I had the pleasure last week of speaking with Matthew Ball, a prolific writer, investor, and respected thinker in the interactive media space. The backdrop of our discussion is Matthew’s upcoming book, The Metaverse: And How it Will Revolutionize Everything, which is currently available for pre-order and will be available for sale on July 19th.
In this podcast, I speak with Matthew about the economics of the Metaverse: what are the parameters of commerce when resources are infinite and the only constraints to production and economic output are human ingenuity? In our conversation, we also discuss Apple and the path to open economic systems, the role that games play in making new technologies ubiquitous, and how absolute replicability impacts our understanding of legal protections, among other topics. The interview is transcribed below, and it has been edited slightly for clarity.
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Eric Seufert:
Welcome to the Mobile Dev Memo podcast. I am your host, Eric Seufert. Today I’m speaking with Matthew Ball. Matthew is an investor, esteemed thinker, and now author whose first book, The Metaverse: And How it Will Revolutionize Everything, is currently available for pre-order and will officially be on sale on July 19th. Matthew is one of my favorite thinkers in the gaming and interactive media space. And he also serves as a venture partner to Makers Fund with my friends, Jay Michael, and Archie Matthew previously held strategy roles at Amazon studios and the Chernin Group’s Otter Media. And he is the co-founder of Ball Metaverse Research Partners, which created and operates the Roundhill Ball Metaverse ETF, the first metaverse-focused ETF with the ticker symbol META. I’m pleased to be speaking with Matthew today about his new book and, more specifically, the economics of the metaverse. How does an economy function within the context of infinite resources, total proximity, and immediate and complete access to information? Welcome, Matthew.
Matthew Ball:
I’m really excited to be here.
ES:
I’m excited to have you. Did I capture the totality of your essence? You do a lot of things. Did that capture everything? Did I leave anything out?
MB:
So, I’m now doing producing in TV, film, and gaming. There’s an experience coming out, actually, that came out yesterday, The Walking Dead: the Last Mile, which is an interactive persistent virtual world-slash-television show that’s on Facebook watch. And I have some series coming to major streaming services, probably at the end of ’23, if not early 2024.
ES:
Well, that’s impressive. And if you keep up this pace of output, any podcast you do in like five years’ time will consist solely of your introduction.
MB:
Yes. Trust me. I get into occasional disagreements with my incredible publicity team as to how indulgent they sometimes feel, but let’s move on to the fun stuff. What we can talk about as opposed to my lengthy intro.
ES:
Let’s do it. Your book is coming out in five days. You must be excited-slash-exhausted. I read it. It’s fantastic. I recommend everybody that’s interested in this space to read it. It’s the canonical primer on the metaverse. Your name is basically synonymous with the term metaverse, you’ve written an excellent series of essays on the topic on your website. The book is a natural continuation of that vector of thought. What originally animated your interest in this topic?
MB:
So I’ve always been obsessed with new consumer and largely media technology. I’ve always been a sci-fi fan. I’ve always loved fantastical worlds, and I’ve been familiar with this broad concept. In the book, I talk about the fact that the term is 30 years old, but the ideas span nearly a century. But it was really my experiences in 2018 in Fortnite and in Roblox that made me feel that this relatively ancient idea and fantastical concept was becoming a practical business opportunity.
ES:
Got it. And I think that that’s really interesting when you put that in the context of that chronology, right? So, you know, in the book you talk about the parallel plane of existence. That’s a hundred-year-old idea. The efforts to build that probably date back about 70 years, the term itself, that’s 30 years old. Second Life is 15 years old, first published, 15 years ago. And then in the last two years, we’ve seen an incredible frenzy of activity. First of all, is that a correct characterization? Have I just missed it? Were people just not paying attention, and there actually was a sort of build-up to the moment that we saw unfold in the last two years, or was there really like a catalyst that happened in the last two years that drove a lot of that activity? And if so, what was it?
MB:
So I think it’s both, really. We see decades of early attempts to build this: Second Life was one, but we can go into the seventies and eighties and nineties. Many of the leaders in the metaverse today have been quietly at work since the early nineties. Nvidia, unknown to most people, even today, the seventh largest company on earth. founded in the early nineties. Epic Games, founded in the early nineties, makes Fortnite, which became a cultural sensation in 2020. It launched in 2006. So some of this has been long incubating, but we certainly hit this catalyst over the past five years: the end of the start was the pandemic, which forced many of us into virtual worlds for new purposes. But it probably started with the advent of widely-deployed GPUs and other processors largely in 2014, 2015, 2016 in the average smartphone that allowed the average person to access richly-rendered, real-time 3D social experiences from a device that was always inches away from them. That’s when Roblox starts to take off, that’s when the battle royale genre emerges. It was in a sense the 3G movement for virtual worlds.
ES:
Yeah. It’s funny to consider Epic among those companies. Because you know, Fortnite was such a cultural flashpoint, but the company is, as you said, it was founded in the nineties. I was one of those nerdy fanboys in like the late 90s, early 2000s that followed the .plan files from all the first-person shooter game developers, right? Like ID software. I don’t think Tim Sweeney ever updated one of those, but Cliff Bleszinsky did. And there were two cults: the cult of ID and Quake, and then the cult of Epic and Unreal. And you were part of a faction. And if you liked Quake and you liked Quake 2, especially, and then Quake 3, which was just purely multiplayer, you didn’t play Unreal games, right? That just not what you did.
And there was this very concrete separation between those two player bases. I was a Quake guy, and that was a totally frivolous decision, it was because iD software was based in Dallas, I was from Houston, and I wanted to play for the local team — I really discovered Epic as a company as an analyst. But as a player, I was never really that familiar with Epic’s products. And then actually I went out to do a project with Epic many years ago and they showed me this game that was a cross-platform game with a mobile component, we don’t have much experience from mobile publishing, can you help us think through like the roadmap?
And I was like, guys, I don’t know. I think this game is just not gonna be commercially successful. I would be very wary of publishing this game, and that game was Fortnite. And luckily they did not take my advice. First of all, it was a single-player game at the time. They added the battle royale later, but nonetheless, I’m glad they did not take my advice. I’m glad that Fortnite became the worldwide cultural phenomenon that it did.
But to your point, Nvidia created the Voodoo graphics cards [Editor’s note: I misremembered this fact. Nvidia acquired 3dfx, which created the Voodoo graphics cards, but Nvidia’s competing graphics cards existed as the GeForce series] and that’s what it was known for. And now it’s powering a lot of aspects of the consumer technology space that we understand today. And anything related to metaverse is going to have something to do with the GPU aspect of the cards they produce. But also, all of the video processing that TikTok and Facebook are doing, it’s all dependent on the access to the GPU hardware. And then of course all of the cryptocurrency stuff, very much dependent on that hardware and these companies are not new. But some of these concepts that they’re empowering are.
MB:
You’re quite right. So a little bit more about Nvidia: Jensen Huang, the founder and CEO, has always talked about the fact that the company was founded based on the premise of graphics-based computing, understanding that it could solve queries and address problems that general-purpose computing never could. And he talks about the fact that Nvidia was not intended to be a gaming company, per se. It’s not really, but of course, most of its revenues have historically been in the gaming space. And he says that gaming was the best strategic choice that he made.
And that’s because it has three unique attributes. One: it was large, relatively, in industry size. Two is that it is technologically intensive. And three is that it was fast-moving. Most industries have one, sometimes two, rarely three of those. And it also just so happens that the learnings from that category in simulation, in network design, in world creation, in the prioritization of scarce resources to pull off what is hard to make and then render and produce and synchronize — gaming companies have been building that for decades, in many instances, fighting against what isn’t possible. And so we have this weird inflection. I’m often asked this question, if the metaverse is a multi-trillion dollar opportunity, if it is a successor to today’s computing and networking paradigms, how come it’s originating from a relatively small, arguably niche portion of consumer leisure? And the answer is: all of the problems, all of the experience, has been in this category for decades, and now it’s ready for much, much more.
ES:
Yeah. I mean, that’s fascinating to think about, and typically, gaming is the tip of the spear for any kind of new, especially consumer technology use case or form factor, or even just human-compute paradigm. And so it makes sense that a lot of these things that feel like their particular components to a gaming experience really will unlock use cases that go far beyond gaming. And I have a couple of questions related to more of the work aspect.
By the way, I want to call out that you did an excellent interview with Ben Thompson. I would encourage anyone listening to this, if they’re interested in this topic, to also read the transcript of that interview. I think it provides a really, really nice window into the way that you think about the metaverse.
So my primary interest in the metaverse is the new economic models that it might facilitate. I liken the development of the metaverse economy to the real disruptions and the innovations that were unlocked with the proliferation of smartphones, right? And especially the freemium business model. I see the metaverse economy as a continuation in that same direction, but with one fundamental progression, which is that freemium allows for a price point of zero, right? Because selling products incurs no marginal production costs, right? You’ve produced the product, it’s there, selling copies of it doesn’t cost you money, as the retailer, the producer, whatever. And the TAM is nearly universal given the reach of smartphones.
But with freemium, you have terrestrially-native companies building software products that fit into a specific, terrestrially-native use case. The canonical example, mobile games: you’re on the bus, you’re in the doctor’s office, you’re in the waiting room, right? Let me load up the mobile game, buy some gems.
And there are resource constraints inherent in those propositions, but the metaverse economy is different, right? Potentially you have digitally-native companies, companies that are domiciled in the metaverse, building products that can be represented in a digital world in a multitude of ways. You go into this in the book. What I’m really interested in hearing is how you think about creator economics in the metaverse and the forces that will motivate people to build and sell their work in the metaverse. What factors are unlocked in the metaverse that create the opportunity for increased economic output versus the world that we inhabit now, the physical world?
MB:
Well, so this is such a fun and rich question. I want to start, firstly, that if you take a look at the visions of many of these individuals — Tim Sweeney talks about the fact that just as every company has a website, many have an application, almost all are going to need some sort of presence or virtual storefront objects in the metaverse. The extraordinary investment required to build this is why the company Epic is so arranged on dropping the cost, the difficulty limitations of creation in 3D. But no matter how much they do that, they need extraordinary investment from those outside developers, the groups, the brands, the individuals, you and I, to build it.
And that is only possible with trust. Trust underpins all economies. It’s the idea that what is being sold to you is truthful, that the purchase that you make, the relationship you establish, is going to be respected.
The problem we have often had in the digital economy is, the most scalable of those transactions tends to have a short lifespan. I bought some gems, I’m gonna use them. I don’t have much of a need for trust that Candy Crush is going respect that: it’s 99 cents, it’s a game, and there’s no greater societal dependence.
And when you get beyond that, there’s a lot of mistrust. Facebook has spent a decade trying to repair its relationship with developers and creators after constantly oscillating in its API availabilities, its support in the feed, whether or not it actually wants a games platform or not.
And we see this in Apple right now: is Apple truly trying to help its developers, or is it only happy to facilitate those developers when it doesn’t seem threatening to another part of their business? And so the first and most important part is to recognize the way in which we’re seeing greater focus from each market participant on proving why they should be trusted.
Earlier this year, Brad Smith at Microsoft — he’s the vice chairman — released a 14-point memorandum outlining how they believe that they would be responsible stewards in the metaverse. Talking about payments: they commit, though they don’t provide a specific timeline or approach, to opening up payments and side loading on the Xbox to providing consistent access to proprietary APIs for their own subsidiaries versus outside parties. Epic has made these fundamental changes to its terms of service that are designed to build trust. For example, they’ve said that if you license a specific build of Unreal, they can never change the terms of service. That doesn’t mean that if you license 4.3.1 and move to UE five, there won’t be different services — you can never future proof your contract forever — but they say that you will always get to use 4.3.1 as you originally licensed it. They’ve also said that if they have a dispute with a developer, they can’t lock them out. They can’t shut them down. They have to go to courts and get an injunction. The legal system, as it exists today, has to agree that basically, a landlord has the right to shut down a tenant.
And so I want to start by talking about this economy of the metaverse question by talking about the ways in which people are focused on building trust, earning it over time. And that’s fundamentally healthier when you’re talking about the economy of the metaverse itself. I agree with you on the fundamental potency of marginal costs. Because of the conflation between web3, crypto, and the metaverse, most people assume I’m a zealot for virtual real estate. That concept really doesn’t excite me. I’m not a big believer in it. I actually think it’s contrary to most of the benefits of virtual space, but we are still sorting out how you make this work. What is the lever, and what’s not? Microtransactions and free-to-play are obvious now, they weren’t — they, frankly, weren’t obvious even when China and Japan had proven them for years. Right?
And so when we talk about what happens here, look, I’m hopeful that the rise of zero marginal cost goods and more interoperable systems will put incremental focus on the experience — that that’s what’s going to be monetized. Right now, a lot of it is on capture, distribution of content or of hardware. They’re gatekeepers in either discovery or access or runtime. But I’m hopeful that when we shift into a zero marginal cost environment, we see more focus on actually what is being made, and why. But the bigger thing, and I’d be excited to pass the baton over to you, is the growing awareness of how gatekeeping — not necessarily software distribution, though that’s a big part, but at least payments — is a fundamental impediment to one of the most important growth areas of our economy, which is just interactivity at large.
ES:
I feel like this reticence to embrace the obvious future with respect to payments is going put Apple on the wrong side of history. And you look at what they’re doing, right? For instance, like the Netherlands — they’ve had these geography-by-geography competition authority rulings saying, you have to open up payments. And the way they’ve approached that is still to stonewall it or to slow roll it or to propose solutions that clearly aren’t in alignment with the thrust of the ruling. And the perfect example is the Netherlands, right? I made a video meme about this that I thought would be a hit, but it’s got like 2000 views on YouTube. It’s the guy that can’t stop laughing, and he’s being interviewed, and [to make the meme] you superimpose text over what he’s saying in Spanish.
But anyway, the Netherlands’ competition authority said, for dating apps in the Netherlands, [Apple has] to allow alternative in-app payments or, or just alternative payments, not necessarily in-app. And so what [Apple] did was, they pushed a modal that sort of said, if you click out, you’re going to some external property to make a payment and look, we can’t guarantee anything. Right. It’s just this very intimidating intermediary step to actually making a payment, which is going to scare people. And just the act of clicking out in the first place is going to tank conversion. When you throw up this warning label, that makes it impossible for the conversion rate to net out to be beneficial to you, no matter how much you decrease the ultimate price on the alternative payment system.
And then they also forced a separate app bundle, right? So you had to publish a separate app bundle. to offer alternative payments, which no one’s going to do just the Netherlands. All of these impediments just make it very clear that [Apple is] going to fight this tooth and nail. And I think what you see now is the idea of like an abundance economy, the idea should be to grow participation. Don’t grow your rake, grow participation. Everybody wins if you grow participation. And I get it: I know there’s a team of accountants at Apple that are saying, look, if we can extend our 30% rake on IAPs to 2025, we’re gonna make X many more billions of dollars.
MB:
I think it’s $5 billion a month in cash flow.
ES:
Sure. And there’s a realpolitik to this, but I think they’re missing the paradigm shift. And I think that’s most epitomized in the notion of the metaverse. Total abundance: total, absolute abundance of resources and access. And if you grow participation there, you don’t need to have a 30% rake, because you’re gonna make more money in the macro scheme of things by just onboarding people into this new interface and human-compute paradigm.
One story I always tell is when I was at this company, Digital Chocolate, we made Facebook games. We moved into mobile a little bit too late. The Supercell team spun out of Digital Chocolate. Well, not spun out. They were employees. They left and they started Supercell. Anyway, when I first joined, there was this grizzled kind of games veteran. And I say that now — he was probably younger then than I am now. But he was telling me about 2008, they went to WWDC and they saw the presentation of the App Store. And when Steve jobs said, yeah, and we’re gonna take a 30% cut of IAP revenues, people were cheering. Right. Because that was massively more beneficial to them than the commercial arrangements that they had with the OEMs in the J2ME stores. And so that was seen as like, okay, wow, these economics are much, much better for us. And now obviously people are fighting that. And I guess the question is, we’ve seen some early inklings of what the commercial arrangements will be with metaverse creator economics. I’m wondering where that goes. Because I think like the more you sort of encourage participation in the consumer side, the more you get participation from developers to create for the metaverse, and you expand the TAM. And when you expand the economy of this, the lower the participation rate needs to be just for access. Right? And that seems like the way forward, but I’d love to hear your thoughts about that,
MB:
Right? So there are a bunch of different ways to back this down. Number one, if one believes in the metaverse or at least, more important, virtual simulations, then fundamentally that’s going to be a driver for more advanced hardware. It’s the reason why some people get an iPad Pro versus a standard iPad, which is the games that they want to play on it. So we can understand one driver of Apple’s business that is perhaps in partial tension with the take rate. Why? Because the take rate does substitute profits from the developer to Apple that could be used to better the product.
The second is just to understand the ways in which the technological discovery and experimentation is impeded by the protection of IAP. Tim Sweeney has talked about, for example, that he’s not a big believer in cloud gaming. He believes in local processing over remote data center for most rendering services. And yet Apple doesn’t really allow that ecosystem to grow. WebGL or OpenGL, WebXR, or OpenXR. They’re not really possible on iOS. And one can fairly argue that that’s because Apple doesn’t want you to play rich, interactive experiences in the browser because they don’t take a cut there. We can also talk about the growth in the advertising ecosystem, which is partly because apple takes zero cut there. Of course, the average developer would rather have a dollar in CPM that all goes to them or mostly goes to them versus one that they lose 70 or 30% of that goes to apple. And so this protection of IAP manifests in how the metaverse develops. That means that there’s less experimentation, less organic development, a slower pace of growth.
And then the third is to recognize that the metaverse is understood as endpoint agnostic, virtual networks and experiences. That fundamental idea is of course in tension with the preferences of a specific platform that doesn’t want endpoint agnosticity, but especially one that is hardware-centric, where the runtime, the execution is all supposed to be on a specific thing. Now that’s a fair, fine tension. We should not have a specific company unable to fight back to protect its business. But the argument is Apple, as they sit right now, is so powerful. They are two-thirds of all software sales on a mobile device, globally. They are 90% of teens in the United States. They are 75% of new device purchases, 66% of US customers. They have such hard, soft, and accidental power that they do shrink the growth in the digital economy. They do shape what technologies emerge. They do change which business models are viable. And when.
ES:
Right. I wanna hover here because I think it’s an important point. And I think, again, it goes back to, there’s a very obvious eventuality here. And there’s a gatekeeper that is imposing friction and obstacles to that. And I think we’d all like to get there. And we all kind of wish we could just fast forward past this point.
I read an amazing article the other day it was it’s called the title is, Apple is Not Defending Browser Engine Choice. It’s long, and it really unpacks the ways that Apple exerts control over the actual browser engines that are available to developers. Something I think a lot of people don’t understand is that any browser that you use on your iPhone — it doesn’t matter if it’s Chrome or Firefox — it’s running on the the WebKit engine.
[Apple] maintains gatekeeper control even in the browser. So even when you’re talking about the open web, that’s still very much intermediated by Apple. I want to talk about the Apple stuff, because I think it’s really important. Apple’s not necessarily the antagonist here: it just serves as a helpful, concrete example. I was talking to a very senior person at a mega tech company the other day. And I was pitching in my vision — I wrote this three-part series a while back called the future of content platforms on mobile. And I was making the case, look, all this stuff is moving to the cloud, right? The gatekeepers want to maintain that status, but they can’t. Consumers are going to demand that all the content they want to interact with be available on every single device that they own. I have a Samsung TV, I have an iPhone, an iPad. I have a PC that I play games on. I demand all the content that I love be available on all of them. And you can’t force these developers to create specific applications [for Apple hardware]. At some point you won’t be able to enforce specific rules for those specific expressions of that content on your platform. You won’t be able to do that because I demand a universal, unified experience. And at some point, the ability to make those demands flips from the gatekeeper that controls one platform to the consumer that demands all this content be available in exactly the same format on all their devices.
So I was making this pitch and you know, this person was like, that’s a great pitch. Sign me up for that version of the future. But Apple is a massively powerful company and they can pretty much just do whatever they want. Consumers have power, they can vote with their wallets, but this is Apple. Any other company? Sure. Yeah. You just sold me. But when you’re talking about Apple, they have so much market power. Game streaming on the device is a perfect example, right? [Apple] won’t allow the game streaming apps in the app store. The company’s pushed them to the browser. The browser doesn’t necessarily support it. And Xbox has found a way to get a pretty high-fidelity streaming experience on the iPhone [in the browser].
Now what happens with Private Relay? Apple is the gatekeeper not only to access to the content that gets downloaded to your phone, but access to the open internet. And they can have the ability to block that. And I don’t want to call out Apple. Apple’s a great company. I own a ton of apple products, I have massive respect for their product design sensibilities and ease of use, but with any gatekeeper with that much power and that much entrenched interest: how do you fast forward past this friction period? How do you just get from here to where we want to go, which is the abundance economy, the metaverse economy.
MB:
Well, so this is such a good example and you’re right. It’s always challenging because we’re talking about too much centralization — to use a modern term — and we’re talking about too much power. And yet it was exactly that vertical integration, centralization, the iPhone, like AOL, that massively accelerated the adoption of a critical and important part of our economy. Without the iPhone, the world is farther behind than it is right now. And yet, if regulation exists for anyone, it should probably apply to the richest company on earth, the most successful product on earth, and the company that generates more profits than any other company on earth.
But the clearest example to me — and this is where we get into the metaverse economy. We saw it in the Epic versus Apple trial. Netflix leaves the App Store IAP in December 2018. And they left because they did the math. Yes: having IAP is better for customer acquisition, lower customer acquisition costs, more customers. But they found that the 30%, sometimes 15% that they had to pay, was not worth it, partly because churn for customers acquired through that channel was higher.
And so they go back and forth and Apple tries to tell them, what can we do? How can we get you back? And Netflix says, look, we know the math. If you can get the math to be where we need it to be, we’ll come back. In October of 2021, three years later, Netflix returns. Why did they return? Not because their video business had changed again, this is before any drop, but because they wanted to launch their game service. Now the game service doesn’t work as most consumers would want it to. You can see what the apps are in the Netflix app, but you have to install them separately through the App Store. The app store has a separate listing. They’re separately reviewed, they’re separately launched, it prevents disintermediation by Netflix. It’s not a great experience.
But putting aside the UI UX, launching a games business, or interactive experiences, obligated the entirety of Netflix’s non-interactive business into IAP. And so if we say that the future is interactive — I’m not even going to talk about the metaverse, but just say real-time rendered 2D or 3D interactive — the entire world and its current business gets pushed into the IAP system, and that does not seem like a good thing, generally. Especially when you then talk to exactly what you just teed up with cloud gaming, the ways in which it not only forces take, but conforms business models, precludes certain technologies, and does produce friction that is clearly not to the consumer’s benefit. Cloud gaming works as though every show on Netflix has to be downloaded by a thin client through a different application, not accessed through Netflix. Nobody likes that. That’s not why we subscribe to any service.
ES:
Right. And they kind of have to jump through a lot of intellectual loops to justify it, right? I wrote this article a while back, The App Store Has a Too Big to Fail Problem. [Apple] had to let Netflix kind of skirt the rules, especially with the gaming stuff, but also just generally with — they were one of the original companies that pushed web subscriptions and took the subscription functionality completely out of the app. And that instigated Apple to post hoc justify that with the reader app rule. And now there’s the cross-platform rule, which absolves a lot of that behavior. But Netflix is gating the functionality of an app with a login. Well, we remember when that happened, I’m blanking on the name, but the guy that made Ruby on Rails, he had the email app — I can’t remember the name of it. Anyway. Apple kicked it out of the App Store because-
MB:
Hey
ES:
That’s right, exactly. Hey. And so [Apple] said, you know, you open up the [Hey] app and there’s a login screen. There has to be some sort of core functionality that’s available to users. Otherwise, it’s a bad experience. Right. And [Apple] justified kicking [Hey] out with some Byzantine developer rule. But Phil Schiller did an interview where he said, yeah, the reason we kicked [Hey] out was because you opened the app and there’s no functionality, and it’s a bad experience. So [Apple’s] developer guidelines now just really serve as air cover to make whatever kind of capricious decisions they want that best benefit them. And the Netflix example is a perfect one, right?
If you just discovered that game, you download it, you open it up, and well, you can’t play it because you don’t have a Netflix account — that’s a horrible experience. But [Apple allows] Netflix to do it. Why? Because they can’t kick Netflix out of the apple. That’d be absurd. And it’s the same with Roblox. Right? You made the point, which I kind of co-opted and didn’t give you proper credit for, but I edited the article later: why is Roblox allowed to have these games that you stream, yet Apple says you can’t have game streaming apps in the App Store. Well, because Apple said it’s an experience — in the trial. It’s an experience. It’s not a game. Well, okay, come on. You know, that’s a totally arbitrary distinction without a difference here that you made up. But you end up with this inscrutable jumble of rules that really just serves to allow Apple to make whatever decision it wants. And Apple operates in the dark. They like to have maximum optionality. So if you create this complex, totally indecipherable set of rules, well you can enforce them however you want.
MB:
I think look, the more important thing here — Tim Sweeney has often asked, what is the right fee for the App Store? And we all know that in an open App Store environment, almost all transactions are going to go through the App Store anyway. And we know that Apple is going to take a much higher rate than everyone else because of their brand, because of their native integration. And because it’s probably going to work better. The question is not, do they have the right to have policies, A, B, and C? The problem is the iPhone is one of the most important products ever right now that bundles hardware with operating system, with distribution of software, with technological requirements, with identity, with payments, and that prevents market discovery of appropriate prices, of appropriate terms, of appropriate business models. And that is problematic, generally.
My favorite example, well, rather than the Netflix one, is actually one that I think has received very little coverage. Which is, if we learned anything over the past 20 years, it’s the potency of network effects and social graphs. And this is relevant to your investigations into ad networks. In 2020, Apple had a policy change in the App Store that said, if you support third-party identity networks, Login with Facebook, Login with Google, Login with Twitter, you have to also support Login with iCloud. This was not a service that had really launched before a few years ago. It was very late. And yet, of course, most applications do support some form of alternative identity system. The New York Times does. But if you obligate applications to use iCloud on iOS, then they have to support it everywhere else. Because if Eric chooses to sign into The New York Times with his iCloud account on his iPhone, you have to make that available on other devices, and on the web. Otherwise he can’t log in.
And so you have a company that has 66 to 90% market share, late to a highly competitive category, that was able to use the fact that their competitors were deployed, to obligate deployment of its identity solution on the most important platform in the world, that obligated platform adoption everywhere else. That is a result of forced bundling up and down the stack. More people competing with Facebook. Awesome. More people saying we’re going to be a better identity system with more privacy, more controls, lower rates, the things that Apple promises — that’s awesome. But the idea that you can be late, that you can use strength elsewhere to force in a system where the developer can’t say, you know what? I like Twitter, and I don’t want to support iCloud. Well, then, you have to delist your app. That’s not a great system.
ES:
Yeah. And there’s another complication that arises from this forced uptake. If you’ve supported the iCloud gaming infrastructure with any app, you can’t transfer that app to a new publisher account. You have to fully delist it and republish it.
MB:
I had no idea.
ES:
I know this from the last company I worked at. We were doing games publishing, and so we needed to have apps published from our account. And so when we went into these exploratory negotiations, we asked, have you ever supported any iCloud features? Because if you did, then we can’t easily transfer the game to our account. We have to republish it. That means everyone has to redownload the game. That creates a lot of friction from a publishing standpoint.
Okay. I have two more topics I’d like to get to, but it’ll be a success if we dig into one, and it’s more touching on the economy side, but I think more around jurisdiction in the metaverse.
The metaverse standards forum was recently initiated with the remit of establishing broad operating principles for the metaverse. One of the issues with any digital environment, but I think it’s probably more acute of a concept in the metaverse, is the prospect of piracy and replicability. You have a fully digital environment. The products are all digital. You can replicate them, you can pirate them, you can clone them. And it’s just a matter of software replication, especially given that creation can take place natively within the metaverse. And so is this a new economic reality for creators? How do you lean into this new economic reality where anything you create within the context of the metaverse, digitally native to the metaverse environment, could just be pirated, replicated, cloned, copied, or whatever. How do creators navigate that? And then how do these kind of standards organizations protect against that — or do they? Is this just a reality of operating in the metaverse?
MB:
This is a tough one for which I don’t have instant answers. I think what we’re seeing with blockchain is one reflection of exactly that. To contextualize this simply, I’ve taken a photo on my phone. I then email it to you. What happens? It now exists on my phone, on a Gmail server, on your Gmail-related server account. And then on your device. We have fundamental copies. And so if we want to provide interoperability of anything, let’s put aside whether or not I want to drive around in Call of Duty: Warzone with a skin. That’s a specific example, not that compelling. We have this fundamental question of, well, now we have copies. And so instead, you want to say, we need to maintain at least who owns that. Well, then you have the questions of who’s providing access to or transmitting it, right?
Does one party have to delete their file, or is someone provisionally accessing it? And if they’re provisionally accessing it, who takes on the insurance risk, who takes on the security risk, who manages that permission? How do you compensate the person who’s taking custody of that for then providing that service elsewhere? We don’t have good systems for this. The metaverse standards forum is partly trying to talk about data conventions and file format standards. We have to figure out this question of records and systems for control, delete, share, access, authenticate. Exactly how are we going do that, andwhat are the economic systems for that? I don’t know. I think what’s fun is that game developers have proven themselves to be incredibly proficient in testing. And then within a span of two to three years, a new financial primitive ends up being the most widely deployed form of monetization. And so I don’t have the answer. I have a lot of faith in developers and I would not underestimate the time it takes for the discovery to become the standard.
ES:
Right. And I feel like people try to draw parallels to the formation of legal standards or common law or whatever, or any sort of economic system when they think about these digital worlds. But they’re fundamentally different. The economy of infinity is fundamentally different than the real world where there is, you know, resource scarcity and you have to contend with that. I think going back to your comment about digital land sales, I mean, I totally agree because what does property mean in the metaverse when there’s the potential for infinite land. Or I could just clone whatever island, you know, that you’re chopping up and selling into parcels. I could just clone that.
MB:
Or what is adjacency, right? What is a plot of land beside another plot of land? We don’t think of namespace on the internet or a doc-com address as relevant because it’s easier and more convenient, but it’s not like channel space on a television channel. 28 is better than channel 65 back in the nineties. There’s not just this question of scarcity. There’s this question of geomorphic positioning.
ES:
Right, right. To your point, what does location, location, location mean in a digital environment for which there is total abundance of quote-unquote land, or just total availability of any resource? What does that mean? The point I made in the intro, total proximity: I could be next to this or I could be, you know, infinitely far away from it. And just by choice. There’s no sense of, I need to be near this thing because that’s where all the foot traffic is. If I’m setting up a storefront, these concepts don’t transfer, I guess is my bigger point.
MB:
No, totally. I mean, what we’re talking about is discovery and distribution, absolute utility on that, but that’s actually a very different thing than just virtual real estate. Now we can force fit the design of a virtual world. So that discovery and real estate are one and the same, but that is a choice. It’s a creative design choice. It’s not an intrinsic element of the metaverse.
ES:
Right. And continuing on this thread, you almost run into sort of like a reverse Malthusian problem, right? We’re not running out of resources to support humanity. We’re running out of humans, at some point, to yield these resources. This inverse relationship just has to change the way you think about the economies of these virtual worlds, but also, in combination, the virtual life that we live in them and where AI fits in to fill the gaps. If there’s infinite resources and I can’t possibly make use of them. And in the finite lifetime of a human being, how much do we come to rely on AI to support these abstract concepts of like happiness, love, prosperity, contentedness? How much do we come to depend on AI to do that for us, which can operate in a much more robust way?
MB:
Yeah. I’ll tell you one of my favorite ways of thinking of just how different these principles and mindsets are. This is a lot more specific than the magnitude of what you just brought up. But I find it a useful example. What is designed in social commerce, or rather most applications today: it’s minimizing clicks to action. The primary action. That’s why Amazon had one-click-to-purchase, which they patented. You had to license that technology. Well, if you take a look at social gaming, you know, the ostensible lesson was, you want to minimize the time until someone’s playing the game, hands-on-controller, they’re in a match. You take a look at something like Fortnite. It’s actually designed to stall you before you do that. You hang out in the lobby. That is a totally counterintuitive principle. You would want to actually provide the least amount of functionality and distraction that would keep Eric and me from going into Fortnite Battle Royale, which is, ostensibly, why we’re there.
But instead, they’re designing so that you get stuck in the lobby because the purpose is actually very different. And again, we’re talking about a specific example, but it starts to reflect the ways in which gaming, as we used to think about it — experiences and monetization — as we used to think about it, not just in lobby design, but around the idea that cosmetics are the primary driver, they complement the experience that you’re not directly paying for. That you pay for via the cosmetics. All these things start to open up a lot. And so we start by saying, how do we replicate what we already know? Well, in some instances, it’s real estate. Real estate is the most valuable asset class in the world. If we’re building a parallel point of existence, why wouldn’t it be so there? And I get that, as do I get the logic of saying, well, in 3D, we should remake the office so that we have a virtual boardroom. I get that. I’m positive that it’s wrong, but I get the logic that brings us there to start.
ES:
There’s just so much here. I would love to chat with you about this all day. I am respectful of your time, though. Matthew Ball, this has been a fascinating conversation. The book is The Metaverse, it’s available for purchase now by pre-order, but it will be available for physical interaction on July 19th. I appreciate your time. Where can people read you? Where can they discover more from you? Where can they interact with your content?
MB:
Book is available at every major bookseller. You can find it on Apple Books, on Amazon, your local bookstore. I love to recommend bookshop.org. It’s an eCommerce provider that provides 75% of the gross profit to a pool for indie booksellers. Online, I’m @ballmatthew and for my blog, I’m MatthewBall.vc.
ES:
Excellent. I’m going to link to the pre-order page in the blog post that accompanies this podcast, but Matthew Ball. Thank you so much for your time today. Appreciate it.
MB:
Thank you, man. I really appreciate it.
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