Facebook’s transition into Meta Platforms (NASDAQ:FB) and Mark Zuckerberg’s big push into the metaverse — the concept of a shared 3D virtual platform where people can socialize, work, and play — spurred a sector-wide move by tech companies to branch out into other areas like gaming.
The burgeoning gaming industry has transformed into a $198.4 billion sector in 2021, far exceeding the combined market size of the box office and the music industry, according to market research firm Mordor Intelligence.
Even before Meta announced its push into the metaverse in October 2021, the social media behemoth has built a presence in the gaming market with its acquisition of virtual reality company Oculus in 2014. Meta’s foray into the metaverse would make its Oculus VR headsets more appealing to the market amid strong competition against other VR headsets in the market like HTC’s (TPE:2498) HTC Vive and Sony’s (NYSE:SONY) PlayStation VR.
A sharper focus on gaming would encourage Facebook to double down on its investments in the gaming sector far beyond hardware and building a metaverse. The company, which also owns Instagram and WhatsApp, could soon build an army of tech talents that specialize in gaming.
In the months before it rebranded into Meta, Facebook went on an acquisition spree buying small gaming studios. Among its most recent acquisitions in the gaming space are studios Ready at Dawn, Unit 2 Games, VR firm BigBox VR, Downpour Interactive and Sanzaru Games.
However, Meta has yet to spend billions of dollars on a gaming company since its acquisition of Oculus in 2014 for $2 billion, raising the prospect of a potential acquisition of a larger gaming studio similar to recent moves by Sony, Microsoft (NASDAQ:MSFT) and Grand Theft Auto publisher Take-Two Interactive (NASDAQ:TTWO).
Three multi-billion dollar gaming deals welcomed the year in January, starting with Take-Two’s plans to buy mobile video game company Zynga for $12.7 billion, which was thought to be the gaming industry’s biggest acquisition on record until Microsoft announced that it is buying Activision Blizzard (NASDAQ:ATVI), the studio behind the Warcraft, Diablo, Overwatch and Call of Duty franchises, for $68.7 billion in cash.
Microsoft said the deal would make it the world’s third-largest gaming company in terms of revenue behind Tencent (HKG:0700) and Sony. Two weeks later, Sony said it is buying Bungie, the video game developer behind the Destiny and Halo franchises, for $3.6 billion.
With Meta’s intentions to promote the metaverse concept, industry watchers are now waiting for the company’s next big move. Meta will likely look to gobble up a gaming studio with a massive presence in the market such as France’s Ubisoft (OTCMKTS:UBSFY), the developer behind Assassin's Creed and Prince of Persia. Ubisoft CEO Yves Guillemot last month hinted that it is open to offers from companies.
Roblox (NYSE:RBLX), Playtika Holding (NASDAQ:PLTK) and Super League Gaming (NASDAQ:SLGG) are also likely targets if Meta chooses to snap up the bargains on these companies after their shares tumbled to near record lows recently.
In June 2021, Meta bought Unit 2 Games, the studio behind Roblox-like gaming platform Crayta.
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The Metaverse is a concept (for now). A concept that has motivated Facebook to change its branding to Meta and begin developing the infrastructure of a meta-universe. The drastic pivot that Facebook is attempting to pull off, the Company hopes, will put it at the forefront of the internet’s “next frontier”, just as it was a decade and a half ago when Social Media platforms were maturing.
Facebook/Meta CEO Mark Zuckerberg has called the Metaverse an “embodied internet … where with just a pair of glasses, you will be able to step beyond the physical world… beyond the limits of distance and physics” and engage in rich people-centred experiences.
A simulation of the Metaverse that Zuckerberg demonstrated last week showcased the potential of the platform. In the demo, a group of avatars met in a virtual room, played a hand of poker before being dazzled by a room-sized 3D artwork sent and paid for by A friend of Zuckerberg exploring New York (in real life).
For all the altruistic CEO-speak regarding the Company’s mission to “Bring people together”, Facebook/ Meta will still have to monetize the Metaverse experience. Conquering the next frontier may have to coincide with a new method for generating revenue for the Company.
A legitimate question that exists is; how will Meta monetize the Metaverse? A model based on highly targeted advertising is what has worked for Facebook in the past. Facebook has reported US $54 billion in revenue so far in 2021, setting the Company on a path for another record year. In contrast, Facebook has booked a comparably paltry US $1.2 billion in revenue in the same time frame from its non-advertising revenue streams, such as the sale of Oculus headsets.
Zuckerberg has maintained that Facebook would always remain free to use. Fortunately, the Metaverse is not yet hamstrung to such a proclamation. Meta should be exposed to more revenue-generating opportunities including, subscription models, hardware sales, ticketing, skins, gaming and pay-to-play models, and SaaS. It might be fair to say there will be a universe of options for Meta to explore.
That’s not to say that Ads can’t be integrated with a metaverse, slotted tidily within the virtual landscape. Meta may even generate a more accurate understanding of their customer base through their metaverse experiences, boosting demand for its ads services as ads become hyper-targeted.