What if you were the top-of-mind choice for digital interactions globally? You get home and hop on your gaming console to play your favorite multiplayer game. You want to use voice chat to communicate with your friends, but instead of Xbox Live, Discord, (See Discord graph below) Teamspeak, Mumble, or Skype, all your friends connect to your VOIP platform.
Your daughter has long since left the nest, and you can guiltlessly convert her old bedroom into a home office. You need to find the right furniture at the best price while ensuring everything fits within the space. Nobody stops at Crate&Barrel, DWR, or IKEA anymore because all roads lead to you. I know what you’re thinking. Market dominance? Super easy, barely an inconvenience. Amazon did it nearly overnight, for online purchases practically of everything but concrete (See Amazon graph below).
These considerations are driving some of the largest tech companies in the world to invest massive amounts of capital into the metaverse of Web 3.0. The word metaverse was first used for a digital interaction space by Neal Stephenson in his novel, “Snow Crash,” in 1992. The 2011 Ernest Cline novel “Ready Player One” was made into a movie in 2018, where it concretely explained the OASIS. In this massive online setting, the overwhelming share of the world’s population interacts with each other via virtual reality.
So, what does this have to do with the gaming industry? Please stick with us here; this is a journey. We will get there together, and there will be a payoff.
The metaverse of yesterday
Today’s metaverse is the idea of using technology like augmented reality (AR), virtual reality (VR), and holography to create environments that users can interact with as an avatar within those spaces. The first metaverse was probably the virtual world, Second Life. Launched in 2003, Second Life lets you explore a 3D world on your computer as an avatar. You could move through the world of Second Life, analyze it and interact with other avatars. You could use real money to buy real estate and start businesses online, building, shopping, and trading digital products and services with others. A wide range of social expression occurred on Second Life, from a live concert by famous band U2 in 2008 to a virtual riot in 2007 between a far-right French anti-immigration party and anti-racism activists. At its height, anything you could conceive of happening in the real world was occurring as test flights in Second Life, including significant sponsorship activity by large businesses.
As technology improved, these virtual worlds continued to grow, especially in the game industry. In 1999, the world’s first persistent massively multiple online role-playing game (MMORPG), Everquest, was launched by Sony Interactive, enabling millions of players worldwide to interact and play with each other’s avatars in a simulated fantasy world comprised of entire continents.
In 2004, Blizzard Entertainment released its massively successful game, World of Warcraft, another virtual fantasy environment. It was a massive commercial hit — over 100 million subscribers in 2014 and generating over $9bn in gross revenue by 2017. World of Warcraft even had its first virtual pandemic in 2005, when a special content event, which included a deadly in-game infectious disease in a contained raid area, unintentionally spread outside to the rest of the game through infected pets belonging to the players.
Additionally, game platforms like Roblox and Fortnite are also considered by some to be persistent metaverses, within which millions of participants virtually connect. These are examples of games that became virtual communities on virtual online platforms.
For some games, an entire world isn’t enough. Cloud Imperium, an international independent game company, recently shattered records in 2021 by raising over $500m through crowd funding. Players pledge real money towards developing Star Citizen, a space simulator, allowing player avatars to interact with other player avatars in an entire persistent universe of corporate and government-owned planets, gas giants, moons, orbital space stations, refineries and asteroid belts. Star Citizen is still in an open alpha, playable, and with over three million unique active user accounts.
The metaverse today
Today, Microsoft and Facebook, now Meta, are trying to create their own metaverses in a reverse process to its forebears; creating virtual social environments that allow its users as avatars to interact with other avatars, connect with their online content and the online content of others, create and publish new content, and conduct activities previously performed in the real world.
Please think of the metaverse as the augmented reality, 3D, holographic or virtual reality interface to content, made publicly and privately available by its Web 3.0 publishers.
Bill Gates was quoted as saying, “Within the next two or three years, I predict most virtual meetings will move from 2D camera image grids to the metaverse, a 3D space with digital avatars.”
Mark Zuckerberg announced to the world in 2021 that Facebook was changing the focus of the entire company by demoting one of the world’s most potent brands beneath a new entity, Meta.
Facebook’s VR hardware division launched the newest version of its VR headsets, the “Oculus Quest 2.” Facebook also debuted its VR meeting service, Horizon Workrooms. Horizon Workrooms enables people wearing VR headsets, like the Oculus Quest 2, to assemble in a virtual meeting room “together” in their digital space.
Microsoft is taking a less future-forward, more practical for today, road to the metaverse. Microsoft Mesh for Microsoft Teams combines VR/AR features of Microsoft Mesh with Teams productivity tools, allowing users to join virtual meetings, collaborate on shared documents and projects, ubiquitously connected via their chat platform. This is not to say Microsoft isn’t planning for the more distant future. It has its own mixed reality product, HoloLens 2, shipping since 2019. This holographic headset uses AI to create a mixed or augmented reality for its wearers, using Azure’s AI capabilities, to collaborate with people in real-time, around the world. The hardware uses eye and hand tracking to allow users to, for example, reach out and move or resize a hologram image they see floating in front of them.
The vision driving these two technology titans is to channel the traffic of their respective product lines into a composite online metaverse using traditional cameras, virtual reality hardware, technologies, and augmented reality experiences – an online one-stop-shop to meet all your needs, whether retail, transactional or experiential.
This process has not gone without pain. For the first time, Facebook reported a decrease in users, losing about a million members compared to the previous quarter. In 2021, Meta’s VR hardware division, Reality Labs, lost over $10bn. On February 3, Meta fell 26%, wiping out $200bn in market cap from Zuckerberg’s personal net worth. No US company has ever experienced a larger drop in market value but, to be fair, there are very few companies, anywhere, that could lose that kind of value and still exist.
On the other hand, Microsoft has experienced its own losses, losing over 100 employees from its Microsoft HoloLens and AR division to Meta in 2021 alone. Apple is fighting against this Meta talent drain campaign by offering engineers incremental cash and stock bonuses of up to $180,000.
Implications for the casino gaming industry
Please consider the following parallels between the broader metaverse commercial efforts and those of our specific industry:
Migration of brick and mortar to online
- The United States has a massive investment in brick and mortar gaming relative to other gambling markets that have embraced iGaming and online sports wagering, creating mature markets.
- New gaming products and services such as live gaming, which distributes interactive, online gambling to table games players, are attracting the attention of traditional table games players; and companies are investing significantly into production studios for live gaming dealers on a state-by-state basis to satisfy regulatory requirements.
- Brick and mortar gaming operators in local markets have long considered gambling commoditized, with the most potent factor in deciding where to gamble being distance. Like a gallon of milk, you’re not going to drive 20 miles to buy it if there’s a closer store just a block away.
The role and requirements for digital talent
- The regulation and expansion of iGaming and online sports wagering aren’t going to slow down, much less go away. Customers will have a way to buy their “gallon of milk” right from their PC or mobile phone, sooner, not later.
- Creating and distributing digital gambling products to customers requires investment in infrastructure, content and technology.
- Winning the battle for customers requires a fundamental understanding of digital content marketing specific to the casino gaming industry. That talent might not be readily available locally, so recruitment will be essential.
The dangers of the walled garden
- Despite its size and relative love of innovation, the casino gaming industry isn’t going to outperform infrastructure and platform companies, like Microsoft and Meta.
- Partnerships with companies like Microsoft and Meta are inherently fraught with risk. It’s their metaverse. You are a resource inside their walled garden. They own your driveway and the digital freeway your customers took to get there.
- The most competent mid to small-size gaming operators will sharply begin to focus on long-tail marketing and the creation of micro-markets for differentiation and to meet the needs of local gamblers. Ultimately, there is no realistic way to discount or bonus a gaming operation through future competition. However, through consolidation and breakups in the coming years, mid and small operators can create tremendous value by understanding who they need to be and who they serveinvesting in those capabilities sooner rather than later.