Metaverse Games: State of Play and Opportunities

Please welcome Tom Tate. Hi everybody. My name is Tom Tate, as has been said, and I am research director of the games team at Omdia, an analyst firm that uses its research and data to help companies to make informed business decisions. In the past 6 months, most of those companies have been asking about the metaverse. What is it? What will it become? And where do games fit in within this puzzle? So, I'm going to use this talk to try to address those questions. So, a good place to start would be what the metaverse is. And this is the most I can boil down a definition to, a virtual shared space where users can do everything they'd expect in the real world. Now, there's no consensus view of how best to describe the metaverse in detail. And as a side point, I often hear it quite scornfully

described as very poorly defined, but I would argue that's entirely unsurprising. This will ultimately be a virtual world that will mirror and in many ways augment the real world. And I've certainly never seen a a 200-word definition of the real world that feels remotely satisfying. But with that said, here are what I think are six useful points that should help to frame the end goal of the metaverse. No limits. The metaverse should be able to be accessed by any number of people at any time on any internet-connected device or platform they wish. Harmony. Every user is offered the same virtual world to inhabit with changes implemented in real time. Equality. Content within the metaverse could be created just as easily by an individual user as a major company. Identity. Users can create an avatar that represents them wherever they travel in the metaverse, a persistent virtual social presence. Economy. A sophisticated system of trade, like the real world economy, again with no limits in terms of

platforms where those digital assets have meaning. And finally, immersivity. Ultimately, a world rich and realistic enough to feel fully connected with, an absence of any jarring realization that the user is within a simulation. And here's a way to conceptualize the metaverse that I find helpful, and I can give it a video gaming analogy, too. In Super Mario 64, the setting of Peach's castle used paintings within it to warp you into different worlds. Now, what if the base metaverse, if you like, is represented by Peach's castle or this gallery? Your identity or avatar is here. And then you've got the Minecraft painting and the Fortnite painting. And the ones for Meta's virtual business meetings and so on. Now, there is a necessary separateness required here because it would be a really bad idea for the Resident Evil world to overlap with the Hello Kitty world. But nevertheless, these worlds should speak to each other in some way. They should have a harmonized base area for access.

If you want to think about the metaverse in an entirely different way, I'd recommend considering it like this. When the internet first became established, the default way of consuming it was through a desktop computer. It was also the only way you could consume it. Once smartphones became ubiquitous, however, their convenience and price meant that globally we moved to a mobile-first world of internet usage. And the next phase of consumption, and this is especially for any of you listening who are tired of or otherwise annoyed by the constant usage of the term metaverse in today's entertainment and media coverage, well, the next phase could simply be called the immersive internet. Enveloping your field of vision, 3D, photorealistic, and with largely limitless possibilities. That's the promise of the metaverse, but you don't need to use that word to understand the ultimate direction of travel for internet consumption. Nor do you need to read Snow Crash by Neal Stephenson, where the term originated, although it is a really good novel. Now, two quick things to say here. One, just because the smartphone is the

world's main internet platform, that doesn't mean desktops are suddenly obsolete. And the same will be true after immersive internet takes off. We'll still be using our mobiles and desktops. Another thing to say is that this immersive version of the internet becoming the default is a really, really long way off. We at Omdia typically make 5-year forecasts. Immersive internet becoming the default internet consumption mode does not feature within them, even if inroads will be made over the next 5 years. Now, one reason for this, well, a recent article caught my eye because it began like this, quote, "It is hard to imagine humans spending their lives in virtual reality when the experience amounts to waving your arms about in the middle of the lounge with a device the size of a house brick strapped to your face." Now, I'll park the waving your arms around in the lounge bit to focus on the device the size of a house brick bit because it's certainly worth pointing out that relatively early versions of devices being massive is very much a part of the history of the evolution of tech.

Therefore, ultimately, what companies with a a vested interest in VR and and all the metaverse need to achieve is a headset which is broadly speaking as as straightforward to put on and and to wear as my pair of glasses. That's the evolution we still need to happen before we'll get to default version 3.0 of internet consumption. That is immersive internet, and that virtual shared space where users can do everything they'd expect from the real world. That's not to say it won't happen. And but one final way that I think it's useful to look at this is to imagine a games analyst from the past infusing about some future time when games would be as beautiful and bold and compelling and immersive in the deep absorption sense as, say, Breath of the Wild or The Witcher 3 or The Last of Us or Elden Ring, but at the time that he or she is making this point, the only games they have on offer look a little bit like this. And and there are doubtless plenty of companies out there right now who deeply regret

not paying far more attention to games at this stage here because being as those games look like this, they couldn't conceive the end destination for the industry. And so, when you look at a a really pretty uninspiring video of a cartoon Mark Zuckerberg doing a virtual interview in the metaverse, it's very much worth remembering that in this analogy we're just at or around the 8-bit stage right now, and Elden Ring is the end destination. So, let's use a look at where consumer VR is at right now as a talking point in and of itself and as a stepping stone to discuss metaverse games, which will be the majority of this presentation. Now, according to Omdia's data, the consumer VR market experienced a significant uplift in 2021, which can be attributed to the success of the Meta Quest 2 headset and to heightened spending on gaming hardware and content during the pandemic. Sales and usage of standalone and tethered VR headsets will be responsible for nearly all of VR's market value. Um, the global active install base of

standalone and tethered VR headsets is set to grow from 23.3 million in 2021 to 69.1 million in 2026. That's 89% and 99% of the total consumer VR install base, respectively. Smartphone VR headsets, meanwhile, will decline from a peak of 15.4 million in 2017 to 0.4 million in 2026. Across the 30 countries in our VR forecast, however, the penetration of VR headsets stands at only 2.4 per 100 households in 2021. This will grow to just 6.3 per 100 households in 2026, highlighting the long road ahead for VR's mass adoption and therefore that of the metaverse. Nevertheless, at 70 million in 2026, actively used VR headsets are set to be around the number of Xbox consoles at that time. So, not to be sniffed at. Now, just to put this into the context of internet-connected devices, VR is a

tiny segment and will remain so over the forecast period. In 2021, 26 million headsets were being actively used by consumers. On average, that is one headset for every 204 smartphones. In 2025, Omdia still expects there to be nearly four times as many game consoles and about 100 times as many smartphones as VR headsets. Backing this up, according to Omdia's consumer survey carried out in November 2021, VR headset ownership was ranked similarly low in five leading countries with the UK and US slightly ahead of France, Germany, and Japan. Only 5% of respondents overall said that they either owned or had access to a VR headset at home. This is compared with 41% having game consoles, 57% smart TVs, and 88% smartphones. VR is facing a classic chicken and egg situation where game makers do not want to make any enormous investments because

of the low install base of devices, while consumers are holding out for more appealing content. But it's important to note that this is changing. More and more big name studios are dipping their toes into VR. Meanwhile, VR games such as Beat Saber and Half-Life: Alyx have become true breakout successes. VR content revenue is inherently tied to the VR headset install base, of course. The shift towards more capable and engaging headsets is a positive development because more content revenue will be generated by each headset. As the size of the consumer VR install base becomes substantial, it will attract more game developer and content creator interest. Some more data from Omdia's VR forecast to round this off. And the drivers of these forecasts, absolutely that is Meta's continued investment into VR and the metaverse. But it's also more capable and affordable standalone VR headsets, which offer significantly better overall user experience thanks to inside-out

tracking, two-hand controllers, better graphics, and more ergonomic design. Importantly, they are user-friendly, require little setup or up and no driver. PC-tethered headsets are pushing the boundaries of VR technology with PC VR titles like Half-Life Alyx showcasing what VR is capable of. Finally, we would cite Sony's perseverance and success with PlayStation VR. The install base of PS4 consoles, bundling, and a continued marketing push has made VR desirable among console gamers. PSVR 2 will be eagerly awaited by PS5 console owners. I'm just going to have a quick look at the metaverse advertising now because it seems an under-covered area and is relevant to people working within the games industry. Meta's recent patent applications include reference to personalized advertising within AR environments. And by extension, the AR VR-enabled metaverse. These include a potential new

metaverse-led ad format whereby a third party will be able to sponsor the appearance of an object within a virtual store. The new context that VR and AR provide for advertising mean that there are significant more opportunities for such ads in the metaverse. These advances will also lead to a much more granular and potentially more effective ad measurement and targeting ecosystem. Now, while AR VR advertising may not present a sizeable opportunity now, it could easily become the largest ad medium within the next 10 to 20 years. Um, consider that slide I showed earlier tracking the default internet consumption modes. Internet advertising has followed this path. First with wired advertising dominating at the expense of traditional ad media, and then with mobile advertising rapidly rising to overtake wired. Now, at present, only Meta is investing substantially in anticipation of this new opportunity and as such is in a position to dominate. We've already seen the decline or even demise of much of the old media guard

that failed to react quickly enough to the shift from traditional to digital media. The same could happen to today's digital incumbents if they don't keep up with the shift to the metaverse. So, it's essential that ad-reliant players looking to operate within the metaverse start laying their foundations now if they wish to compete. Developing new ad formats that thrive in the VR-driven metaverse will be a critical part of the puzzle. Although they don't currently have all the answers, vendors providing dynamic in-game ad products which bear many similarities with AR, VR, and metaverse ads will have a head start in this pursuit. As a result, they would likely prove attractive acquisition prospects for players looking to develop their own metaverse advertising businesses and technology. So, this has been a digest of the future of the metaverse and the noise surrounding it. Now, analysts don't mind noise per se, but they much prefer numbers, which is why I now want to turn my attention to the present and a different angle.

The vastness of scope required of a fully realized the metaverse could only really be achieved by one of the tech giants. However, that's not to say that other companies shouldn't try or haven't tried to create their own version of it. This is the distinction between the metaverse and a metaverse. Now, the natural immersivity of games worlds makes some incredibly strong starting points for the concept of a metaverse. In recent years, various games have emerged that seek to offer a range of entertainment, social, and cultural activities inside their own worlds while also providing a functioning economy that includes commerce between users and from other brands. Metaverses by any other name. In September 2021, we at On Device launched the Metaverse Games Benchmark with the aim of identifying and categorizing the critical factors needed to create a metaverse. This is what it looks like, by the way. But since Excel isn't the most thrilling program to share, I will flip back to PowerPoint.

So, for this benchmark, we ranked six games against a set of defined factors. The games were Minecraft, Fortnite, Roblox, Dreams, Core, and Zepeto. Three of those are too big to ignore. The others were included because they had various very interesting elements to them that it would be useful for the games companies with metaverse aspirations to be mindful of. Incidentally, here's a list of games I have my eye on for potential addition when we come to discuss this fresh a little later in the presentation, too. These would include Decentraland, so that's a VR platform built on the Ethereum blockchain where parcels of land can be bought and sold. That only had casino games at the time of consideration. Facebook Horizon, VR social space and game creation title, strong candidate for future inclusion. Sensorium Galaxy, the swirly S, VR social platform initially concentrating on music and mindfulness but with game mechanics in place. That was in closed beta at the time of our work. Second Life, created in 2003, of course,

and sees high potential for growth right now given the popularity of the metaverse concept present. Undawn, forthcoming multiplayer survival game from Tencent with avatars, UGC platforms, and the capacity for players to upload their own photos to create an identity in the virtual world. And finally, Rec Room, the orange logo, a VR or non-VR game with an integrated game creation system. So, in terms of the six titles that we did look at, these were scored and ranked in terms of five core areas. The scale that they were able to provide, the sophistication or otherwise of their monetization, the range and quality of entertainment they provided, the capacity one to interact in the games world, and the current and potential technology offering they had brought to bear. Each of these, as you see, was split into subcategories, and this ranking was after a very long period of research and discussion to determine the best framework at this current time for assessing the quality or otherwise of a aspirant metaverse games title.

This is the depth we went into per subcategory, incidentally. So, something of a labor of love. Let's then look at how each title fared in that category, and we'll start with scale. The worlds of Minecraft, Fortnite, and Roblox would be classed as enormous games by any imaginable metric. Minecraft takes this category on account of its game sales on top of huge figures for mobile downloads on the two main app stores, plus its large popularity in China where it's thought to have been downloaded more than 400 million times. Zepeto's 200 million plus users still represent a reasonable gap between this title and the top three. Unlike Roblox and Minecraft, the audience skews young. Meanwhile, Dreams is model cries out for a free-to-play price point and cross-platform availability but has neither at present. It's only available on PlayStation for a mid-tier title's RRP. Core will be really interesting to watch as it continues to build scale following its April 2021 launch.

Moving on to monetization, Roblox takes the win thanks to having the most advanced in-game economy of the titles ranked here with both game experiences and individual items able to be sold and numerous brands taking the opportunity to sell in the game world. Gucci, Nike, and the NFL among them. Fortnite has a strong array of in-game items for sale but not the user commerce of Roblox. Well, Zepeto puts a major emphasis on users buying and selling. Both are very strong in brand partnerships. Minecraft has limitations here but Minecraft Marketplace has proved lucrative for modders. Now, one of the most intriguing aspects about Core is its very favorable revenue share of 50% with creators and the choice of payment systems from to set from monthly subscription to pay-to-play or in-game purchases. There's also a perk system to pay creators based on the number of plays. Dreams has a limited program for creators to monetize their work with scope to improve on that front.

But when it comes to entertainment, it's Dreams that we felt merited the win. Dreams has rich games including showcase art stream and a host of titles that have a triple-A look built by its dedicated user base. But it's the range of possible in-title entertainment that really comes to the fore with music videos, animated shorts and series, sculptures, art galleries, and a massive amount more. Fortnite's main title, fairly recent additions such as Fortnite Imposters, and a range of class-leading live events, most notably with Ariana Grande, put it in second ahead of Roblox, which has more than 40 million user-generated games available but reasonably simplistic graphical quality. Roblox only trails Fortnite in terms of live events thanks to efforts such as its Zara Larsson concert. Minecraft's Block by Block West music festival shows clear intention to offer compelling live experiences. Zepeto has focused on interactivity in

its events with strong fandom opportunities and recent link-ups with K-pop bands. Its game offering is the weakest of the six but it did announce a game creation system in June 2021. Core, which already has a good variety of rich-looking games, sees the potential of live events, too. So, its progress here will be interesting to track. Indeed, after the benchmark was completed, the musician deadmau5 announced a permanent residency within Core in his Over Hau5ly virtual world. In interaction, that's social utility, identity, Fortnite comes out on top with a cross-platform chat service, the party royale party royale area, and huge potential in the shape of Epic's live link space. Fortnite Creative has also made efforts towards education with the likes of the March Through Time Civil Rights experience. Roblox, which places second, has Party Place, a popular site for virtual parties, while it bought chat platform Guilded in August 2021. And its acquisition of loom.ai was made with a

view to improving avatar realism. In November, again after this was finished, it announced three new educational games aimed at middle school, high school, and college students. Zepeto is at its core a social network and also scores highest for identity with such a heavy emphasis on self-expression through avatars. Minecraft isn't particularly collaborative and takes the highest marks for utility, thanks in part to its education edition. And finally, technology, which features the lowest high scores. That's chiefly because, as we've said, the most successful metaverse system will of course ultimately be rooted in virtual or at least mixed reality, but tech up and tech are not at the point to satisfy or really achieve this yet. Fortnite leads, thanks to Epic's ownership of companies like Quixel, its real-world environment scanners, and Sketchfab and Cubic Motion, uh both digital advertising platforms. Next place Minecraft has wide VR and even Windows mixed reality headset support, but the discontinuation of

Minecraft Earth demonstrates that success in AR is no faith in company. Roblox has an eight-figure amount of VR games available, but is hampered by the fact that those games don't lend themselves to full dimensional immersivity in a way that Dreams and Core do. Zepeto makes good use of AR in its title and is able to place avatars in real space with this functionality. However, it lags on VR, even if this has been named as the long-term strategy. And when you put it all together, it looks like this. These scores are out of 50. So, we have Fortnite beating Roblox in first place, with Minecraft not far behind. To recap, it's Fortnite's hugely strong core game, its experimentation, and its innovation with live events that was a key contributor to its success. Roblox, meanwhile, was the clear leader in in-game economy with a highly evolved approach to commerce and brand activation. All making increasing inroads into providing immersive live experiences.

And with various features announced after this benchmark was made, uh the three educational titles I mentioned, the addition of metaverse esports, and the likes of Nikeland, a Nike-owned world for games and retail launched in Roblox in late 2021, I suspect it's going to be even closer when we come to update this benchmark in a few months' time. Now, the titles in this benchmark are striving to provide a rounded offering in order to attract users and retain them for ever-longer periods in their game lives. That in turn requires them to partner with rights holders and celebrities across the world of entertainment. In July 2021, for example, Roblox struck a deal with Sony Music to offer new commercial opportunities for its artists. In June 2021, it reached an agreement with another music company, BMG, but in partnership with reactions to being sued for alleged enablement of piracy by National Music Publishers' Association. It's imperative for metaverse games to boast a raft of entertainment while

respecting copyright, and they also have the immense scale and complementary aims to make partnering worthwhile. Uh the NMPA suit, for example, was dropped in September 2021 in favor of a partnership. Licensing deals in music, TV, film, other video games, sports, comics and manga will all further enrich a Fortnite or Core. Radio, podcasts, and audiobooks could be next on the list, as could tie-ins with news and magazine outlets. Among many other elements, metaverse games offer a new platform to bring entertainment offerings directly to millions of users. So, companies across the entertainment space should sit up and take notice. Another key function of metaverse games is to act as a quantifiable tool for brands and other non-native companies to games who are looking to understand which games best fit their needs to find effective outlets for digital opportunities, and which are rapidly equipping to do so. Metaverse games have opened up new digital shop fronts with a massive

potential customer base. Zepeto, in particular, with the prominence it gives to detailed avatar personalization and openness to third parties, has enabled clothing and makeup brands to offer digital goods. Gucci, Ralph Lauren, Dior Beauty, they've all been among early adopters here. Other fashion brands or any clothing brands should be strongly considering action. But apart from the thousands of users selling their own self-conceived content, there are upstart digital fashion companies such as Ouroboros, who are now providing clothing ideas expressly tailored to digital worlds. And why would it stop at fashion brands in terms of decorating avatars? If you have a brand that people want to associate with, in the digital world, it's relatively uncomplicated to have that logo or slogan on an item of virtual clothing. At the same time, current and aspirant metaverse games should be alert to how best position themselves to enable them to partner with brands in future.

Okay. I'm going to leave you with this slide, because it's the maximum current score available out of 50 if you combine the best bits of each game, as per our ranking system, and therefore should serve as a good inspiration for any plans people have to create their own metaverse aspirant game. And actually, there are still great ideas to be had. Things that we believe work well include Roblox's rich economy, allowing commerce for brands and creators alike, mixed with Core's revenue share and price model flexibility for games makers, Fortnite's drive for platform agnosticity and emphasis on compelling live events, where it differs to Dreams' high-quality game experiences and wider entertainment mix, Zepeto's emphasis on self-expression and the wider commercial opportunities that brings, plus its efforts to facilitate fandom, and Minecraft's efforts to make its title a tool for self-improvement for a future of extended reality. I hope this is something worth keeping in mind for any company right now with

short, medium, or long-term plans to create a metaverse-type platform. And I hope this talk has helped in terms of understanding where games companies fit in to the metaverse. Thanks very much for your time today. I've left a few minutes for any questions that you might have. Dom, are you ready for some Q&A? I certainly am. Yeah, that's fine. Hey, good morning. My name is Phil Lagunas. I'm currently one year product I'm one year in production on a VR game. And uh we're looking to launch anywhere between August and December this year, and we're kind of um thinking about ways and what to do and

all all those things. We're thinking about Our goal is to get on the Meta platform, submit to Oculus. And um but we're kind of worried about now the backup plan, like, what if they say no? What if everybody says no, right? What are we going to do? And um was looking at the metaverse, and I I had this idea, and um I wanted to get your thoughts on it. Um we're thinking about contacting as many people that own digital properties in the metaverse. You mentioned the galleries earlier in their talk, and um we were thinking about cuz our game is kind of arcadey, it's a shooter on rails, skill-based shooter on rails, and we're thinking about just going to contacting all those owners and putting our game on their metaverse plots, and basically people can play it with um like arcade style, putting the quarters in the machine. And then a percentage of all that money put in through a week will be on a weekly leaderboards, and um we'll pay out a percentage of the people who are top on the leaderboards. So, it creates a um

almost like a you know, a competition tournament every week, and we just go from plot to plot to plot, and just uh have everybody uh playing arcade style. Do you think this is possible in the metaverse, and um uh do you have any insight on how we could go about doing that? Yeah, that's fascinating. Um I think it's um it's a really good use case for the metaverse. Uh I don't know if it's possible right now, uh but I think it certainly will be if if it's not. Um what I would say is that for people to to want to come to the metaverse, they want something to do. And you know, I haven't spoken much about competitive elements, but that is one way to keep people coming, to you know, to have a kind of a leaderboard, beat your score, beat your friends. Those are always things which which bring people back for more and more in games, and and the same would be true uh in the metaverse as well. I think um I was thinking of Core when when you mentioned it uh as as a as an interesting platform to investigate, because yeah, if you want to build scale quickly, it's difficult, of course it

is. But if you want to see if, you know, another company would like to to have to host your game, then that might be something that might happen, you know. Also think of Epic, who are so open, you know, they they really do emphasize interoperability uh and and the idea of of of cross-platform play. So, those might be companies to look at. Um I'm sort of aware that I think this cuts off at like right on the hour, so I I will better I better leave it there, but you've got my email address on that slide there, and I'm more than happy to to follow up with you. But good luck in your endeavors, that sounds really interesting. Thank you. Uh looks like we have one more question, Dom. Okay. Yeah, hello. That was great to have the presentation and all about the metaverse. So, my name is Assad and I am the founder of Immersive Ads. Um, just like you told about all the monetization and everything pertaining to the metaverse, um, primarily that's what we are really interested in as well. As in doing ads for the metaverse

and all the 3D environments for which people make games. Uh, what we have seen up till now is most of the brand advertising that you would expect on metaverse and all that we are games and all the virtual environments. Whereas, um, in the current scenario of advertising, there is a lot of call to action as well, right? People want to promote the content, there's performance manage performance marketing. And they expect some action to be done against which they need to be paid. However, what do you think it's going to be like in the VR or the metaverse? And how would the call to action to those ads would, um, happen? Because what we have created right now is something really interesting that as soon as you get nearer to it to an ad, it becomes responsive, it becomes actionable. So, would that really help? It sounds It's that sounds Yeah, that sounds like the sort of thing that works. I mean, I was we we You can see uh Meta's patents, uh, they they have

been sort of or some of them at least have been revealed, so you can have a look through what they've been doing, but they're doing very similar stuff to that. I'm not sure I I heard that exact one, but I think location-based it calls to action. Yeah, that definitely works. I mean, you see that actually in digital out of home media, uh, a lot. So, yeah, I think that's a translatable idea. Um, and you know, I I necessarily gave a little bit of time to advertising matters cuz A, that's surely how Meta is going to, you know, model uh model things and therefore are going to be a a kind of a real a real way of of propelling uh the monetization model really of the metaverse. Um, and yeah, B, there are so many opportunities for companies such as yourselves, um, who have, you know, ways of doing location-based or even, you know, maybe I don't know if you've got eye tracking-based, um, advertising, um, options available. Uh, but yeah, if so, I think you've got a head start. So, um,

yeah, again, that's that's two really interesting people involved involved in this. So, yeah, I will I look forward to to to hearing from you in future as to as to how you're getting on that. Oh, cool. So, I'll I'll just follow up on that with you. Thank you very much. Very nice. All right, thank you, Don. Appreciate it. Thank you very much for your time.