Gaming Engines, Metaverse and the future of shopping

Besides the great drama, the EPIC vs App Stores battle crystallizes the growing importance of the technologies powering today’s video games. A whole set of new virtual worlds are being created and with them virtual economies. Just to put things in perspectives, in April, Fortnite counted 350m users who played a total of 3.2bn hours; impressive as this article mentioned Netflix US subscribers watched 6.1bn hours a month during quarantine. The whole catalogue of Netflix vs Fortnite…

Creating an engaging virtual world involves many elements; video game engines are foundational to it. Despite their growing importance, they are surprisingly unknown. In this post I want to explore what they are, why they matter today, and how they could permeate our lives going forward.

Video Game Engines: Foundational technologies for interactive, real-time 3D worlds

In layman’s terms, Video Game engines are broad sets of software tools leveraged by studios to create their games. They appeared with the first 3D games, back in the 1990s. They have evolved into some of the most complex applications written, inter-meshing various subsystems interacting to create the player’s virtual experience.

The heavy costs associated to maintaining these software environments forced cost mutualization through scale. Smaller developers use third-party toolboxes, whilst the largest video game publishers maintain their owns. EA uses Frostbite, originally developed by DICE. Call of Duty uses the Infinity Ward engine. EPIC and Unity offer the two major engines used by game developers today. EPIC leverage the Unreal engine for their own games, such as Fortnite. In contrast, Unity do not develop their own game. They filed an S-1 last week which is well worth reading here.

With close to thirty years of experience building 3D environments, gaming engines are now increasingly blurring the lines between the real and the virtual. EPIC’s Unreal was used in “The Mandalorian”. Sony’s TLOU2 trailer looks like an Hollywood trailer, and so does its $100m+ budget. The virtual worlds created look so similar to the real ones, it is hard to see them as the doors to the Metaverse, “a collective virtual shared space, created by the convergence of virtually enhanced physical reality and physically persistent virtual space, including the sum of all virtual worlds, augmented reality, and the Internet “.

Unlocking large economies

Building engaging virtual worlds leads to vast monetization opportunities. When gamers spend 3h a day in a virtual world, the “skins” sold in these games become a natural extension of the gamer’s wardrobe. Non-gamers often struggle to understand why anyone would pay for a virtual dress; but this is an extension of the gamer’s personality. It is no different, in my opinion, to buying a Louis Vuitton handbag. It is a statement about oneself, with no link to anything physically useful.

As the game develop, so do the opportunities to create whole virtual economies. The music majors are noticing, as highlighted by the recent Sony investment in EPIC. Fortnite recently staged a virtual Travis Scott gig with 12m viewers. I am sure somebody is already working on creating the “Spotify of the Metaverse”.

Powerfully rendering interactive real-time 3D content has plenty of applications beyond gaming or movie making. Indeed, Unity notes in its S1 a $12bn addressable market for game development AND a $17bn addressable market in “industries beyond gaming”. Whether that becomes a reality or not does not matter what matters is that they are already being used outside of gaming, in automobile and engineering for instance.

Powering the Metaverse

Since 2007, the smartphone has become the main device with which we access the Internet. Apple, Facebook, Microsoft, and others are hard at work prototyping the next computing device. The consensus seems to center on AR/VR devices, such as Oculus Rift, or Apple own glasses. The Apple version is set to hit the market sometime in 2022/2023. They will enable immersive experiences critical to democratizing the Metaverse. The fight between EPIC and the App Stores must be viewed with that in mind.

With the experience of COVID, one should easily see the power of this vision. Facetime/Skype or Zoom meetings are fine; but imagine how much better would the experience be if it could happen in a virtual world, with richer body language, and simply, a dedicated virtual environment (simulating a meeting room with white boards etc…).

Finally, these virtual worlds might change the way we shop. With TikTok we are already seeing how the content is finding us rather than the other way around. Similarly, in the fashion industry, Stitch Fix has a vision of creating one-to-one personalization to clients through data science. How about combining this with a virtual shop in a virtual world to create one’s own unique experience of the retail shop. That would be much more efficient and pleasing than having to go to the shop, struggle to find the right stuff, and buy a sub-optimal item. Gaming engines can be instrumental in creating these experiences, and the operators of these virtual worlds will also own the virtual real estate. That opens a myriad of monetization opportunities…

Originally published at https://kinesisinvesting.com on August 30, 2020.

I am a fund manager. I focus on quantamental equity investing. I specialize in the Technology sector