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.
French software maker Dassault Systemes could play an even more direct role in making the metaverse a reality. The company’s digital twin technology replicates physical objects and processes and helps companies run virtual simulations that could be transferred into the digital world of the metaverse. It owns computer-aided design files needed to make hyper-realistic digital images and will therefore provide the tools used to design objects within the metaverse and make virtual worlds come to life.
Dassault Systemes is working with companies across industries on metaverse-related technologies. For example, it has developed a simulated 3D heart model as part of its Living Heart Project and is exploring how simulation could be used to test medical devices and even simulate surgeries in the virtual world. The company has also formed partnerships with major aviation firms and is looking at how digital twin technology can improve how planes are designed and operated. In time this sort of technology could be used to link mechanics across the world and build planes in the metaverse, something that US plane maker Boeing is exploring according to an interview with the company.
Metaverse platforms and software are on the rise in Europe
Software and apps are developing in tandem with metaverse hardware and there are several European companies looking into the opportunities thrown up by virtual worlds. Spanish technology travel company Amadeus recently launched a partnership with Microsoft and is exploring how it can mix physical and virtual holiday experiences using the US tech firm’s gaming unit. German software company SAP has confirmed that it has been approached by its partners about collaborating on metaverse opportunities and has discussed potential business-to-business applications such as learning or commerce.
Several unlisted companies have also launched platforms that are helping to bring the metaverse into the mainstream. Stage 11 is an immersive French music start up launched in 2020 that is bringing together gaming, lifelike performances, and digital collectibles, allowing fans to use interactive NFTs (digital assets that links ownership to unique physical or digital objects) to create unique content and perform with artists. Another French company, Sorare, is making a name for itself with its NFT fantasy football game that allows users to buy, trade, and play with digital cards. Portuguese headquartered start-up Exclusible is a premium marketplace for luxury digital collectible assets. The platform enables a brand’s digital assets to be designed, minted and shared in a trusted environment.
European consumer companies tap into the metaverse
European consumer companies are increasingly forming partnerships with leading tech firms to lead the charge to become key metaverse beneficiaries. For example, Meta (then known as Facebook) partnered with Italian-French optics firm Essilor Luxottica in 2020 to create augmented reality Ray Bans, while last year Roblox joined forces with Kering-owned Gucci to create a two-week virtual experience for customers. German clothing company Adidas partnered with leading US crypto exchange Coinbase, while luxury French firm LVMH launched a game that players can enter to win a free NFT items. Balenciaga, which is also owned by Kering, developed a company-themed hub within the Fortnite gaming ecosystem that allowed gamers to buy items from a real-world clothing line.
It is early days and many of these initiatives are still small. Digital revenues for luxury brands are currently low and not all companies are convinced. One CFO of a large luxury company summed up the industry’s reservations when he quipped in a recent meeting that his firm would not be selling $1,000+ luxury items on the cheap in the metaverse, fearing that the metaverse could dilute their brands (although he qualified that they would be interested in doing limited edition drops). Many of the more established brands initially see the metaverse as a marketing opportunity and are not completely decided on the best way to monetise it.
Over the longer term however the potential of the metaverse could be very large. Estimates from Morgan Stanley suggest that over the coming decade the metaverse could boost the luxury industry’s profits by 25%, with metaverse gaming and NFTs set to constitute 10% of the sector’s addressable market by 2030. Given the high margins of many of these digital products, the metaverse could clearly have a meaningful impact on share prices.
Europe could gain a significant slice of the metaverse market
We think that the market has underestimated the key role that many European companies will play in enabling, developing and benefiting from the metaverse. Companies in the region are becoming involved across the metaverse value chain, from providing the glasses and 3D designs that will help virtual worlds come to life to using NFTs and gaming ecosystems to build brand strength and customer loyalty. Certain European companies (in particular in the luxury space) are on equal footing with global peers when it comes to the metaverse and we believe they could gain a far more significant slice of this new market than European companies managed to secure in either of the previous technological shifts to desktop computers and mobile. For patient investors willing to dig beneath the surface, European companies offer a plethora of ways to gain exposure to what could be the computing platform of the future.
 ‘Luxury in the metaverse’, published by Morgan Stanley on 16 November 2021.
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