Businesses have ploughed investments of $77bn into metaverse mergers and acquisitions in the past 18 months, as they vie for a slice of a market predicted to be worth $800bn in just two years. Buyers including Microsoft, Snap and the company behind dating app Tinder are betting that virtual spaces will define the next era of the web, while others believe there are significant hurdles to be overcome – not least the human desire for physical interaction.
Investing in the metaverse: how much is it worth?
In December last year, analysts from Bloomberg caused a stir when they released their projections of the value of metaverse, a vision for the future of online communication defined by interlinked 3D virtual spaces. The analysts predicted that the entire metaverse market could be worth $800bn by 2024.
“As video game makers continue to elevate existing titles into 3D online worlds that better resemble social networks, their market opportunity can expand to encapsulate live entertainment such as concerts and sports events as well as fighting for a share of social-media advertising revenue,” the analysts said.
Other forecasts have gone further. In March, investment analysts from Citi estimated that the entire metaverse market would be worth $13tn by 2030. And Jensen Huang, CEO of Nvidia, claimed that the metaverse would create economies of scale that had the potential to dwarf the current economy itself.
“These forecasts may appear very rosy from a particular point of view but I think there are good reasons to believe in them,” says Nick Rosa, metaverse strategy and extended reality lead at Accenture.
“The metaverse is probably the biggest digital transformation process since the arrival of the cloud that we’ve seen in the last 20 years, because there’s a massive need for a transformation in user experience, product design, and the entire ecosystem that will underpin it," Rosa says. "So it’s a huge opportunity for everyone involved.”
Metaverse mergers and acquisitions
These heightened expectations have led to some eye-watering acquisitions. Metaverse mergers and acquisitions in the past 18 months reached a combined value of $77bn, according to M&A data collected by GlobalData, as buyers snapped up targets ranging from video game publishers to VR headset manufacturers.
Video game companies are especially attractive targets for companies seeking to buy into the metaverse, as modern games are built on large-scale communities underpinned by highly engaging content - the foundations of the metaverse.
At the time of writing, Microsoft’s $69bn purchase of the gaming giant Activision Blizzard in January is the biggest metaverse-related acquisition, with the company calling it a “building block for the metaverse”. The video game developer Zynga was also acquired by Take-Two Interactive earlier this year for $700m.
Beyond gaming, investors are pursuing metaverse strategies in almost any field of online interaction, including workplace collaboration. In April, a US-based special purpose acquisition company (SPAC), took over EON Reality, which offers virtual-reality solutions for 3D offices, for $655m.
Even dating is moving to the metaverse. In February last year, the Match Group, which owns popular dating apps including Tinder, acquired Hyperconnect, a South Korean video messaging and social media company, for $1.7bn. Match Group later revealed that it is working with Hyperconnect to develop 'Single Town', a virtual space where singles can meet.
Elsewhere, hardware providers that merge virtual reality with the physical world are being snapped up. In May last year, Oxford-based company Wave Optics, which provides the display screens for AR smart glasses was, snapped up by Snap for $500m. In August, TikTok's parent company ByteDance acquired Pico Interactive, a VR headsets manufacturer for $700m.
Metaverse investment: virtual worlds, real money
This boom in metaverse mergers and acquisitions reflects growing confidence that real money can be made in virtual spaces, says Rosa. “We’ve seen how people from across the world can make significant money with NFTs and other digital collectables in games for example, so there is a revolution that is happening at the moment from a technological perspective. “
“We are entering a new era where you can make a lot of money if you have an idea of a fantastic product that can work in the virtual world, regardless of where you were born,” he adds.
Bob O’Donnell, president of market research and consulting firm TECHnalysis Research, agrees. “It’s the perfect time for these acquisitions to happen because we’re living through the early stages of the metaverse where big tech companies are looking out for smaller companies with exciting innovations and integrating them into their bigger solutions."
Through these deals, acquirers are pursuing what O'Donnell describes as a 'public R&D' strategy, wherein small VC-backed companies charge into an area with many unanswered questions, and investors and big business pick out the winners.
Barriers to adoption
There are still plenty of unanswered questions about the metaverse, however. Some of these are technical. “The computing power of virtual reality is directly proportional to the creation of heat from the CPU and GPU," Rosa explains. "So how do we create glass that can comfortably accommodate the computing power that requires some sort of thermal dissipation?”
Rosa is confident that industry will succeed in creating more comfortable and lightweight solutions. “The first wave of devices will be very lightweight and thin, and after one or two years there will be another wave of VR smart glasses that will allow a 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 headsets will be socially accepted. This 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 bigger hurdle: the basic human need for physical contact. “What does everybody 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 hanging out with real people doing actual 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 some new gadget that can do some very interesting stuff.”