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Europe could accelerate the shift from mobile to metaverse

By Marcel Stotzel, Portfolio Manager, Fidelity European Trust Plc

The race among tech firms in the US and Asia to build out the metaverse has dominated headlines but several European companies are also driving this shift towards virtual worlds. We think that some European tech businesses could be key enablers of the metaverse, while several software and luxury companies in the region are also tapping into this nascent trend by launching platforms, selling non-fungible tokens (NFTs) and offering virtual experiences that have the potential to strengthen brand loyalty and boost industry profits.

The metaverse goes mainstream

When one of the largest companies in the world rebrands itself as Meta, investors should at the very least take note. The company previously known as Facebook spent $10bn on the metaverse last year and has announced plans to hire thousands of workers to build its own virtual world. But it’s not just Meta that is looking to expand into the metaverse. Companies around the world are paying attention and mentions of the term in company transcripts have rocketed over the past year (see chart 1).

Chart 1. Mentions of the metaverse in company transcripts

Source: Factset, as at 31 March 2022.

Meta is going after the metaverse because it believes that this network of 3D worlds could become the computing platform of the future. The metaverse will be accessed via virtual and augmented reality headsets and cryptocurrencies used to buy goods and services. It is still early days for the metaverse and optics and battery technology need to improve for headsets to become viable, but that doesn’t mean the idea is without merit. For the first time, cloud computing power and internet speeds are strong enough for virtual worlds to become a reality, and the metaverse will build on rapid advances in cloud, edge, 5G, blockchain, and cryptocurrencies.

The metaverse will create a new generation of winners and losers

Changes to computing platforms create winners and losers and tech firms across the world are jostling to gain first-mover advantage. US tech firms have dominated previous technological shifts, with Microsoft and Intel leading the development of desktop computers and Apple and Google driving the transition to mobile. European firms such as Deutsche Telekom and Nokia also tried in vain to keep up but in the end lacked the continuous innovation needed.

Meta is clearly leading the charge with its Occulus headset platform and Asian companies such as Tencent, Netease, and Baidu are also launching software and platforms that offer virtual experiences. But despite the heightened attention on these large US and Asian players, we think that European companies will this time around also play an important role in developing and participating in the metaverse.

Europe is home to key metaverse enablers

To begin with, contrary to prior cycles Europe is not asleep when it comes to innovation (read our piece from last year to find out more) and European venture capital (VC) funds raised across areas such as the metaverse and blockchain have all shot up over the last year. European VC investment is even approaching that of the US (see chart 2, right hand side axis).

Chart 2. European VC capital raised across emerging tech themes

Source: Third-party data from Finsmes, Techcrunch, Livemint and press reports in Reuters and Yahoo (press reports are not confirmed and the companies have not commented), Pitchbook, Morgan Stanley Research, March 2022.

The business-to-business focus of European tech firms means that their innovations have largely flown under the radar. However, Europe has many competitive companies that are well positioned in areas such as semiconductors and 3D design, which will play an important role in building the metaverse.

For example, Dutch company ASML provides chipmakers with the hardware, software, and services to produce patterns on silicon wafers. Chips are a vital component of virtual and augmented reality headsets and gaming consoles and as the metaverse creates demand for ever more powerful chips, semiconductor foundries such as TSMC, Intel, and Samsung could all increase orders for ASML’s extreme ultraviolet lithography machines. That means that ASML could become an important indirect enabler of the metaverse.

Meta is going after the metaverse because it believes that this network of 3D worlds could become the computing platform of the future. The metaverse will be accessed via virtual and augmented reality headsets and cryptocurrencies used to buy goods and services. It is still early days for the metaverse and optics and battery technology need to improve for headsets to become viable, but that doesn’t mean the idea is without merit. For the first time, cloud computing power and internet speeds are strong enough for virtual worlds to become a reality, and the metaverse will build on rapid advances in cloud, edge, 5G, blockchain, and cryptocurrencies.

The metaverse will create a new generation of winners and losers

Changes to computing platforms create winners and losers and tech firms across the world are jostling to gain first-mover advantage. US tech firms have dominated previous technological shifts, with Microsoft and Intel leading the development of desktop computers and Apple and Google driving the transition to mobile. European firms such as Deutsche Telekom and Nokia also tried in vain to keep up but in the end lacked the continuous innovation needed.

Meta is clearly leading the charge with its Occulus headset platform and Asian companies such as Tencent, Netease, and Baidu are also launching software and platforms that offer virtual experiences. But despite the heightened attention on these large US and Asian players, we think that European companies will this time around also play an important role in developing and participating in the metaverse.

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