The War For the Metaverse
The War For the Metaverse
Mark Zuckerberg, Benevolent Platform Dictator vs. Cryptopunks, Vanguard of the Digital Enlightenment
“Little by little, the old world crumbled, and not once did the king imagine that some of the pieces might fall on him.” ― Jennifer Donnelly, Revolution
No technology has been so hyped while so not-existing as the Metaverse.
That has been its appeal. It’s the Rorschach blot of technology.
Is it a dystopian VR-surveillance playground? Is it the next evolution in human creativity? Is it the great-white-hope of ending capitalism?
Maybe.
You can make that argument. Whatever your prior convictions, the Metaverse seems to confirm them.
But if we get down to brass-tacks, there do seem to be two core conceptual primitives to the Metaverse.
A “3D” internet (VR or AR).
A shared identity and economy that pervades all digital space.
These ideas spin a flywheel.
But there's a debate over which side of the wheel innovators should start by pushing. This is more than an idle debate over business tactics, though.
Imagine you are betting on attracting developers with a digital economy. If that's your strategy, you better design an attractive economic system. You need to let developers and creators have ownership. You need a system where everyone can win. You are, after all, betting that a fairer economy will lead to better apps and more users. This is the strategy that the Cryptoverse is pursuing. They are building a new, transparent, free and fair market using blockchains. It's a bet that institutions that fairly reward individuals can outcompete better-endowed institutions.
If you are betting on breakthrough technology, though, you have different incentives. BigTech companies do not need to attract developers with favorable terms. They are creating technology that will shock and awe in VR and AR. They are betting it will be so charismatic that a handful of friendly developers are enough to sell it. As it pulls in users through its stunning technical achievement, developers will have no choice but to join. They will gladly play by the platform's rules to have a shot at the platform's users.
These two distinct platform ideologies will lead to vastly different economies. It is, like the Cold War, a competition between systems. A generation from now it could viewed as the great economic ideological battle of our time. The cultural stakes of the conflict were laid out by @Punk6259 (it’s a thread worth reading):
The economic stakes are also stark. Our economies have already moved online. The World Bank estimated that the digital economy makes up 15.5% of global GDP. That's roughly equivalent to the percentage attributed to the United States. And digital GDP is growing 2.5x faster than the rest of the economy.
Within a decade, the Internet could be a bigger contributor to global GDP than any country. So the structure of the digital market should matter to us all.
That's because different economic systems create different outcomes. That is true in both growth and distribution. So there's a lot hingeing on which system we choose.
Will we be citizens of the Benevolent Platforms or the Cryptopunk Enlightenment? To see who has the edge, we need to understood both of the systems.
Meta and the “Benevolent” Development Platform
It is no secret that every tech founder wants to build a platform. And in 2007, Mark Zuckerberg thought he had the next Windows.
Facebook’s Platform allowed any developer to build apps on top of Facebook’s Social Graph. Zuckerberg knew the power of his platform. Any app tapping into the Social Graph would grow faster and engage users better.
In some ways, the Facebook Platform was a spiritual forerunner of the blockchain. Yes, it was created and managed by a company. But the FB Platform promised open, social infrastructure for every developer. Mark even swore Facebook to credible neutrality. If someone could build a better Newsfeed, Facebook would let them. Facebook, Mark said, would just be the infrastructure of the modern web. The OG L1, if you will.
But Mark’s vision was dead before it shipped.
In January 2007, Steve Jobs unveiled the iPhone and ushered in the era of mobile computing. Developers were less interested in an “open platform” than in the siren-song of iPhones. That was a key lesson for Mark. And it would be a painful one.
Facebook did not become the key platform of the decade. Apple reduced them to an app on their platform. And Apple has never stopped making clear the implications of Facebook’s defeat.
Facebook could no longer run apps/games within their mobile app. This killed their Facebook Platform. Facebook could not sell digital goods without giving Apple a 30% cut. Apple's Messenger is pre-installed. Users must download Facebook's. Even Facebook's Login and Ads SDK are at a disadvantage to Apple's.
Mark Zuckerberg swore long ago that he would never let Apple do this to him again. That’s why he bought Oculus in 2014. That’s why he cares so much about winning the Metaverse.
Meta wants to be king of the Platform. They also believe in their own benevolence. In Mark's telling, Meta will be a more Open Steward than Apple. They will lead the entire Metaverse onto glory and profit.
They will be the Benevolent Platform Dictator.
It's not a crazy notion, at least as far as Economic Development theory. After all, what are digital ecosystems but virtual national economies?
Mark’s vision builds on a theory called the Development State Economics. Cambridge Economist Ha-Joon Chang is its most forceful advocate.
In the 1990s, the IMF and World Bank pushed the “Washington Consensus.” They argued that market-friendly reforms were the path out of poverty. States needed to create democratic institutions. They needed to be bound by the Rule of Law. They needed to attract foreign direct investment (the macroeconomic equivalent of app developers).
Chang challenged this orthodoxy. “Look to Asia,” he said. Taiwan, Japan, South Korea – these East Asian Tigers had experienced phenomenal growth. But they were not particularly democratic or liberal free markets. Each state had a national industrial strategy. They incubated core industries. They favored friendly companies. Democracy and courts were a distraction. The public-private alliance was working.
Meta's vision is similar. There's no need for a true open market. They are subsidizing AAA games. If these titles lure users, everyone else will agree to play by Meta's rules.
Meet the new Apple, slightly more Zuck than the old Apple.
But Development State theory works because it creates a virtuous fly-wheel. If the private sector sees that the government will honor its commitments, they are willing to play ball, too. The problem for Meta is that no developer trusts them to honor their commitments as a platform.
Meta routinely changes developer platform rules. They shift distribution algorithms on a whim. They pivot to video, then newsletters, then audio, then back to video. Without the Rule of Law, all entrepreneurs have is the word of the regime. Nothing in their history suggests that Meta is a credible long-term partner for developers or creators.
Cryptopunks and the Digital Enlightenment
There is, however, an alternative theory for how this could play out. The Digital Enlightenment has a new theory of state-craft predicated on social contracts. They imagine a democratic platform.
What does it mean to build a “democratic” digital platform?
In a democratic system, rules of the digital ecosystem are set by stakeholders. They apply to everyone in the system uniformly. The stakeholders must consent to rule changes. The system is bound by the Rule-of-Law.
The Blockchain enables this “smart social contract” to exist on digital platforms. A smart contract encodes the functionality and terms of use on a blockchain. This code operates as-is forever. It applies to everyone who uses it. It cannot be revoked. It can only be supplemented with new rules. Because the code is open, any attempt to hijack a smart contract will lead to forking and exit. It is platform by consent of the governed.
This is why blockchain economies can commit to the rule-of-law.
Why does this matter to developers?
Well, consider what happened to Facebook on Apple’s platform. Rules changed. Inconsistent fees applied. Apple’s own apps received special permissions. L'etat c'est Apple.
That’s a problem for developers. According to most development economists, it's a constraint on the entire digital economy.
Daron Acemoglu and James Robinson study the institutions that lead to economic growth. They focus on how different colonial regimes led to wildly divergent economic outcomes.
Colonization is generally bad, but there are shades of bad. The worst of the worst were extractive colonial regimes. In much of the Global South, the terrain was too dangerous for permanent settlement. Malaria and heat would kill families. So colonists did not invest in schools, hospital or legal systems. They set up firms overseen by the government that stole resources and shipped them home. These extractive regimes were especially damaging.
Any institutions that did exist were corrupt and autocratic. Their legacy still torments these regions. In the 17th Century, Haiti was the wealthiest place on Earth. But today, those states best endowed with natural resources have somehow become among the poorest countries. That is the cost of bad institutions.
But in America, in Canada, in New Zealand, in Australia, in Hong Kong – the Brits set up mini-Englands. They brought families. They invested in infrastructure. They established the Rule of Law. These territories were not as resource-rich as other locations. But, they became economic powerhouses. They benefited from democratic institutions. They created courts that safe-guarded the property of private entrepreneurs. The Rule of Law allowed economies to flourish. In these countries, the institutions created lasting national wealth. (Though, still only for colonial settlers and their descendants..)
The Great, White Hope of a Metaverse built on blockchains is that they follow the path of "Better Colonies." When developers and creators can trust in justice and fair ROI is an economy where they will invest more. They will plan for long-term projects. Their fair, free market will benefit everyone who joins it. It is a positive-sum world.
Could Meta Reform its Way to Victory?
Ted Sarandos once said of Netflix's strategy that their goal was, "To become HBO faster than HBO can become us."
The battle for the Metaverse might likewise resolve by which side can become the other first.
Team Enlightenment have a unique challenge. If VR does, indeed, drive a major platform shift, they will be at a disadvantage. Oculus, originally itself a crowdfunded tool(!), has a decade of work invested. Replicating an Open VR/AR platform will be costly. Quickly bootstrapping a high quality one will be next to impossible.
For this team, the opportunity is to continue their advance on the more mature platforms. They must demonstrate supremacy on Web, Mobile, and TV. I'm sure VCs are going to also fund some blockchain VR/AR hardware eventually...
Meta, on the other hand, runs the opposite risk. If VR/AR takes a while to catch on, they will cede their early advantage. Without lots of users, the platform and its terms are unattractive to developers. They could be stuck in a poverty cycle.
To kickstart reform, they will need to follow the open-market development playbook.
And this might kickstart Meta's Glasnost...
They will need a way to show developers and creators that they will not change the rules of its platform on a whim. If Meta chooses to bind itself by smart contracts – making clear, reasonable take-rates, fighting censorship and abiding by community governance – they might stand a chance of winning over developers. They might be able to realize a grander, more democratic internet with Meta at its center.
They might finally get the Facebook Platform that Mark dreamed of in 2007. And honestly, what is more Meta than observing the aspirations of plucky, young punks and stealing the ideas for themselves?
At least in this case, the “copying” would benefit everyone.