The Metaverse Is Not Hype

A data driven look at all the players in the metaverse in the US and Asia (Roblox, Meta, Fornight, Bilibili), their metrics and analyst predictions.

Ahoy Metamates!

And welcome to the inaugural issue of That’s So Meta. This newsletter looks at hard data, Wall Street analyst opinions, interviews with employees and leadership and industry competitive data. 

No hype, just facts.

A bit about me:

  • I’ve negotiated 17 D1-VP offers at Meta

  • My company, Candor, has helped over 50 people become Meta PMs

  • I help Meta employees think about their RSUs every day

  • Mark threatened to sue me once, but I forgive him 🤷🏻‍♀️

Back to our regularly scheduled content: 

Baby Mark Was A Baby Shark

Let’s start in the beginning. When I think of Meta, I think of this interview. Fundamentally, Mark’s secret sauce is seeing the future before we do, then building it before we believe him. 

2012 called - it wants its business model back

TLDR: Meta is starting to go in zombie mode 🧟

Digital advertising is a $566B TAM, projected to grow at a 13% CAGR in the next 4 years. These are big numbers but, contrary to popular opinion, advertising is not a bottomless bucket. 

In reality, for as long back as we’ve had data on advertising, it’s been around 2% of GDP. Advertising doesn’t really grow as a category- instead incumbents grow by stealing business from existing players. Like a game of musical chairs.


Meta just got lucky on timing & rode it all the way to the bank.

The IPO in 2012 was at a time when the economy was going up and to the right. Digital advertising grew 17% between ‘12-’19. VCs in the Valley were writing hundreds of millions in checks to startups, all going to Facebook ads.

But that’s ending. 

Case - point, Piper Sandler’s  deep dive into Meta revenues found that 2021 revenue growth is no longer driven by new impressions but by pricing changes. Translation: Meta is raising prices instead of growing DAUs.

“META reports y/y pricing and impression growth each quarter. The sum of pricing + impressions growth closely tracks reported ad revenue growth. From 1Q18 – 1Q22, the average difference between the two was 0.5% on a straight basis and ~3% on an absolute value basis.” 

Piper Sandler

Put super directly: Meta’s advertising business is kinda dead. 

The Three Horsemen of The Ad Apocalypse

Today the ad landscape looks something like this

TLDR: Meta will lose the digital advertising fight unless it owns its hardware platform.

Do you notice something missing? Apple. Enter Tim Cook. Machiavelli can’t step on this guy’s pinky toe. He’s on a mission to leverage Apple’s hardware dominance to crush every single player on the list above. And he’s succeeding.

Apple metrics that should scare you:

  • 47% of the US smartphone users have an Iphone

  • 87% of Gen Z are iPhone users

Most of Meta’s ARPU is in North America. Apple conveniently disabled tracking and is now investing in its own ad business. They don’t fight fair but they fight smart - hardware dominance is the most meaningful advantage in advertising for the next decade. 

But what about Android, you ask? Oh, yeah - maybe it’s a good time to say 21% of Apple’s revenue comes from Alphabet. Meta is F************CKED. 

What analysts are saying:

GOOGL advertising should hold up relatively better as search is more resilient than social, and it does not have the additional pressures from privacy changes (may actually be a benefit) and TikTok.

JP Morgan

TikTok Says The Clock

For a decade now, Meta has been trying to get into video. But they weren’t really in a hurry. And why would they be? Youtube’s ARPU is so stupidly low that it hardly felt attractive. 

Now, video is an emergency because of TikTok. They have a similar ARPU to Meta ($37 est. vs $49.13). Any Wall Street analyst with a pulse sees this as a threat, especially in the face of slowing DAUs over at Blue.

Who, other than your parents logs into Facebook Blue daily?

The sole saving grace for Meta right now is Instagram Reels. Honestly, if you work at Meta, you should be sending everyone on that team a thank you because the stock would have TANKED (yes, even more) if it wasn’t for them crushing it. 

Still - 

we all know that this is a fight Meta won’t win. They will be 2nd. Which is still $$$. But a TikTok IPO will be as emotionally intense for Mark as a colonoscopy. 

Here’s what analysts are saying:

Press reports suggest TikTok could reach ~$6B in US ad revenue this year and $11B-$12B globally.

JP Morgan

FB started to meaningfully monetize Stories within 6-9 months….with TikTok's monetization rate very low (estimated $0.06 per hour in the US compared to FB's current average of ~$0.60) we expect FB to take a pragmatic approach with monetization.

Morgan Stanley

Ideally, in this situation, if you were Mark - you’d buy up businesses that can help you grow faster than building. 

Anti- Trust Has Mark by The Balls

Tech is growing faster than government can regulate it. And political careers are made on agitating the masses against a common enemy. And who is more of a villain than a Silicon Valley engineer who thinks he’s smarter than YOU?

People largely see Mark as arrogant at best. There are probably 1M videos of conspiracy theories that he’s a reptilian overlord 👽 here from space to start a new world order. 

In fact, protecting Mark’s brand is a full time job that I hear Naomi handles with incredible grace and despite all odds. 

Antitrust means:

  • Meta can’t acquire anyone without crazy scrutiny

  • The public opinion is stacked against Mark

Honestly, if you work in tech, and you don’t have compassion for how an engineer  is getting ripped to shreds for simply being smart- there’s something wrong with you. 

F*ck Mark once, shame on him. There’s no 2nd time

All the AI in the world won’t save Meta from Apple, Google and TikTok ganging up on it. 

If anything, the fact that Meta can maintain any market share in this environment is massive testament to the AI ads teams and Reels - we will look back at this 10 years from now at a Stanford lecture. Reels is now low 20%'s of Instagram. Revenue grew ~165% Q/Q in Q2  reaching $750M in less than a year. These teams are CRUSHING. 

But the cracks are too big to ignore.

☝🏻 In all this, Meta learned a lesson. OWN THE PLATFORM. 

You may think Portal is lame. You may hate Quest. But guess what - it’s hardware. And standing that up from zero to Quest being 80% of all VR headsets is no small feat.

Apple immediately followed suit. I know a few Apple recruiters who camped out in Seattle to get FRL folks to switch teams. A hardware engineer told me that he was offered a $300K sign on before ever going for a loop. 

And then we have the patents for insanely similar tech. Please tell me how this is eerily similar to Meta’s virtual workplace:

Second Life is Baaaaaaaaack!

“The metaverse is bullshit. Some these so called metaverses have like 50 users” - Director at Meta I had drinks with last month. 

He’s not the only one. 

In fact most of my friends at Meta don’t see it. 

To be fair, the metaverse - or virtual reality, is not a new concept. In fact, it’s been around since ‘92 when Neal Stevenson wrote Snow Crash. And then, we saw it gamified with Second Life and The Sims. These attempts were way before their time but they proved two things: 

1) virtual worlds can be addictive and

2) they can be monetized and create their own economy both for developers and users. 

Facebook became popular for the same reason - people became addicted to staying updated with all the happenings in their network, then obsessed with keeping up a lifestyle that’s Instagram worthy. 

But despite its popularity, Facebook never breached the level of obsession that we saw in Second Life. There were news reports of a real life couple that became so obsessed with playing Second Life that they reportedly let their child starve, there was a Dr. Phil episode for a SL intervention, there were tens of thousands forum posts of folks pleading for help. 

And, surprisingly, even though this game is now  two decades old, people are still spending enormous time on it. Just ask this Redditor’s mom: 

One thing is for certain - the opportunity to capture engagement with virtual reality is more massive than anything we’re seen in consumer social. The only reason it hasn’t happened yet is because no one’s poured real money into it. Until now. 

Some interesting metrics around Second Life:

  • The GDP of Second Life is $650 million USD, higher than 12 other real-world nations

  • Second Life has 64M registered users, it’s 19 years old and still actively played despite its aging graphics

  • In its first 10 years of inception people spent $3.2 billion of real money in Second Life

  • Several users have virtual real estate portfolios worth multi-millions of real $ value

Yes, you can monetize it

If you think Second Life was a fluke in some obscure corner of the world - you’re wrong. We’re seeing this model re-hashed with Roblox, Minecraft and Fortnite. The data is staggering. 

Let’s start with Roblox 

The TLDR: Making lots of $, chugging to scale because of moderation problems. 

Roblox started in ‘04 as an educational app to teach kids physics. It had 11k users in its first year and 202M last year. 

  • DAUs spend 2.6 hours on platform ( vs 33 minutes Facebook)

  • Roblox generated $1.9 billion revenue in ‘21, a 107% increase year-on-year

  • Roblox paid $525 million to developers in ‘21 

  • Played by over half of American children 

The way it makes money is brilliant and kinda unregulated - is anyone at the SEC even awake?

It all centers around Robux (R$), a virtual currently Roblox issues and controls the exchange rate of.  Users buy it with real dollars and exchange it for goods on the platform, like a cooler outfit for their character. Developers get paid in Robux and have to wait for a favorable exchange to cash out. 

People love to hate on Meta’s investment in avatars and the team in Zurich is largely seen as a joke. But let me tell you, the data from Roblox shows you need to STFU:

  • 20% of users change their avatars daily

  • User generated avatars increased transactions by 250%

Currently, the marketplace is open to ~500 developers who release ~350 items per week representing ~65% of all 3D avatar item sales.”

Goldman Sachs

Roblox has also proven a use case for the metaverse past just social. Brands, across a variety of verticals, go directly to developers to put out content and limited time events. 

Gucci : “Lasted for two weeks, nearly 20mm people visited.”LilNasX: “Resulted in ~37mm+ visits, ~60mm social media views, and ~$10mm virtual merchandise sales (as of 9/30/2021).”Vans: “ To date, has attracted ~48mm+ visitors .. allowed Vans to generate an additional source of revenue through the sale of virtual items” 

Goldman Sachs

Some of those are on platform, but most of the traction is promoting in metaverse > converting to real life attendance. Meta could SHRED that space combining its existing advantage in communities and events with brand partnerships.This opens up new revenue and higher engagement for brands. 

The problem for Roblox? Moderation. Like it of not, this is another area Meta will do a better job at since they’re a decade ahead on tech capability  + policy. 

Fortnite plays for keeps

Gaming has long been the most under-funded thankless field to work in. I cringe when I see folks’ salaries. That’s because monetizing games has been a fools’ errand - content is expensive, development takes place over years and audiences are extremely niche. 

Not with Fortnite -

  • Consistent MAP of 80M ( 83.3M in ‘21)

  • 350M registered users

  • 937K concurrent players/ hour*

  • 26% of preteens in the US play Fortnite. 

  • 34% spend 6-12 hours in game/ week

*Edited to correct data. Some sources say "between 2.9 and 4 million"

The major difference in engagement is that while normal games monetize on content and access, Fortnite adds events. 

Events drive monster lock in. Average continuous time spent PER USER during an event:

  • Doomsday 2020: 11.8 hours

  • Travis Scott Astronomical: 8.09 hours

  • Party Royale ( Steve Aoki): 7.7 hours

  • Diplo Higher Ground: 6 hours

Who do you know that runs one of the largest community and events platform events in the world? Oh yeah, Meta. 

And just like we saw with Roblox, the Fortnite economy is booming:

  • 77% of users made an in-game purchase

  • 58% bought in the last year

Fortinite differentiates from other games in two key areas: they’re cross platform (10% of DAU played exclusively on iOS devices.) and they monetize content not based on DLC or gaming advantage but on avatars, skins, etc. 

You thought Meta is early? LOL, think again.

Vtubing, the name for live streaming with virtual avatars, has long been the rage in Asia. From virtual celebrities, live avatar concerts to metaverse commerce - the metaverse is alive, well and minting beaucoup bux across the pond. 

In the US, the closest we ever got to virtual celebrities was the Gorillaz in the 2000s. It was a curious indie thing. Not so in Asia. In JPMorgan’s most optimistic scenario, China’s online game market nearly triples to $131 billion from $44 billion in the next 4 years. 

Who to look out for in Asia

⚙️ Hardware incumbents for Meta Quest

  • Alibaba invested US$60m into AR glasses maker Nreal

  • Tiktok / ByteDance bought VR device start-up Pico Interactive and invested into Mycodeview, the company behind gaming platform Reworld, the Chinese Roblox.

🧔 Avatar and tubing

  • Bilibili, the leader in the vtubing space, hosts virtual stars like Hiseki Erio - 448k fans pay $30/ month to see her stream and buy her gifts. Users spend 95 minutes on platform/ day. 

🌳 Virtual world

  • Reworld, a Chinese version of Roblox, has 3,400 games and 1,800 creators. 

  • ZEPETO  in South Korea hosts 320M registered users + 2.5 billion virtual items sold.

  • NetEase had revenues of 13.92B in ‘21 and earned 2.77B profits. Growing 30% per year going back to 2010. 

🛍️ Commerce 

  • Tmall, a Chinese ecommerce platform, is massively ramping up luxury retail in the metaverse, notably hosting brands like Burberry.

  • Singapore’s V-Avenue virtual mall hosts 200 shops on the platform.

From 33 minutes to 2+ Hours

Meta brings in $117.929B annually on 33 minutes of engagement on a hardware platform they don’t own. 

Now imagine Meta with 2+ hours of engagement on a platform they own 88% market share on, Quest. 

The US Market has higher ARPU than Asia - and JP Morgan is already seeing a massive market over there: 

“JPMorgan estimates the total addressable market in China for … the metaverse will be $27 billion, while digitalizing the offline consumption of goods and services will make up a $4 trillion market in China.” 

JP Morgan for CNBC

It’s a generational opportunity to reshape consumer social for the victor. It will come down to:

  1. Attracting developers

  2. Monetizing content through community engagement

  3. Moderating at scale

  4. Owning the hardware

Competitively speaking, only Meta is positioned to solve all 4 at scale in the NorthAm market where ARPU is the meatiest. The metaverse is theirs to lose.

I leave you with this - remember when Mark bought Instagram for $1 billion? 

This didn’t age well.

Subscribe to read about detailed breakdowns of each earnings call +  these topics next:

  • The economics of WhatsApp.

- Who are the people with power building Horizon

- Why Meta’s AI investment will help it compete with TikTok

- What does it really cost to get everyone to use Quest

- New hires I’m betting on for high potential output

- Will there be layoffs or not?