Virtual worlds

Why big companies are investing in virtual worlds

Companies have invested $77 billion in metaverse mergers and acquisitions over the past 18 months, as they vie for a slice of a market expected to be worth $800 billion in just two years. Buyers such as Microsoft, Snap and the company behind dating app Tinder are betting virtual spaces will define the next era of the web, while others believe there are significant hurdles to overcome, notably the human desire for physical interaction.

The metaverse M&A boom reflects growing confidence that there is real money to be made in virtual spaces (Image by cyano66/iStock)

Last December, Bloomberg analysts caused a stir when they published their metaverse value projections, a vision of the future of online communication defined by interconnected 3D virtual spaces. Analysts have predicted that the entire metaverse market could be worth $800 billion by 2024.

“As video game makers continue to elevate existing titles into 3D online worlds that are more like social networks, their market opportunity may expand to encompass live entertainment such as concerts and sporting events. , as well as to fight for a share of social media ad revenue,” the analysts said.

Other predictions went further. In March, Citi investment analysts valued that the entire metaverse market would be worth $13 billion by 2030. And Jensen Huang, CEO of Nvidia, claims that the metaverse would create economies of scale that could eclipse the current economy itself.

“These forecasts may seem very optimistic from one particular perspective, but I think there are good reasons to believe them,” says Nick Rosa, head of metaverse strategy and extended reality at Accenture.

“The metaverse is probably the biggest digital transformation process since the arrival of the cloud that we have seen in the last 20 years, because there is a massive need for transformation of user experience, product design and of the whole ecosystem that will support it,” says Rosa. “So this is a huge opportunity for everyone involved.”

Metaverse mergers and acquisitions

These heightened expectations have led to tempting acquisitions. Metaverse’s mergers and acquisitions over the past 18 months have reached a combined value of $77 billion, according to mergers and acquisitions data collected by GlobalData, as buyers captured targets ranging from video game publishers to VR headset manufacturers.

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Video game companies are particularly attractive targets for companies looking to buy into the Metaverse, because modern games are built on large-scale communities supported by highly engaging content – ​​the foundations of the Metaverse.

As of this writing, Microsoft’s $69 billion purchase of gaming giant Activision Blizzard in January is the biggest metaverse-related acquisition, with the company calling it a “building block for the metaverse”. Video game developer Zynga was also acquired by Take-Two Interactive earlier this year for $700 million.

Beyond games, investors are pursuing metaverse strategies in nearly every area of ​​online interaction, including workplace collaboration. In April, a US-based Special Purpose Acquisition Company (SPAC), took over EON Realitywhich offers virtual reality solutions for 3D desktops, for $655 million.

Even encounters are moving to the metaverse. In February last year, the Match Group, which owns popular dating apps such as Tinder, acquired Hyperconnect, a South Korean video messaging and social media company, for $1.7 billion. Match Group later revealed that they were working with Hyperconnect to develop “Single Town”, a virtual space where singles can meet.

Elsewhere, hardware vendors that merge virtual reality with the physical world are being snapped up. In May last year, Oxford-based Wave Optics, which supplies the display screens for AR smart glasses, was acquired by Snap for $500 million. In August, TikTok’s parent company ByteDance has acquired Pico Interactive, a maker of VR headsets for $700 million.

Virtual worlds, real money

This boom in metaverse M&A reflects growing confidence that real money can be made in virtual spaces, Rosa says. “We’ve seen how people around the world can make a lot of money with NFTs and other digital collectibles in games, for example, so there’s a revolution happening right now from a point from a technological point of view. “

“We are entering a new era where you can make a lot of money if you have an idea for a fantastic product that can work in the virtual world, no matter where you are born,” he adds.

Bob O’Donnell, president of market research and consulting firm TECHnalysis Research, agrees. “Now is the perfect time for these acquisitions to happen, as we are living in the early stages of the metaverse where large tech companies seek out smaller companies with exciting innovations and integrate them into their larger solutions.”

Through these deals, the acquirers are pursuing what O’Donnell describes as a “public R&D” strategy, in which venture capital-backed small companies enter a field where many questions remain unanswered, and investors and big business picks the winners.

Barriers to Adoption

However, there are still many unanswered questions about the Metaverse. Some of them are technical. “The computing power of virtual reality is directly proportional to the heat creation by the CPU and the GPU,” explains Rosa. “So how do you create glass that can comfortably accommodate the computing power that requires some sort of heat dissipation?”

Rosa is convinced that the industry will succeed in creating more comfortable and lighter solutions. “The first wave of devices will be very light and thin, and after a year or two there will be another wave of VR smart glasses that will allow clear projection of virtual images into your retina,” he predicts.

Other questions are more human, such as the impact of prolonged use of virtual reality on mental health, and whether wearing helmets will be socially accepted. It depends on there being a “critical mass of use cases” that goes beyond the interests of Gen Z, Rosa believes.

For O’Donnell, the metaverse faces an even greater hurdle: the basic human need for physical contact. “What does everyone want to do in a post-pandemic world? Do we want to spend more time on screens or do we want to spend more time with real people doing real stuff? “, he asks.

“I think that’s indicative of our human nature and how we feel coming out of a pandemic, and I don’t think that’s going to change very soon just because there’s a new gadget that can do very interesting stuff.”

Read more: Working in the metaverse: why 3D virtual collaboration is still “ten years away”