Welcome to Threshold! Your weekly guide to understanding "metaverse" ambitions from Big Tech and the path to commercial viability of AR/VR hardware for mainstream consumers. As we spend more and more time in virtual worlds, and those worlds become more convincing with the advance of AR/VR technologies, there will eventually be a threshold we pass. It's where the virtual becomes more convincing and important than the physical. Are we there already?

Here's what happened last week, online:

Pixel Prospecting

The least surprising news of the week was a The Information report about plummeting value of "metaverse" land plots in virtual worlds like Sandbox, Decentraland, and SuperWorld. In June, total trading volume is down 97% from its peak in November and average sale price is down 80% from its peak in February.

As speculative asset classes of crypto and NFT's continue to cool, I think there is a more important factor to mention: density of activity. It's why downtowns and urban hubs carry higher real estate values IRL. Take Dubai, a bizarre prospective city built on attracting tourism, but with very few dense areas that feel bustling. Imaginitive mega or smart cities, like Disney's EPCOT, Google's Sidewalk Labs, or Saudi Arabia's "The Line" haven't yet shown a playbook for success.

To bring value to digital land, those spaces will need things to do that attract potential players to maintain value for their pixel prospectors. To avoid more empty jazz clubs and boring concerts in the metaverse, digital spaces should mimic what Rec Room and Horizon Worlds are doing to collapse more users into smaller areas. Usually this also means bumping avatar elbows with strangers across ages, which brings the expected range of moderation and safety challenges.

Crunch Time for Metamates

Much was reported about Zuckerberg's new period of "Operating with Increased Intensity" for Meta and its employees. There is no easy answer here for what the company's internal culture needs, but the clock is ticking to diversify its business away from ad dollars. Turning to a period of "crunch" for the company might generate some short-term productivity, but I worry the larger culture of innovation at the company might falter.

Historically, Facebook has acquired and optimized its best ideas and consolidated them into its incredible infrastructure, which I tweeted about:

Cody Woputz 🥽 @woputz

9/ @ID_AA_Carmack said it best in 2015, “There is so much value in Facebook’s infra that I feel we should bend our strategies around using it as much as possible.” Meta should charge for infra and make it a platform companies actually want to build their virtual worlds atop.

5:27 PM ∙ Jul 29, 2022

For the sake of time, I think Meta should instead be partnering with content and creative experts to build its metaverse, not crafting it from scratch like a theoretical smart city. Walt Disney managed to pull it off with Disneyland, but only because it had the entire flywheel of Disney Studios creative behind its back.

Meta should take their "world class infra" and incentivize larger external studios to give people more reasons to spend casual time in a headset.

Why not deeply partner with a struggling Netflix? I want an entirely digital Netflixland, that is only accessible via a Quest for other Netflix members (hopefully, other verified adults and entertainment junkies).

Gym Class Slam Dunks Seed

In the first investment of A16z's $600M GAME FUND ONE, Andrew Chen lead an $8M Seed round in Gym Class (YC Summer '22), a VR app where you play basketball with friends. It's exciting to see a sizable VR seed deal happen in 2022, and it signals what investors will be looking for in content studios: casual, yet focused social interaction. A16z calls this "VR Recess" and it's becoming a much more exciting class of VR apps than zombie shooters:

Jack Soslow @JackSoslow

This is a common usecase of VR. It is what we call "VR Recess" Users will leverage a game's mechanics as a lightweight social scaffold. Imagine recess as a youth, the games you played were less about the game itself, and moreso about the 'play'.

10:02 PM ∙ Aug 2, 2022

Given the cooling of VR investment today from where it was in 2016, this is one of the bigger venture deals that doesn't lean into location-based entertainment (Sandbox VR, Dreamscape). After trying Gym Class via App Lab, I can say their team is intentionally building with monetization from the start (perhaps too aggressively, I wouldn't pay *$10 for it, yet).

The main challenge for Gym Class will be how to expand its fun (dunking!) mechanics to users more susceptible to cybersickness. I don't agree with the rhetoric enthusiasts push that say users should just "get their VR legs" if they want to enjoy VR. That won't scale to the mainstream. Gorilla Tag (like Gym Class) exports crazy fun looking content for Tik Tok, but is far too intense for the more casual user to play. Gym Class has a solid founder team, and I'm excited to see where they go!

We're Still Meeting Online

The documentary "We Met in Virtual Reality" hit HBO, which was filmed entirely in VR Chat. I've been traveling so haven't had the chance to watch it, yet. It instantly reminded me of Life 2.0, a documentary that was filmed mostly in Second Life, back in 2010. Both chronicle the way humans choose a life more online.

Yes, we've been meeting each other online now for a few decades. Yes, the formats and technologies are changing, becoming more "immersive." But just last week, the Match Group (Tinder) CEO Bernard Kim expressed its reservations to pushing forward with immersive technology, claiming "uncertainty about the ultimate contours of the metaverse and what will or won’t work."

Dating apps are still very much a platform to meet IRL (I met my now wife on Tinder). Widespread adoption of AR/VR will be closer when we not only match with users on a dating app, but go on dates virtually, too. These behaviors will be a threshold to watch closely, and "We Met in Virtual Reality" gives us a perspective into how VR is playing an early role.

THE TIME IS NOW

Most importantly, let's not overlook the news that John Cena is now in Fortnite. Although I really wish he had "Blockers" movie variant to wear, too!

Quote of the Week

"These replacement realities, whether the much written-about Second Life or virtual reality headsets, never quite make it to anything resembling widespread adoption. They are usually a proof of concept for the next thing, but when the next thing comes, it inevitably reverts to another proof of concept for yet another next thing."

-Jay Caspian Kang, "What Is It Like to Be a Cat?" (NYT)

*Correction: Gym Class noted it’s $10 to unlock GM mode once, not a reoccurring subscription of $10/mo. I originally misunderstood that in App Lab!