The Metaverse is coming and we’re all going to be a part of it. You, me, everyone who wants to be a productive member of society. The technology that makes up the Metaverse is going to permeate every aspect of our lives. It’s not just about gaming or living in a 3D world – it’s the blending of technology with everything we do every day.
Anything as big as the Metaverse is going to create investment opportunities, and the recent volatility related to the new Omicron Covid-19 variant is a great opportunity to get into some positions at depressed price points. Furthermore, while we’re not yet sure exactly how severe Omicron is going to be, we do know that Covid-19 restrictions in general have pulled forward technological shifts. Said another way, whether Omicron is severe or not doesn’t materially change our conviction in names that will thrive as the Metaverse expands over the years to come.
We are going to write a few different articles digging deeper into various sections of the Metaverse and how different opportunities to invest might present themselves, but in order to do any of that we have to start high level and talk about what the Metaverse is and why it’s being developed.
What Is The Metaverse?
So what is the Metaverse? A narrow vision might sound something like “a digital world or alternate reality – built on social media, games, and leisure.” We think it’s a lot broader than that. First thing you need to know is that it’s a lot bigger than just Meta the company. Sure, Facebook has rebranded as Meta and it’s trying to position itself at the center of building the Metaverse out, but the idea of the Metaverse is a lot bigger than social media. Social media is just once piece of the pie, even if it’s an important one. But there are a lot of other components as well, ranging from work automation or remote productivity to individualized healthcare treatments, digital transactions and cryptocurrencies, all the way to the physical infrastructure involved in operating in a digital space.
Staying high level though, lets talk about the biggest companies in the market and how they’re getting involved in the Metaverse.
I know, I know, it’s not exciting to read about the Metaverse and then hear about the same old names, but it’s also important to realize that these companies that are portfolio staples are continuing to innovate, grow, and establish themselves as indispensable to the digital future. Without them, none of the more fun parts of the Metaverse are possible.
Look at Microsoft MSFT -2% and Google GOOG -0.9%. Massive diversified companies, incredible cash flows, great profit margins, etc. They’re also core players in pushing remote productivity, cloud connectivity, and security, three of the core pillars for combining the physical and digital worlds. Their cloud services divisions are what the internet runs on, their browsers remember all your passwords, the profiles you set up with them allow you to log in and access files and communicate with your coworkers from anywhere. You use their email, use their digital security services even if you don’t realize it, and operate on their systems.
You find jobs through platforms they own like LinkedIn, and coders all over the world use tools from places like Github every day to build applications. You probably take most of their services for granted or don’t even realize they’re there, but the basic tools they provide are the building blocks for you to digitally interact with other people. Take Microsoft and Google away, get rid of Amazon Web Services, or get rid of iPhones and the app store, take those all away and the Metaverse isn’t really possible.
So, if you’re looking to build a Metaverse portfolio, start with understanding the oligopolistic value the big tech companies bring before you dive into more of the fun stuff. Big tech makes it all possible and at the center of it all is Meta, formerly known as Facebook. Meta is really doing the best it can to position itself at the center of the Metaverse, and a lot of the other big tech companies are jumping on board with its vision. This is really important because the people who control the data will control how the Metaverse gets built.
The rationale is that before you can connect people to services and payments, you have to have people connecting with each other and putting a lot of data on the web. The same big names that more or less enable the web also happen to be the ones at the center of you existing in the digital world. Take your Apple AAPL -1.2% ID as an example. It’s connected to your phone, your iPad, your Mac Air, and your headphones. It connects with Safari and knows what you like or don’t like. It’s connected to your bank accounts and credit cards via Apple Pay. Your Apple ID – or Google Identity, or Facebook identity, etc – is the first step into the digital world. It’s where all the data about you is stored and it’s the first stepping stone for expanding you into the Metaverse.
Controlling Your Data and Your Identity
I want to take a moment and highlight how important the first step into the Metaverse is. Your digital identity – protecting it and verifying it – is probably the most important core component of you existing online. You can’t work remotely, shop securely, chat with your friends, collect NFTs, or really do anything in the digital world if you’re not able to control your identity.
Keeping this information secure is a huge undertaking and requires a lot of resources. Data aggregation and protection on a huge scale is difficult to do. From an investment perspective, it creates a wide moat for the companies that can do it. Having that identity data doesn’t’ directly generate revenue, but it ensures that the companies are the center of all the things you do – it puts them in the driver’s seat and lets them control the relationship with any company that wants to be involved with you digitally.
Facebook, now named Meta, is a great example here. It knows all about you and your friends, it knows what kind of content you’re interested in, and it’s well positioned to control the relationship between you and any merchant you might want to interact with on their platforms. And if they can control the relationship, they can profit from it.
Meta is down more than 20% of its highs this year and but we think it could be an opportunity. It’s at the center of the Metaverse expansion which is exciting enough, but on a more granular level they have a lot of initiatives that continue to show promise and lay a roadmap for continued growth off the back of its enormous user base.
WhatsApp in particular is exciting and its model could be a leader in how the Metaverse gets constructed incrementally. In addition to being a dominant chat platform, it’s now moving to expand into payment processing and is also building out partnerships with companies like Uber UBER -6% to offer more services through the WhatsApp platform in India. As more companies partner with Meta and source business through WhatsApp, more and more time gets spent in the app, and the more Meta can try to monetize the real world and digital world goods that are purchased through the platform. For the user it’s more secure and more convenient, it makes it easier to bring technological solutions into normal day to day life, and for the companies it’s an opportunity to sell their product.
The key here is that everyone wins.
In this scenario, expanding the Metaverse via WhatsApp is good for the consumer who gets a product from a secure source and who gets simpler payment processing. It’s good for the merchant who has easy access to a customer and also gets secure payment processing. And then, it’s obviously good for Meta who’s controlling the whole thing.
Take this same model, expand it across a bunch of different platforms, services, and experiences, and you’re starting to scratch the surface of what the Metaverse could become.