adoption of smoking among women remained tantalizingly low. If they could crack that demographic, they could multiply profits. The problem was women didn't smoke in the 1920s, they didn't like to smoke, and the few that did were notoriously bad at it: he holds a cigarette like a woman was a common insult in that era.
Smoking was for prostitutes and lowlife women. To remedy the situation, the cigar companies called on the services of the most manipulative man they could find: Edward Bernays.
Bernays knew from experience that the key to getting people to adopt a behaviour was getting them to see the behaviour in a fresh light. So, he employed a battery of tactics:
a.) Pavlovian association: his ads used cool, beautiful women strategically having cigarettes hanging from their mouths to make cigars also look cool and beautiful.
The human mind responds, almost mechanically, to repeated association.
b.) Empathy: he used beautiful but not extraordinarily attractive girls, cunningly admonishing his photographer to ' make them beautiful but not model-like.' They had to be aspirational but not out of reach.
People still use that trick today. Every book on how to become a millionaire emphasizes how ordinary and average the author used to be until he discovered the 'secret.' Whether this humble background is true or false is irrelevant. The point is for the audience to empathize with the author.
C.) Psychological reactance: people are innately drawn to rebellion. Bernays took advantage of this by framing cigarrete smoking as a battle for women's freedom against an oppressive patriarchy.
The whole thing was even named Torches of Freedom as thousands of women marched in unison for their rights to get lung cancer.
D.) Social Proof: once the movement could attain critical mass, getting other women to smoke was inevitable.
Or in more philosophical terms, Girardian Mimesis took over.
Bernays was very good at his job so naturally he justified his job as being very very important. ( human beings are often guilty of this as well):
The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society.
The important word in all this eloquent self-justification is masses. As good as Bernays was, he could only act on broad psychological levers and biases.
He didn't have access to huge datasets about thousands of women to predict in real time who were more susceptible to cigarette ads than others and worth targeting more. His advertising was broad. It had no other option. The matching intention, by necessity, of his ads were one-to-many.
Advertising stayed like this until the late twentieth century when Google came along to pioneer targeted advertising, thereby moving the matching intention of ads from one-to-many to one-to-few.
Google's brilliant idea was that people weren't blank slates. Everyone is a bit different. If they could calibrate those differences to very fine degrees, they could make much more money. They didn't have to guess.
So, advertising became about how much meaningful calibration you could conduct on available data.
But to do a lot of calibration, you need a lot of available data.
To get a lot of data, you need a lot of engagement.
To get a lot of engagement, you need the product to be as engaging, ahem addictive, as possible.
The business model is a powerful positive feedback loop. But it’s not perfect.
The sirens of surveillance capitalism fail to acknowledge that what tech companies know about you is currently the size of an orange. What they don't know about you is currently the size of an orchard. The region of uncertainty is huge.
You see, advertising is a game of induction. An inference from specific observations to a general conclusion:
She is smiling at me.
She is touching up her makeup.
She is licking her lips at me
…………
She definitely likes me. It is clearly a good idea to slide up behind her and ... And then you get slapped.
The problem with induction is because you will never have all the evidence, you need to take a leap of faith. You need to make guesses. And guesses can lead to a lot of wrong conclusions.
For example, most of us automatically press the skip ad button on YouTube the moment the option becomes available. YouTube has a lot of data about us but it doesn't have everything so it still makes a ton of wrong suggestions.
But what if you could solve that problem? Increasing engagement is one solution. If people spend more time online, you get more data. More data means more and better ads. But there is still all that data you can't access. Voice recognition, speech recognition, fitness devices dotted with sensors, etc, all of these are initiatives to harvest as much data as possible, to minimise that region of uncertainty to the nth degree.
So, the metaverse is not a place. You cannot and will never be able to represent it on a map. It is a period. It's not a location. It's an era, the era when you spend most of your existence online such that tech companies, on the other side of the divide, know as much about you as they possibly can.
The holy grail of advertising is the day the matching intention can become one-to-one: the perfect ad for a particular person. The ad with an 100 percent certainty of being relevant.
Thats’s why people talking about the metaverse as some sort of virtual inverse of the real world are wasting their time. It's just as false as the dumb Online v. Offline dichotomy.
If you are chatting on WhatsApp or browsing on Bing, you are said to be online. But your body is still offline, that phone is offline, the hands are typing in the offline world, that annoying new rap song in the background is offline too. It's only your attention that is online. And it is only your attention that matters. The Metaverse is simply the day that where you are, physically, becomes irrelevant. But where you are, mentally, becomes everything.
A Buffet of Advertising Options.
Right now, advertising in the early stage metaverse of gaming has three choices:
Static In-game advertising: ads stay the same depending on who is playing.
Dynamic In-game advertising: ads change appearance and content depending on who is playing.
Advergames: games designed explicitly to persuade the player to buy. If advertising is oil, advergames is the oil well. Unlike dynamic ads which may have little relevance with the game, advergames have no such problem. It's very hard, after all, not to recall an ad if the whole point of the game is to recall it.
Advergames are an entirely new dynamic. Advertisers have always paid to showcase their ads but they have never paid for the content built around the ads itself. It has always still been your job to design the ads yourself or pay an advertising agency to do it. Neither Facebook nor HBO will help you design an ad.
But advergames are different. If the game is an advert, and you want a game people will actually play, then you are going to have to pay for the game itself. The catch is games are costly to make. If Nike or CrossFit wants an advergame, they will be paying for the content and design of the game itself in addition to paying for access to the platform to showcase their ads.
Tech companies may come to realize that one of their biggest assets in the near future is owning large pools of gaming development talent that aren't easily accessible elsewhere.
The Times, They Are A Changing.
You don't have to understand haptic suits or stereopsis or the complicated economics of virtual assets to realize one simple thing: the metaverse will not be interoperable.
It can't be. If the whole point is the ownership of data, then there can be no sharing. If you are making money by selling virtual assets, then it will not make sense to have platform crossover: developers will just end up robbing themselves. And if you are going to make money by having a subscription service, then you can't have interoperability: there would be substantially less of an incentive to subscribe.
So, the metaverse will likely end up the way the internet has ended up: powerful companies operating as walled gardens of data and access controlling an ecosystem where many lesser players coexist for their own tiny slices of the pie.
It's not a very heartwarming image. And that's before you add all the other potential problems with the Metaverse, especially what it might do to social interaction.
Because if virtual reality becomes this giant game of status, then social interaction will polarise even further between the haves and the have nots. Social status may become the scarcest and most valuable resource in the coming decades.
The Chinese have a prayer: ‘May you not live in exciting times’. I hope for all of us, that that prayer contains less wisdom than it appears to contain.
Because at an increasing rate, we need that to be the case.
When Meta was first hyped, I couldn't help but see it as a rehash of the hype from the 90s about the internet.
Here, you've thoroughly fleshed out the issue except for the flesh. Yes, gaming drove things, but remember that porn was also driving things, especially the video technology.
Realistic, immersive virtual reality porn has always been in the back of many minds, and those experiences are prohibitively expensive, dangerous, and rare in real life.
How will that drive things?