Guest post by Kevin Baxpehler
A lot has been said and written about the Metaverse recently. We are mostly still at the stage where we are trying to define what it actually is and means… And while it probably will take a while before we have clarity one some questions, I wanted to list some of the opportunities we already see in the Metaverse from consumer experiences to infrastructure.
Before I get started it helps to explain our viewpoint on the Metaverse at Remagine Ventures. In a nutshell, we see it a new Internet being built, with the consumer at its centre. Below is the first landscape of Israeli startups building the Metaverse, which we published last month in Calcalist, which helps explain our view a bit. We mapped over 50 startups that collectively raised more than $3.5 billion. They range from gaming studios to enabling tech (like spatial computing and creator economy) all the way to infrastructure on and off the Blockchain.
In general, we like to divide the metaverse into two broad categories:
- Closed metaverse: these are the walled, centralized, gardens such as Roblox, Fortnite, or MetaQuest.
- Open metaverse: these are the decentralized platforms built on crypto, such as Manticore Games, Sandbox or Decentraland and many others.
An interesting case is Minecraft. Minecraft would usually belong into the first category but with a big caveat: some of Minecraft’s code is open-source and recently a team unaffiliated with Microsoft built a web3, crypto, layer on top of it.
We look at both metaverse categories and believe that both will have a place in our digital world. There will be people, especially from the crypto community, that disagree with us on this one.
Now that we have outlined our view a bit, let’s dive into the opportunities we find interesting. Again, it’s important to note that this list is by no means exhaustive and we love to learn from founders that bring a unique point of view and are able to help us see opportunities from their perspective.
Gaming / Entertainment / Social
Gaming has become the most common entry to the Metaverse and virtual worlds. Gaming platforms like Roblox or Fortnite are at the core of building closed Metaverses. Users come to hang-out, listen to concerts or movie premiers and known brands like Gucci, Ferrari, Nike, Marvel are all trying to build a commercial presence. When we are talking about virtual goods & services, lots of these transactions are driven by gaming platforms that have evolved into virtual, social, and entertainment worlds. Our investment into Toya is a good example, a female-led gaming studio building experiences for girls on Roblox.
Putting aside the risks of platform dependencies, there’s a great opportunity for startups creating consumer experiences in these new virtual worlds.
Gaming + web3/NFTs
On the crypto-side we also see gaming leading the way with play-to-earn games such as our portfolio company Rebelbots, platforms like Manticore Games or Sandbox. Crypto gaming can become the biggest onboarding platform to the crypto world and open up that world. Crypto projects like BAYC have successfully created a new social network, transportable to any other social platform, yet exclusive with real-life benefits. DAOs are able to attract fans and creators working together and aligned around specific interests and a vision. And while NFTs deserve its own section, they are an important part of the entertainment, gaming and social Metaverse as they regulate ownership, rights and social status. We believe that these community driven economies are really interesting and expanding rapidly from gaming communities to everything you can think of.
We believe that education is one of the biggest opportunities within the metaverse/web3 universe. It has seen very little innovation over the past decades while prices increased more than any other product or service I can think of. The below chart is a great illustration:
Covid has ruthlessly exposed the weakness of the education sector in our society and web2.0 companies that provide digital education today fall short in terms of being immersive and interactive. Students cannot easily network with other students and we have all experienced how much fun these zoom sessions can be.
We therefore believe that education in the west is very fragile. On top of that the Metaverse provides a fantastic opportunity to solve many of the web2 problems. Imagine for a moment a virtual university with a campus and all on Minecraft, Roblox, Sandbox or Decentraland. Students attend with their avatars and enter a very immersive, interactive experience with the professor but also with their fellow students. Students can easily attend and meet like minded friends from all over the world. Classes should be teaching students the tools and skill sets necessary to build on open and closed Metaverses, new monetization models, creator economy skills but also can take a very immersive “field-trip” to the old Rome to learn about history. Another good example is our portfolio company Novos, which is educating the athletes of the metaverse.
All of this should not cost you $50-75k per year in tuition. That’s insane. So let us know if you are planning to educate the workforce of the future.
Community driven Economies
DAOs, NFTs and social tokens are super interesting because they help like minded people from around the world to get together under one roof, align interests, reward those that contribute and create value for users.
A recent example that caught a lot of attention was the DAO set up to buy one very rare example of a first-print of the US constitution. The ConstitutionDAO was a collective project to raise funds and bid at Sotheby’s auction for said constitution. The DAO raised around $47m, which was not enough to win the bid but a good example of web3 can accomplish. The way we look at DAOs is that they can become a new form of Inc. /corporate entity of the metaverse. But also in this case we do not believe that a DAO will be the best form of corporate entity for every project. One can create a web3 company without using this structure, a good example would be Coinbase.
The aforementioned BAYC is another example. Created by Yuga Labs, BAYC is a NFT project that wanted to create a home for digital art collectors. It took a bit of time but it became popular among athletes, artists, musicians etc. who started showcasing their Ape on social media platforms. It became a social status symbol. You are part of the innovative, tech, artsi crowd. But BAYC also provides access to physical events, exclusive discord communities, discussions about certain crypto projects and owners receive commercial rights to their NFTs. BAYC is a social network, crypto culture, that can become a game, a commercial brand or something we have not thought of yet.
NFTs, itself already around a $40 billion market, provide new opportunities for brands to engage with the web3 consumer, but instead of thinking of replicating the boring old loyalty club, they should think about how consumers can participate in the ownership of communities around brands. But NFTs also have the potential to disrupt the music industry as creators and artists can now sell an NFT directly to consumers without needing the record label in the middle. The smart contract embedded in many NFTs open up forward-earning opportunities for creators of all kinds. More about creators and web3 below.
The opportunity for retail seems obvious. We as humans are spending much more time online, inside virtual worlds like Fortnite, Animal Crossing or RecRoom. Our identity in these virtual worlds and our urge to be seen as unique, is directly transferable from our physical worlds. So how we look, what we wear, becomes more and more important. That’s why games like Fortnite or PubG make billions selling “skins” (virtual clothes) or why users inside Animal Crossing hire real-world interior designers to help them create beautiful virtual homes.
And that is a huge opportunity for retail as marginal costs to produce these digital products are zero. We are seeing these first steps with fashion companies like Gucci (opened a store on Roblox), Louis Vuitton or Bershka’s cooperation with League of Legends, Nike entering Roblox, Adidas entering Sandbox and many many more. The digital /virtual goods market is already a $190 billion market opportunity today, according to CB Insights.
But web3.0 presents more than just another sales channel for retailers. One of the biggest challenges that most CPG brands face is the lack of direct interaction with their customers. Most consumer giants today own very little data about their consumers and are trying to catchup with amazon, facebook and google. On top of that GDPR has made it difficult for retailers lacking sophisticated software to collect primary data and further strengthened tech incumbents.
Virtual Worlds and NFTs provide a very big opportunity here to meet new customers. After all, these are the places where a lot of them hang-out and spend a lot of time. NFTs coupled with smart contracts can allow a brand to establish a new relationship with consumers, especially the sought-after GenZs. Think loyalty programs 3.0. Where an NFT would regulate what data the consumer shares in return for discounts, exclusive events or virtual & physical merchandise drops.
Creator Economy + Web3/NFTs
We are very excited about the potential of the creator economy and have written about it extensively on VC Cafe. To start connecting the Creator Economy to the Metaverse we have to take a step back. Let’s first talk about the big changes occurring in our labor markets. These changes are fundamental and have been accelerated during Covid. In a survey by McKinsey last year 40% of respondents said that they are likely to quit their jobs within the next 6 months. According to McKinsey “The Great Attrition is happening—and will probably continue”.
This trend has been named “The Great Resignation” and numerous surveys and studies are trying to understand what is going on. A recent study by Pew Research Center published this month cites numerous reasons from low pay, lack of opportunities to lack of flexibility when it comes to child care issues or working hours. McKinsey points out that GenZ, which makes up about a quarter of the workforce in the US, feels that their values are not aligned with their employers while employers struggle to understand the incoming workforce.
But these drivers are not acting alone and that’s where Web3/the Metaverse comes in. In his piece on “The Rise of Creator Platforms” Rex Woodbury shows that tech is also playing an important role in creating new opportunities. As consumers are becoming creators new tech tools & platforms are providing opportunities to create direct relationships with audiences/fans and monetize these.
Source: Rex Woodbury
NFTs provide another opportunity to monetise creator skillsets directly with an audience and continue earning from their increasing value over time. Musicians are already launching new music via NFts to fans directly and Forbes believes they could “define the future of music”. One such example is Royal, founded by DJ 3Lau, which already partnered with artists like NAS and of course Mr. Metaverse Snoop Dogg himself. That said, not everything is rosy in web3 land for creators and scams/ pump and dump schemes abound. Overall, we expect the space of NFTs for creators to continue to grow and encompass utility tokens, social tokens, NFT minting platforms like Fabricant Studio and other forms of direct to fan monetisation.
The areas above are by no means an exhaustive list, but they represent examples of opportunities for startups building the Metaverse. Whether it is a digital health platform leveraging virtual worlds to help people learn new skills and rehabilitate or connected toys bridging the virtual with the physical, there is huge potential in creating the future of the Internet. We are just in the early innings of developing the Metaverse and are excited to invest in the new category leaders in this space.
You don’t need a warm intro to talk to us. Reach out to Remagine Ventures via firstname.lastname@example.org if you want to talk about what you are working on. We read every email and reply to most.