‘Metaverse’ — Gaming’s Big Break?

November 12, 2023

A few months ago, I finished reading Matthew Ball's Metaverse and jotted down some thoughts on the topic in a blog post. However, I stopped working on the blog that post was on shortly after. I felt like I had few things I wanted to say in that post, but my ideas were not well articulated. Now, I am revisiting and refining them.

The ‘metaverse’ has gained significant attention from players in the gaming space. Partly because they see it as a chance to prove their worth and compete with their tech counterparts. The gaming industry, with a projected revenue of US $250 billion. Yet, this number is dwarfed by the trillions generated by the tech industry. While this comparison is flawed, it highlights why many in the gaming space hoped the ‘metaverse’ as their big break to take on the internet and tech, and that they need to seize the moment.

So, if we imagine a future where the ‘metaverse’ does become an exciting addition, substitution, or evolution to today's internet. Will gaming emerge victorious over tech in this process?

I have serious doubts.

From a product perspective, the gaming industry has released many unfinished games recently, often resulting in launch day disasters. Take No Man's Sky, Fallout 76, Anthem, or Cyberpunk 2077, just to name a few. On the other hand, their tech counterparts have shown more consistency. For example, when Threads was launched, it gained a record-breaking 40 million sign-ups on the first day. Despite some users reporting crash issues and glitches, the launch went mostly smoothly. Sure, Mr. Musk is burning down X as we speak. But that one is intentional.

Don't misunderstand; the majority of games are excellent and launch without a hitch. However, the issue of inconsistency in the gaming industry is real and has undermined consumer confidence. It also highlights the distinct challenges faced by the gaming industry compared to tech. Tech's success is partly due to its disruptive nature. Initially, it offers products or services that may provide the same or slightly inferior experiences compared to existing ones, but at a fraction of the price. This strategy attracts price-sensitive consumers who don't value the additional services provided by incumbents. Over time, technological advancements enable disruptors to improve both their products and operational efficiency, eventually winning over the entire market.

Yet, none of this applies to gaming. The costs for AAA game development have skyrocketed despite technological advancements. The absence of efficiency gain can be partly explained by a combination of inflation and the stagnant pricing of games. But the primary driver is the cost of art assets, such as 3D models, textures, animation, rigging, and sound. As technology allows studios to aim for ever more ambitious projects, the cost of creating these intricate art assets does not scale proportionately, leading to ever-rising development expenses.

To understand the magnitude of these costs, consider the example of a basic 3D character for a simple student capstone project. If students were compensated for their work, the creation of just this one character could amount to around $1720.

1 conceptual artist          x  5 hours
1 modler                     x 15 hours
1 texture artist             x 10 hours
1 animator/rigger            x 10 hours
Total: 40 hours
Asset  Main Character
Time required  40 hours
Man-month  $7475
Man-hour $43
Asset cost $1720

This high-cost structure has led publishers and studios to outsource art creation, often to countries with lower rates, raising ethical concerns about unfair treatments.

The gaming industry's hit-driven nature, despite the high development costs, actually works to the advantage of large studios and publishers. Joost Van Dreunen's observation in "One Up" highlights this dynamic:

”Strongly hit-driven success is another defining aspect of the games business. A popular title will generate disproportionally more revenue than its immediate peers... In 2018, FIFA 18 was the top-grossing title in the sports category on console with $723 million out of more than $2 billion for the entire top ten, or 28 percent… Succinctly put, for every blowout success, dozens of titles fail to deliver on expectations. The winner-takes-most aspect of game publishing means that an organization is either doing really well or dying."

This meant established publishers like EA, which boast a portfolio of hit series, benefit from stable revenues. This financial stability allows them to reinvest comfortably in both in-house and outside studios to create the next hits, bearing relatively low risks. This creates a significant competitive moat and provides these publishers with considerable leverage over other studios.

This also meant players have diminished leverage against big gaming studios. So it doesn’t really matter when a studio fucked up their post-apocalyptic MMORPG. You still gonna play their Sci-Fi RPG because they are the few ones who have deep enough pocket to make a game at that scale.

However, this very nature of the gaming industry might be its Achilles' heel in a face-off with tech. Companies with big moats, often lose sight of the need for operational efficiency, leaving them vulnerable to disruption. This places the gaming industry at a potential disadvantage, challenging its ability to compete effectively with its tech counterparts in this new digital frontier.

And a disruptive technology might already be here. Generative AI like Midjourney, DALL-E, and Stable Diffusion have been proven to be able to do remarkable things despite poor taste. However, exploring the full implications of generative AI for games is a vast topic in itself, and should be left for another day.

The death of metaverse hype
The death of metaverse hype

I didn’t buy the ‘metaverse’ hype a little over two years ago. And I certainly don’t buy it now. But I think it’s a topic that is set to come back in due time. And it’s easier to write about it when the heat is off.