Summit | Welcome to the Metaverse: A Fireside chat with Matthew Ball & Jonathan Glick

[Music] [Applause] [Music] ready for our next talk so without further ado i'd like to welcome effie ball and jonathan click um to come on and uh have this amazing chat about what is happening with universe around here i want to quickly do a brief introduction and i'll let jonathan uh take over from there but uh matthew ball he's the ceo of papillion and it's a reverse focused holding company which invests and advises in situations growth companies and he also created uh round hill ball um metaverse etf um in collaboration with jonathan and jonathan invests in the intersection of metaverse and public protocols and he's also an advisor to many of the world's largest media companies uh sport leagues and blockchains so jonathan matthew welcome and uh i'll let you take off and uh also you're excited about it all right hi everybody um hi matt how are you i'm good good i'm good uh okay so uh we're here to talk about uh the metaverse and so let's let's um uh first uh thank our hosts and and uh and uh thank cardik for having us so um we can have this enjoyable conversation but with that out of the way why don't you um uh give us your understanding of what the metaverse is and why it matters sure so i'll start with why it matters in the economic sense then i'll move into the societal and then we'll move into the topic at hand the first and foremost anchoring is to understand it as a successor state to today's computing and networking paradigm and conventions we've had three antecedent waves the first was the rise of mainframe computing and networking in the 1950s through the late 1970s succeeded by personal computing and the coincident rise of tcpip or the internet protocol suite succeeded of course by the era we're in right now mobile and cloud for which the social giants or web 2 as we broadly describe it rule we're now at the advent of the metaverse i typically describe it as the following a massively scaled and interoperable network of real-time rendered 3d virtual worlds which can be experienced synchronously and persistently by effectively everyone online while supporting and this is key to the interoperability element continuity of data such as objects identity payments and history why does it matter well from an economic perspective we can understand that every single time we've had this networking and computing shift we've seen massive value transformation we've also seen the digital economy grow those two things leave the opportunity for new companies but also for users for developers for consumers for voters and governments to actually change how society is organized which companies rule but also the principles and so right now we're seeing this concurrent wave of decentralization while we see this shift towards the metaverse and that's actually where so many are excited about the idea that it's not just new technology it's not just open source or uncontrolled technology it's an opportunity for everyone to say things can be different we can be more involved our rights our data ownership can be better thank you so as you said the the era that we're we're in now and we're i suppose leaving in you know as we progress towards the mataverse is one that among other things was led by social media and social networks to what extent um are social networks like the metaverse are they are they the parents of the metaverse cousins too how will social networks and the metaverse coexist or will one replace the other i think there's a few different ways to think about this number one is when it comes to social interactions online we've seen this progression towards the metaverse across the last several decades in the 1980s and 1990s when you and i first started using the internet of course how did we interact online we interacted via a username or an email address by typing in text it was an asynchronous experience every time that computer memory or broadband or latency improved we started moving to more featured more media-rich forms of interaction at first that was just having a website then it was a web blog then it was a social media page then shifting towards ugc video or constant streams of relatively high definition content that's your tick tock or your instagram stories online interaction really underpins most of what we do online but then critically as those opportunities have expanded we see that ugc or that content which is built on top of these applications and underlying technologies is paramount most of the social networking content is not created by the platform not endorsed by it and of course we saw news yesterday that youtube yet again is generating more ad revenue from ugc content with a wide distribution than netflix or disney have and so in many regards we can think of social networks as that antecedent towards where we're going but it's also very clear that digital communities especially those organic scrappy often strange ones and then video game communities and collectives a lot of what we see in discord today still chat based and audio based are at least the more spiritual antecedents towards this next generation metaverse but we should think about it as community evolving changing adding more functionality and in particular collectivizing in unique ways in this instance around the aggregation of capital so with that in mind and and perhaps in the context of yesterday's facebook results um do you think it's likely that social networks have us an advantage uh to in the metaverse will they be able to to port their their social graph and their um their their their rich data into the metaverse to have an enduring benefit there well so let's talk about two things about the meta platforms announcement that actually validates their shift and refocus on the metaverse number one is they identified that there was going to be a 10 billion dollar operating cash flow hit this year as a result of apple's att policy shifts that's not unique to apple snapchat has lost roughly 70 of its market cap that's a good example of why people don't like the gatekeepers many don't like facebook but we're seeing the seventh largest company at on earth lose 10 billion in one year due to the policy changes of a dominant platform one that happens 14 years after said platform was announced the other thing that we saw was the first ever decline in their users mark has previously said that the primary problem is not decreasing engagement of facebook products from generations such as you and i but in fact non-engagement from younger generations we know where younger gen z gen alpha users are they're on roblox they're on discord and so the challenges that meta platforms is are encountering is exactly inclined to why he's focused on the metaverse and why he's focused on his own hardware platforms avoid gatekeeping and go to where the audience is it's doubtlessly true that meta platforms has extraordinary advantages still 50 billion per year in operating cash flow they're investing 12 billion a year in hardware any platform with 3 billion maus 2 billion daus and the dominant destination online has their advantages but what's important here is we've seen this story before microsoft released their internet title wave memo in 1995 reiterated in 1998 they were first to market in mobile they believed in the internet they believed in mobile and yet they were supplanted in most online services in the web browser and destroyed in mobile shutting down in 2012 or 2014 why because resources and conviction are not enough you have to have the right premises and most importantly you have to be able to attract developers and users that was the primary problem with microsoft not just the bet on the fact that mobile phones would be the secondary not primary device that you would generate money from licensing your operating system rather than software distribution not that they just bet on physical keyboards rather than touch screens not just that they bet on businesses not consumer users it's that they fundamentally could not attract developers to their platform and thus it was like an empty mall and so i think we can see a lot of validation in mark's approach and meta platforms but we've seen this before if you can't get developers you cannot get users and that identity system that they have doesn't generate the content and doesn't attract the developers in and of itself so so on that and and connected to this this role that apple has played in changing the nature of the ad ecosystem um should we understand apple as a hindrance to the development of the metaverse or are they perhaps an accelerator it's an interesting question and look there is to some extent a false distinction between centralization and decentralization of vertical integration and control versus disaggregation it's very obvious that we're not for apple in 2007 with its tight integration of software and hardware distribution and payments the mobile ecosystem today would be smaller than it is it would be less lucrative the challenge is of course how things change over time right now it's obvious that in a number of different ways apple is curbing the growth of the digital economy not necessarily in just bad ways but certainly in ways that protect their hegemony we see this in their ability to control certain technologies certain business models the take rates are obviously observed and there's just no compatibility with the nft ecosystem and their in-app billing policy the fact that they say that you can purchase bitcoin in robinhood but you can't purchase an nft is absurd the fact that they're arguing that a cryptocurrency versus a token behind a jpeg is a meaningful differentiation is obviously absurd and of course were we too fractionalized in nft into many tokens that are fungible they somehow represent exactly the reason why bitcoin or ethereum can be purchased in robinhood and yet they're blocked because they're seen to be competitive with the app store again every platform has the right to choose what they want but right now their control and influence is so great that they can shape the rest of the world i think if there's one reason to be encouraged by the communities and organizations we're seeing right now is that there are so many users who are saying that's fine you're saying i can't have a native application that runs on the blockchain or uses nft i'd rather have a more primitive browser-based experience that does have the values then a more graphically rendered one that is curved where the 30 take rate goes to apple so i think we're seeing these natural economic effects of bad policies will eventually come to harm or at least come to change that policy some of the sharpest critics of apple's gatekeeping role have been video game companies like like epic fortnite what percentage of the metaverse do you think will be video game-like experiences it's a good question if we're talking about virtual communities and in particular real-time rendered experiences then it's very obvious that to the extent in which we'd say the metaverse looks like something that came before it it will look very much like the video game world i think one of the reasons why that's important is let's think about one of the primary differences between social media and games social media is designed from an algorithmic perspective to sustain engagement the goal of the 15th minute on youtube is to earn the 16th minute it's to earn the 17th minute thereafter it's actually one of the reasons why many of us use social networks and don't feel good about it but we're still stuck doing so why do we use games well we don't play a game because we feel bad we only play it because we feel good it's in the name and so one of the reasons why gaming companies seem to be so foundational is because the technology real time rendering virtual communities virtual worlds and virtual spaces are so obviously the precursor but the second is design and culture principle they create places we want to be not feedback loops that keep us addicted so what do you think the potential is for for for the blockchain in video game spaces because presumably that tells us at least something about the connection that the blockchain will have to the future of the metaverse i think we can think about it in three ways or at least that's the way that i do first of all is the dow and smart contract structure and that has two sub components one is to recognize that every time we have a massive leap in the ability to congregate aggregate share and pool resources resources however you want to define it time attention spend computing resources we tend to see revolution and the more efficient that is the more efficient and healthy and dynamic the economy is the second component of that is to recognize that if we ever need to contend to the you know multi-trillion dollar power of large corporations we need to do that in a manner that actually draws upon the collectively greater value and resources of the users and developers and communities that's a really important part the second thing that we can understand here is the way in which at least the principles that we're seeing in the blockchain are educating and inspiring the rest of the ecosystem there has long been this question do people want virtual good ownership rights do they want the ability to trade do they want the ability to take it from a to b those have been open questions and one of the problems is even if you believe the answer was yes you had to convince others and you had to invest to achieve that irrespective of the degree of speculation it's inarguable that we have seen that those user rights plus the confidence that when you're told you own something you do own something has led the rest of the gaming ecosystem to understand that those things are valuable more importantly understand that those values are good for everyone in the ecosystem and so in that regard blockchain is an important illuminator the third is the way in which it starts to solve that from a technical perspective again this has two sub-components one is as we see more and more companies hooking into nfts or cryptocurrencies we start to achieve a common technology and standard to facilitate exactly what i just mentioned before i was talking about the philosophy and design principles now we're talking about the technical solution the second component is to understand that one of the reasons why so many have been fearful of interoperation is the belief that their economies will crash that's still tricky i mean look we're decades into globalization we still don't exactly know how to onboard a different marketer given protection or to unwind but the fact that we can use smart contracts that we have trustless arrangements that cost very little helps the fact that someone can produce an asset for their game and then continue to benefit from its use or sale after even outside of their ecosystem gives all potential market participants a belief that if they opt into this system they won't be the loser in fact they'll continue to benefit as the product they created produces benefit and so we see really three different things the users empowered the philosophy being affected and the technical solution of course we are very far from having that technical solution sufficient of course most files aren't stored on the blockchain the fact that you have an asset there does not mean that all of the necessary data to use that asset in a 3d environment or even a 2d environment are there but with progress and consumer demand we start to solve those problems in time but most importantly it's the philosophy that's going to matter why do you think that so much of the video game user community has been so hostile to nfts do you think that opinion will be enduring and and what does that tell us about the role that existing video game communities might have in the metaverse if it's based on blockchain principles three answers number one is the gaming community has always been a particularly vocal and engaged community and so that naturally means that they're more skeptical they're more vocal than you just see in other categories we don't see movie fans get as upset and part of that is just habitual and i don't mean that in a pejorative way to criticize the gaming community in fact the gaming community has been very successful at changing policies that have been excessive in the micro transaction space we just went through a decade of excessive micro transactions and loot boxes and it's no surprise that as we see the rush to nft they're saying at minimum do not want it and at maximum or at maximum do not want it at minimum please slow it down this connects to the second thing which is i have net never before seen such a rush from major publishers to say we're doing this and here's the financial return before justifying it earning it from any product standpoint you have to start with a community you have to start with value you didn't see dapper labs telling people that hey top shots are on blockchain and therefore it's valuable stop doing this old thing this is a better revenue model they just made a good product i'm not going to say that the gaming community is ever going to be excited about nfts but as with micro transactions live services and subscriptions start with the product earn trust don't offer it as a thing to shareholders that will generate greater revenues and don't tell users all of a sudden you should play this game so that you can generate an income start from something fun and playable and then the third thing is also cultural look the gaming community has existed for decades it's relatively recent that they were anything other than looked down upon and ignored and so it's no surprise that people for whom gaming is close to their identity myself included who now see this influx of wall street of the large mutual funds rushing into cryptocurrency then the ceos releasing memos to shareholders saying we're going to increase revenue by selling things to these users simultaneously seeing m a of their long beloved studios and publishers going to tech companies to build multi-trillion dollar mouse traps i totally get it uh it's it feels invasive often and that exacerbates the aforementioned problem of starting revenue first not product or experience first a lot of the criticisms both from the community and from other external analysts have centered on the concept of play to earn uh the notion that you could play games and make money from them um where crypto games have been really successful that seems to have been a component and it's inarguably part of the criticism that you hear from gamers that that sounds like work and isn't isn't a game anymore um you're an investor you invest in video games do you invest in play to earn i haven't invested in any games that i would consider to be played i think play and earn which is an increasingly popular distinction can be viable but we have to start from a few premises first and foremost look you and i have discussed this before it was no surprise to me when axi infinity started going to sub subsistence and sub average wages why because this is the nature of any competitive market there is a belief that pure play to earn games on average will always offer less than minimum wage and average wages why because you have absolute mobility of laborers you have no fixed cost in the sense that you don't need an office and the onboarding is immediate you don't need to fill out paperwork naturally the loss of all barriers of the reduction of all barriers will really will result in more competition and so that doesn't surprise me and of course financially i probably should have made more bets than i did but ultimately we have to think of it in the following mechanisms which reward people for the provision of anything valuable is important and we don't typically have that in virtual worlds the ability to design a game around work like incentives is actually distinct from whether or not something that someone does or earns or builds in a game has value no one debates that developers who add something in roblox should be compensated i think the distinction is when the game is played is based around income and when the purpose of or the value created and extracted comes from the uncovering of code that was deliberately buried that actually does not produce much value but we're seeing a lot of companies that are saying look can we use tokens or other incentives that say jonathan when you host something when you build something when you create something when you contribute to something when you organize when you design or perhaps when you sell something you earn through your success and play that produces income that all makes sense why because we're saying there is genuine value that's created and so finding this is going to take time discovering automatically and new economic model that uses marginal costs without suffering from the marginal addition of labor is going to take time so you've written a lot about this this topic of you know what the ingredients of a successful entertainment business are and what gives entertainment companies you know lasting advantages as we look towards the metaverse and as we examine the successes and failures we've had so far with the blockchain what do you look for in an entertainment or media company that is optimizing itself for that future it's a great question and we've seen versions of this repeat several times at a basic level i always focus on this idea of love which is intangible but you should think about it as the operating leverage for a business simply put it doesn't cost you any more to make something that someone loves but the more that they love it the more that they spend on it it's the difference between telling your daughter an elsa dress at forty dollars is too much and recognizing that your daughter just truly needs that else address that can come from high quality creative but it also comes from the engagement of the audience it's the reason why going to disneyland is so impactful nothing compares to a child being hugged by their heroes but it also connects to whether or not a community feels invested feels heard and is a contributor around the world but in particular in asia and southeast asia we have seen intellectual property owners a lot more invested in their community and a lot more liberal with whether or not the community members and independent storytellers can use that ip to tell stories and be paid for it and so when you see i think they announced that wme or caa was now representing some board apes when you see that that's starting to be used in an intellectual property i'm not a believer that we're going to see crypto native entertainment franchises reign supreme but we are going to see some sort of structure through which all entertainment companies say we have to focus more on what the audience wants to do what they own how they use our intellectual property they have to be heard and most importantly we need to find a way to compensate them for creating value for driving more love and for wanting to be involved storytellers you and i grew up imagining fantasy tales we couldn't share them with anyone no one benefited from that we now have those structures so directly following on that what advice would you give to um developers dreamers who are uh fascinated by the unique affordances of the metaverse and of the blockchain and want to build something amazing for the future what advice would you give them the biggest challenge that i see right now is you know not all together dissimilar from the play to earn element which is most of the most famous franchises today began as very pulpy inexpensive mediums that everyone participated in one of the challenges with the fluidity of the blockchain ecosystem right now is frankly that the most valuable things go to either the people who are first or the people who have the most money to be able to come in late that's actually not a good system for community-based storytelling we should not separate the community as in a vocal group of discord members who are among the 4 000 to own a pfp collection ip is actually a very very broadly distributed idea it has to reach millions and so this question of how do you actually cultivate a community that has value that recognizes the extraordinary contributions and value of a given nft or pfp while making sure that it's within reach of the average people uh average person is the big challenge here what we see is in effect a new version of the oldest problem which is when do you prioritize revenue maximization versus reach it's typically reached that precedes revenue maximization but there's always an inclination towards revenue before reach if you take a look at the primary challenge that most sports leagues have gotten themselves into it's that all of the tickets go to the wealthiest buyers and that actually is not a good way to sustain or build up generational love it's certainly not a good way to be a mass media product it's good in the short term but if the average person can't participate they can't share it with their friends their family their parents or their kids i think that's going to be the big tension now it's also why you see the large ip owners for good or for worse trying to take a more democratic approach to pfps and nfts they may not understand the dynamics of the community nearly as well as those who are native to it that's doubtlessly true but they're a lot less focused on how high things can go or even how in control market dynamics are of bid versus ask this is great thank you matt um kartik yep um i know we're at time uh we have a couple of questions in the audience but i'll just pick one that encompasses a collection of a couple of the other ones and so the question is around just gatekeeping overall you've already kind of covered apple here but are we fundamentally submitting to the fact that this whole cream doesn't become a reality unless the hardware manufacturers are bought in and they are agreeing to this thing we do we just see verticalization on everybody's going to come up with their own devices and maybe we'll just have a fragmented world and just what happens in that so it's starting to change look you can install some blockchain based applications on android obviously we can do that on pc sandbox is not struggling despite the fact it's not distributed on smartphones the oculus suite is fairly open it's using webxr and openxr facebook has committed to keeping that open that can change at any point but it is open more recently microsoft announced that you would be able to use its web browser to stream from google stadia and from amazon's luna uh among others without using the xbox live player network or the xbox store you can use blockchain and crypto based games so we are seeing some progress to openness i'm mostly hopeful that we're going to see regulators start to unbundle the app store that seems inevitable it's a question of to what degree and when and so i'm hopeful but look ultimately these are rational businesses the larger the blockchain economy the more fervent the economy is right the more we'll see change over time sounds sounds perfect i absolutely agree um well i want to take too much of your time thank you so much to both of you for making this amazing conversation happen and jonathan really appreciate you moderating see you everyone see ya thanks [Music] [Applause] [Music]