Dubai and Saudi Arabia’s Metaverse ambitions do make for a sound business case
The Metaverse represents the next step in the evolution of the Internet, with game-changing innovation that will affect various aspects of our lives. Still at an early stage in its development, there are competing definitions of what exactly the Metaverse is, should be, or can be.
What is generally agreed upon is that the Metaverse will bring together all the elements of our digital age into an immersive experience, creating a seamless convergence of our digital and physical lives. And it is happening at an increasing speed.
As an investment theme, the Metaverse goes beyond social and gaming platforms with virtual reality (VR) headsets and personalized experiences enriched by augmented reality (AR). The investable universe includes a wide range of existing industries and sectors, with opportunities across the spectrum of market capitalization.
Beyond what we see today, the Metaverse presents a huge economic opportunity for innovative companies that can help facilitate, create, or profit from the growth of immersive virtual worlds. McKinsey estimates the Metaverse has the potential to generate up to $5 trillion in value by 2030. Also encouraging is that progress is being made in the development of policies, technologies and regulatory frameworks specifically designed to assist with growth and oversight about this realm.
In the Middle East, the Metaverse ecosystem is supported by a series of recently announced government strategies and regulations. The Dubai Metaverse Strategy, for example, is a concerted approach to foster innovation, cultivate Metaverse-specific talent and forge a rich value chain that brings tangible socio-economic benefits. These outcomes – it is hoped – will turn Dubai into one of the world’s Top 10 Metaverse economies, worth $4 billion and 42,000 virtual jobs. Saudi Arabia has announced plans to invest $6 billion in advanced technology, including a $1 billion fund for the Metaverse.
Such significant investments could be smart, given the region’s reputation as an enthusiastic place for early technology adoption. Recent reports say that 94 percent of businesses in the Middle East are already comfortable with the concept of holding virtual reality meetings. It also indicates that 82 percent of Middle Eastern firms can imagine their company introducing virtual reality in work processes, and 79 percent are ready to participate in virtual reality meetings versus video calls.
Age of Web 3.0
However, meeting the region’s appetite for Metaverse experiences requires building real-time, 3D, persistent, large-scale virtual worlds and environments. Creating this requires significant investment and innovation in data, networking, cloud, augmented reality hardware and software, and edge computing capabilities far beyond what we have today. Much of this infrastructure is also intimately connected to the construction of Web 3.0 – the next generation of the Internet.
Many argue that Web 3.0 is fundamental to the realization of the Metaverse, powered by AI-driven services and a decentralized data architecture built on blockchain, machine learning and ubiquitous connectivity. Faster connection speeds will be required, with bandwidth and latency two key areas where we need to see improvement.
Building 5G wireless infrastructure continues to have enormous growth potential. Ericsson estimates the opportunity presented by 5G fixed wireless access at $5 billion in 2022, growing to $21 billion in 2025 and $53 billion by 2030.
Web 3.0 also means that the world’s dominant technology and internet companies will no longer own and control all of our data. In plain language, this means that all the data obtained from mobile phones, computers, smart devices and sensors will be owned by users and sold through decentralized data networks. The emergence of this AI-powered Internet 3.0 ecosystem presents technology companies, emerging digital innovators and investors with a range of opportunities.
Making funds available
Across the MEA region, we are already seeing a growing number of opportunities and funds. Dubai has around 1,000 blockchain and Metaverse-based companies and start-ups. In computing, there may be opportunities for portfolios to include logic, memory, equipment manufacturers, semiconductor chip design companies, foundries, and related equipment companies.
Companies that develop Metaverse hardware, such as virtual reality headsets, haptic accessories, tablets and smartphones, sensors and scanners, can also appear in a robust Metaverse fund. Further down the value chain we can see opportunities to invest in ‘over the top’ providers such as content developers, services and assets.
Just the components and hardware elements of the Metaverse value chain are expected to grow at a 43 percent CAGR (compound annual growth rate) over the next decade, reaching c. $300 billion by 2025 and $830 billion by 2028, with some estimates expecting it to be a trillion-dollar market in the next decade.
While the scope and breadth of such opportunities are undoubtedly great, the growth forecasts can vary and sometimes be contradictory. Investment in Metaverse-related start-ups and pioneers at such a nascent stage of the Metaverse’s evolution should therefore be approached with caution. Any approach must be highly selective, balanced and developed using insight and extensive due diligence.
Investors should also aim to be diversified across the Metaverse value chain, with weights in areas such as hardware, computing, networking and content services. Crucially, any approach to investment in this area must be informed by risk review, compliance and emerging ESG (Environmental, Social and Governance) considerations. Care and caution are crucial adverbs for potential success within this most exciting emerging industry.
