Microsoft is about to kill Zuckerberg’s Metaverse even before it launches, and they won’t even need to build a VR headset to do it. Now, this probably sounds crazy, after all, Zuck is so invested in the Metaverse that he renamed his entire company (Facebook) just to focus on the effort. He’s planning on investing $180 billion over the next 10 years in building this thing. But his plan is flawed for a number of reasons. At first glance, Zuck looks well-positioned here. Billions of people use Facebook, Instagram, and WhatsApp every day to connect with friends and family, and he also owns the biggest virtual reality company (Oculus). Even though we are is still seen as a toy to most people, the quest actually outsold the Xbox in 2021. But despite the many features Zuck will be able to bring, Microsoft will not allow him to win.
There are 3 key reasons why Microsoft will beat Zuckerberg in the war for the Metaverses. So let’s get past them one at a time.
Table of Contents
What is Metaverse?
Some people think that, isn’t the Metaverse just a video game? We already have those. These people would point to Second Life, World of Warcraft, and Fortnite to make the point that we kind of already have a Metaverse, and these people are wrong. Gaming is a great entry point into the Metaverse, but in the long term things are going to get a lot crazier. These Metaverse experiences are going to become bigger and more immersive.With the ability to interact with millions of people in one shared world. Digital assets and Avatars would move between different spaces and full economies will emerge to support a wide range of contributors. We do not know exactly who will dominate the moment, but one thing is certain, Games will play a big role here and that is why Microsoft’s strategy is so clever.
They’ve been a massive player in the video game industry for decades now. First with PC games like Doom in the 90s and later with Xbox games like Gears of War, Facebook, on the other hand, only really gave us Farmville and not many people would call that one a classic. Building an amazing place is one thing but Microsoft can’t do much with it if it doesn’t actually own the studios that create it. So Microsoft has been expanding the gaming world for years, and it will continue to grow exponentially.
Microsoft in Gaming Industry –
In 2014, Microsoft bought Minecraft for $ 2.5 billion. The game is grown to over 140 million monthly active users and it’s quickly morphing into its own mini Metaverse now players are building entire simulations like this Mr. Beast competition with 2000 simultaneous contestants. Then in 2020, Microsoft bought ZeniMax media for 7.5 billion dollars, which gave them the rights to Fallout, Doom, and The Elder Scrolls. All these games have communities of modders that are changing and growing the experience. nd now, recently, Microsoft acquired Activision Blizzard for $ 69 Billion. That’s an absolutely massive amount of money, but Microsoft has $130 billion dollars in cash laying around. And this will be even more important with their Metaverse strategy.
This acquisition has drawn a lot of attention though. I think most people are misunderstanding what’s really going on here. Activision owns some of the biggest gaming franchises in the world. Games like Call of Duty, Overwatch, and even Tony Hawk these games are cross-platform and widely available on PlayStation and in Nintendo consoles, but will they stay that way?
This sounds like Microsoft’s smart business move. Take Call of Duty away from PlayStation and more people will buy Xbox. But that’s actually not their strategy. See back in 2017 Microsoft launched the Xbox Game Pass which offered access to a huge library of Microsoft games, all first a single monthly fee. It was basically the Netflix model, but it marked a very significant shift in their business strategy. Before the game pass, if Microsoft bought the game studio and then made those titles exclusive to Xbox, sales would instantly start dropping. Maybe some gamers would switch from PlayStation to Xbox during the next upgrade cycle, but in general, these acquisitions would be value destructive. But now Microsoft can continue to sell games at full price on some consoles while offering these games as part of the Xbox Game Pass Bundle.
Buying Activision makes Xbox Game pass more enticing in sticky since gamers will now get all that content for free as long as they are subscribed. The second issue people get wrong about the Activision acquisition is the idea that this will create a gaming monopoly. Even though this is a huge acquisition. The game publishing market is still remarkably fragmented. Just look at this chart of game publishers by revenue. Even after combining Microsoft and Activision, Sony and Tencent will still be larger. New breakout successes happen every year in the gaming industry, so no one has complete control, at least not yet.
Compare that chart with the search engine market and you will see what I mean. Clearly, Google has a monopoly on search. No other company stands a chance against Google. But if all the game publishers that Microsoft is competing against, Facebook and Meta aren’t even listed. That’s because Zuck is only built out a few small gaming initiatives for VR and has yet to acquire any of the big gaming companies. He probably doesn’t believe that traditional sports franchises will get used to Metaverse, and this is an open question in my mind. Is the Metaverse more likely to grow out of Overwatch or some other familiar games? Or will these Metaverse experiences be built around the new intellectual property? Either way, if the Metaverse ultimately evolved from the gaming industry, Zuck is going to be in a big trouble. People might be using quest headsets to access the Metaverse and enjoy VR experiences, but Microsoft will have a massive advantage in terms of actually defining how users interact with the Metaverse.
History of Computers –
There is another path in the Metaverse though, and it’s useful here to look at how personal computers wound up in every household. Everyone wants computers in their house these days, but back when they were first released to the public, most consumers have no interest in them. These big, bulky machines were basically glorified calculators. So most people had no use for them in their home. But pretty quickly they became indispensable at work. Companies buy computers for their employees because it increases productivity. Suddenly, employees did not have to spend hours photographing paper and instead were able to store information on computers. That meant an increase in profits so all the companies pulled out. The interesting thing is that once people got used to using computers at work, they wanted to use them at home too. As the number of home computers increased, so did the need for non-functional applications such as games.
You might have bought a home computer to type up letters, but pretty quickly you want to game on that thing.It is possible that Metaverse will follow a similar pattern. First, your company buys you a virtual reality headset so you can collaborate remotely with everyone working remotely. Spending a few hundred bucks is totally worth it if it can improve productivity even a little bit. it is not uncommon for technology companies to spend thousands of dollars on corporate events. So a few 100 bucks per employee seem doable.
Zuckerberg is clearly bought into this vision and wants to make Horizon workrooms the default application for virtual work. But can he beat Microsoft?
Can Microsoft beat Facebook?
Basically, it is very difficult for companies to shift their focus from consumers to businesses. For better or worse, people just associate Meta with your crazy uncle who posts unhinged rants on Facebook every day. Now, to be fair, Facebook launched the workplace back in 2016. So they are not completely new to the industry. But Microsoft has been selling softwares to companies since the 1970s. It’s just a completely different level of experience here. And even though Microsoft is still closely associated with the Windows Desktop operating system, Satya Nadella has essentially pivoted Microsoft away from a focus on Windows and fully embraced the cloud. Microsoft understands that very few companies will exclusively stick to using PCs with Windows. Tons of people want to use Apple products. Many developers insist on running Linux. This device fragmentation was going to limit the success of any Microsoft product that required Windows to run, so they built Teams.
Most people think of Microsoft Teams as just a loose thing and obviously, some of the design elements are the same. But Microsoft is planning something much bigger with Teams. It starts by sharing documents and video chat. Basically all the normal business stuff and then slowly grows into the deeper Metaverse concepts Zuck is always talking about. And I get it. The enterprise collaboration side of things sounds way more boring than the video game side, but it really is critical to Microsoft’s Metaverse strategy. If you think about a Metaverse as a sort of mirror world where you can interact with data and applications in a more immersive way, Microsoft might honestly get there first.
For starters, Microsoft already has a suite of products that let companies create what is called digital twins. These are basically virtual representations of physical objects like manufacturing equipment, but it’s not enough to just have a 3D model of a factory. Companies want to know what each piece of equipment is doing, how much energy the plant is using, and when the latest batch of products will come off the line. This is all part of the Internet of Things that was very trendy a few years ago but never quite found a foothold with the everyday consumer besides maybe a smart thermostat here. But in a business context, these Metaverse concepts can prove remarkably useful. Once real-time factory data is syncing with the digital twin, companies can start analyzing performance metrics and even build automated systems to further increase efficiency.
The more fun this is, the more employees go and see digital twin data while traveling around the world. This is made possible by Augmented reality like Microsoft Hololens. As I mentioned before, Microsoft is moving away from a single computing platform and wants to work everywhere. That’s why you can use Teams to chat with co-workers on a Macbook. You can also stream Gears of War to your iPhone. Microsoft isn’t interested in locking you into a piece of hardware and that’s going to be a big advantage going forward. Microsoft therefore attacks Zuckerberg on both sides. They’ve got an excellent foothold with business users and they are building a massive empire over in gaming. Zuck is getting really beat up right now, but he seems to be doubling down anyway. So let’s find out why?
Predicting the future is hard, really hard. If you could do it, well, you’ll quickly become massively wealthy. There’s a problem though. Sometimes you can see the future clearly, still not be able to execute a winning strategy. That’s what happened to Bill Gates nearly 3 decades ago.
Future Prediction of Bill Gates in 1995
sThe year was 1995. Bill Gates was riding high. Everyone was buying PCs. Windows was revolutionizing workplaces and Microsoft was on track to become the most valuable company in the world. So Bill stood on stage and mapped out what he thought would come next.
He was talking about the Internet and even though we quickly stopped using the phrase information highway to describe, Bill nailed a few key predictions. He also explained how cars would have large displays with real-time maps. How customers would purchase things with their phones and have homes would have smart control. These predictions basically all came true but oddly enough not because of Microsoft. Even though Bill explained exactly how a smartphone should work. Microsoft has never been able to gain market share against Apple and Google. And the same is true for maps, payments, and even the smart home. Google and Apple are dominant in those areas. With Microsoft usually a distant third.
So what does this mean for Zuckerberg and his plans to build the Metaverse? Well, that Bill Gates presentation shows that even when your predictions about the future are correct, it doesn’t necessarily mean that you’ll win. It’s entirely possible that everything Zuck this laid out will come true. We’ll all be wearing and interfacing in virtual worlds, but Meta would wind up having nothing to do with it. Microsoft missed the mobile Internet revolution because they were too focused on the Windows operating system. Once Satya Nadella decoupled Microsoft Windows, the company could become more agile and could really start competing in new industries.