Standard definitions of the metaverse underplay its disruptive and transformative potential. By seamlessly integrating “real” life and digital worlds, it creates a new level of interconnectivity – and major new opportunities for investors.
“Metaverse” is such a new term that there’s no agreed-upon definition. Mostly it is used to describe digital worlds or virtual spaces enabled by virtual or augmented reality. But we believe this definition is too limited. Rather, the metaverse should be thought of as a seamless integration of the physical and digital worlds. We believe the metaverse is the culmination of the last 30 years of digital acceleration in nearly every facet of daily life.
In our definition, the metaverse and Web 3.0 – a version of the internet based on blockchain that supports a new level of interconnectivity – are two sides of the same coin. Accordingly, we think that the metaverse is a megatrend that will drive profound changes in the evolution of society.
Digital natives are a growing demographic cohort
Data show that internet adoption globally continues to grow, and each age cohort is larger in size than the previous generation. This is creating more “digital natives” – people for whom working and living in the digital space is second nature. As the number of digital natives grows, the world is spending more time on the internet per day. Accordingly, we believe that the total aggregate revenues of companies in the metaverse could reach US$25-30 trillion by 2040 – a quadrupling in size compared to the equivalent revenues of today’s internet.
Move over, Web 2.0 – the metaverse and Web 3.0 are next
Just as Web 2.0 represented a giant leap forward for the internet with the advent of social networking and cloud computing, Web 3.0 looks to offer a new level of interconnectivity based on blockchain technology – and it is one of the foundation stones of the metaverse. The combination of Web 3.0 and the metaverse is expected to deliver on several key themes:
First, the interoperability between digital and physical worlds as a common public ledger in the blockchain enables physical-world interaction with digital assets like non-fungible tokens (NFTs) and cryptocurrencies, and digital interaction with physical assets like real estate. Second, massive user scale capable of thousands of users interacting simultaneously. Third, a sense of presence as opposed to the limited means of interaction today. And finally, new business models in which the creators/users are the owners rather than the product.
The precursors to many of these changes are already underway, with significant investments committed by well-known tech behemoths into construction of a metaverse, cryptocurrencies and NFTs seeing rapid growth in use, videoconferencing becoming an everyday part of life, and AR filters making us all look better online. These represent just the beginning of the investment opportunities arising from this next wave of digital transformation.
What it means for investors: prepare for the metaverse in real life
Initially we see potential opportunities to invest in companies creating Web 3.0 infrastructure, the application ecosystem built to utilize this infrastructure, and the digital worlds that emerge through these interoperable applications.
Taking a longer-term view, we believe that the metaverse will grow to encompass many non-digital industries. For example, it could help enable more efficient and transparent maintenance of property records in real estate, streamline complex financial transactions via blockchain, and optimize supply chains in manufacturing and agriculture. That is why investors should draw on multiple, cross-industry perspectives to identify the winners in this environment.
Is the metaverse real? Yes, we think it is. As the divide between our “real” and digital lives diminishes, the metaverse is not some distant, faraway land. It is quite literally closer than you think – and so are the investment opportunities it offers.
Virginie Maisonneuve is global CIO, equity, at Allianz Global Investors
Disclaimer
Unless otherwise stated, all data, views and opinion are as of October 26 2022.
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