🔮 The Trillion Dollar Company Most Likely To Win the Metaverse Might Surprise You
Why Microsoft is a Better Bet to Win the Metaverse than Facebook
The Quieter Announcement
It was the name change heard round the world. When trillion-dollar Facebook announced its intent to rename itself to Meta, suddenly interest in the metaverse exploded. Aided by a strong media tour from Mark Zuckerberg through tech’s foremost influencers - including Matthew Ball, Ben Thompson, and Gary Vaynerchuck - the term has gone from 0 to 100. Literally:
Quite a far cry from when I started at Epic Games in 2019 working on the metaverse. Notice how it’s barely visible on the Google Search Trends chart back then. When I would tell my friends about it, they would give me a puzzled look and laugh. Even one of my most informed gaming friends snickered, “like the idea that we’re all going to be in Ready Player One? Lol.”
After I sent around Tim Sweeney’s DICE talk on the concept, one of the friends in my group chat joked, “he fashions himself James Halliday” (founder of the Oasis in aforementioned Ready Player One). Now, Tim’s talk looks like precognition, and he may become James Halliday.
Those same friends recently have been asking me about how I feel about Facebook’s change to Meta. Can Facebook actually win the metaverse?
Maybe. But I think the better trillion dollar company to invest in for the metaverse is Microsoft.
Microsoft certainly thinks so. Mere days after Facebook said that it was renaming the company, Microsoft unveiled its own metaverse master plan. Satya tweeted out his vision:
In traditional Microsoft fashion, it is a metaverse built for the enterprise. Think about it: Where do you spend more time these days - at work or on social media? If the metaverse is going to become the future, it will need to have a future in the world of work “from the factory floor to the meeting room,” as Satya said. And Microsoft thinks it can have a crack at that.
To learn more about Microsoft’s great potential future with the metaverse, join me as we explore:
Gaming and the Metaverse
Social Networks and the Metaverse
Business and the Metaverse
A Big Bet on Mixed Reality
The big bet for Microsoft is Mixed Reality. Facebook’s is Virtual Reality. Both companies bets’ start with their hardware divisions. Whereas Facebook has the dominant VR platform in Oculus, Microsoft has been pursuing mixed and augmented reality with its HoloLens for years.
So what exactly is Mixed Reality? If you are to believe Microsoft’s Nishant Thacker:
Mixed Reality is the fourth wave in computing followed by Mainframes, PCs, and Smartphones
Bold claims require bold facts. And Microsoft has them. 100s of millions of users have already experienced mixed reality with Niantic’s smash hit Pokemon Go. More than 50% of the Fortune 500 has deployed HoloLens or other mixed reality solutions in their businesses. Mixed reality is already making its way into the lives of consumers and businesses.
This is actually fairly similar to Facebook’s vision of embodied computing. As Zuckerberg says, “it will feel like you are right in the room together.” Facebook has a slightly more holistic sense of the use cases and in general Zuckerberg seems far more into the topic than Nadella yet. As he describes it:
The ultimate experience for this embodied feeling will be in VR
There’s also really cool use cases in AR
And when you’re on the go or in the rush, you might hop in to 3d graphics on your phone or computer
The Solution? Microsoft Mesh
The big star of Microsoft’s announcements was Microsoft Mesh, a mixed reality add on to Teams. Microsoft has had enough of “zoom fatigue.” The company wants you to have meetings with your remote colleagues that feel like they are in person. Perhaps you could not get dressed or shower before work? No problem when you have a virtual avatar.
Without getting into all the technical details, suffice it to say that a lot of the Mesh solution is enabling developers to build mixed reality applications with a much broader toolkit than was previously available. Utilizing the years of research Microsoft has done into things like eye tracking with HoloLens and artificial intelligence with Azure, developers get to tap into a more powerful ecosystem. On the consumer side, Mesh helps developers plug into all platforms, including Oculus. On the developer side, Mesh helps developers leverage many of Azure’s giant feature set:
This is a typically Microsoft solution, focused on its enterprise customer where it will make its money. This is a smart approach: Facebook is trying to win the consumer. Microsoft, at least in what has it announced so far, is trying to win the enterprise.
See. This is where things really get interesting.
The Metaverse Will Go Through Gaming
If there is a place people are persisting in the embodied, 3-d worlds both Satya and Mark talk about, it is gaming. And Microsoft is one of the hottest gaming companies out there. Between Minecraft and Xbox, Microsoft is way ahead of Facebook in the gaming landscape.
By monthly active users, Microsoft already owns the #2 metaverse platform on the planet: Minecraft. At 140M MAU, Minecraft is second only to Roblox. To really appreciate Minecraft consider this, it is the best selling video game of all time. [These are ex-China, who will have a separate metaverse.]
Microsoft also has the entire Xbox ecosystem. 🤯 The Xbox Game Pass subscription might be under-appreciated in non-gaming circles. This is a gaming subscription that is locking in 10s of millions of paying customers. These customers are locked in and Microsoft will be able to bring them along to its future metaverse versions.
As Mark explains, you will have an avatar in the metaverse for gaming, for work, and for fun. Gaming is currently the most ahead of the curve.
The Metaverse Needs a Network
It is easy to hate LinkedIn. But it has become the de facto internet resume for Silicon Valley and western world technology workers. Nowadays, a LinkedIn post is far more likely to get an average mid-level manager career-relevant views than a Facebook or Twitter post. And it has become a monster for Microsoft.
Microsoft normally does not like to divulge much about its $20B acquisition. But in the latest quarter, even Microsoft had to show off. Revenue was up a whopping 42% year over year. As Reid Hoffman, LinkedIn’s founder has said, it is one of those consistent 30-40%+ growers that can sneak up on you. As all us readers know, compounding at 30-40% is tremendous over long periods of time. And LinkedIn is a machine that does not stop.
The metaverse will need a sense of identity. And as Meta is making a bet, the network will be a core part of it. Gamers have gaming buddies. Social networks have friends. Work has colleagues. LinkedIn is the premiere work social network. And that gives Microsoft a huge leg up in the work metaverse battle to come.
With 800 million members, it also gives Microsoft a decent wedge into the consumer space generally. People generally use their real personal histories on LinkedIn. This will help provide a big upper funnel flow of users to send to Microsoft’s work metaverse.
The Metaverse Needs to Incorporate Business
A virtual space we only occupy in our free time - something that does not exist for professional parents such as myself - is no metaverse. The metaverse needs to incorporate people’s work lives, because that is where we spend most of our non immediate family lives.
Microsoft has the most enterprise relationships of any company in the world. Office applications touch nearly every company across the globe. This gives the company an easy onramp. Its Teams product handed out for free, is the centerpiece of this strategy.
Imagine architects walking through a holographic model of a factory floor under construction, or techs across the world examining malfunctioning physical factory equipment using its digital twin. The use cases for work mixed reality are mind numbingly huge in dollar value. It will touch every field from engineering and medicine to accounting and human resources.
So, a lot of the money from the metaverse is really to be made from business. Which goes to say - even if Facebook wins out on metaverse users, Microsoft could end up the market capitalization perspective winner.
But will Microsoft Pursue a Unified Strategy Here?
Focus is everything. Facebook is going to spend $10B a year on its metaverse initiatives. It has put one of its most prominent executives, Bos, to the project.
Will Microsoft focus on these things and create the layer atop to unite it all? The hard lesson Microsoft seems to have learned from its earlier acquisition era was not to jam products together. As a result, there is virtually no overlap with many of Microsoft’s core metaverse assets: Windoes, Teams, Azure, Minecraft, Xbox, LinkedIn.
On the gaming side, what is for certain is that Xbox Legend Phil Spencer has been building the metaverse since 2017:
I’m a big believer in a metaverse future
So, Microsoft may be able to win both the gaming and enterprise metaverses on separate paths. But, it would be much more powerful to put all the pieces together. It has not shown the willingness to do so far. Here is Satya next to the platform. Gaming is totally missing:
If you agree with the strategy I’m proposing here, let’s help out and make this a grassroots effort. With enough shares, maybe enough people can get this article in front of thought leaders at Microsoft. 🤞
The Oncoming Metaverse Wars
We are officially in the era of the metaverse wars. There will be gaming battles, where titans like Roblox, Minecraft, and Fortnite duke it out. There will be social battles, where titans like Meta, Snap, and LinkedIn duke it out. And there will be work battles, where titans like Nvidia, Unity, and Microsoft will duke it out. The battles are being played out at the highest rungs of the market cap ladder.
As in any war, no one knows who will truly win. You can start out with the largest armies and the biggest forts, but if you do not have the best strategy, you can still lose. Will Satya be able to pull together the power of Microsoft’s assets to build a coordinated strategy to win the metaverse wars?
Microsoft could easily build the OS for the metaverse. Windows for a new era. The interoperability layer for the metaverse, and maybe even web3. But we will just have to wait and see.
As West Side Story composer Stephen Sondheim once said: “You have to throw out good stuff to get the best stuff.” Today’s deep dive was shorter. Let me know what you think!
We’ll round it out with a few small thoughts.
Data is a Hogwash Acquisition Benefit
A commonly cited benefit of acquisitions these days is “data” because “AI algorithms benefit from more.”
But, having worked as an AI PM, I personally have never once seen this “data” put to any good use.
SaaS Startup the New Billion-Dollar Ticket
Getting your initial customers to fund development of a product you can sell to others is a genius part of SaaS.
The unit economics of the business model really favor the SaaS founder right now.
It’s probably the best bet today, for most, to a billion dollars.
Keep it Simple
Don’t over architect your roadmaps. It’s tempting to add milestones as a PM. But throwaway work is the enemy. 🙅♂️
This week, I’m also trying out two article curations. Let me know what you think:
Modern writing at its worst … consists in gumming together long strips of words which have already been set in order by someone else, and making the results presentable by sheer humbug. The attraction of this way of writing is that it is easy
This classic by 1984 author George Orwell is one of my favorite essays of all time.
To the overwhelming majority of us in the software engineering profession who live closest to the metal, we see blockchain as a technology that barely works and whose use cases (if any) are vanishingly small and niche.
This thought provoking piece by Stephen Diehl coherently articulates the bear case for crypto.
My take: Classifying bitcoin as a memecoin fundamentally misunderstands the trust problem of centralized rails. The central authority can always print unlimited money, decides who participates and gets rich.
Bitcoin allows trustless digital currency. There is no better centralized option.