Published 31 March 2022 in Magazine ⢠9 min read
Big companies generally donât lead, they follow. They rarely make the first move. But you know something is inevitable when they finally jump. So it is with the metaverse, or virtual reality, or augmented realityâwhatever youâd like to call it.
Except not everyone in Silicon Valley is convinced. Elon Musk of Tesla, for one, thinks of it as âmore marketing than reality.â He contends that the consumer experience remains flaky. You can certainly put a TV on your nose, Musk said in an interview. He just wasnât sure that would qualify anything as part of the metaverse. Â Â Â Â Â
That skepticism hasnât stopped tech giants from betting big. At IMD, weâve been tracking future readiness among companies. And in the technology sector, practically all the top players have either directly been working on or indirectly involved in projects related to the metaverse. Google, Microsoft, Apple, Nvidia, AMD, Amazon, and Alibaba are all in it. Chief among them, of course, is Meta, which has been rebranded from Facebook.
The push is hardly coincidental. It turns out itâs harder than most people think for a tech giant to disrupt the traditional industries. The promise that Silicon Valley would quickly master autonomous driving, telemedicine, financial advisory, and legal services hardly panned out. So tech companies are still searching for new growth. And the euphoric rise of their share prices during the pandemic is ending. Revenues are now slowing. The Nasdaq has been on a plunge. Itâs in this context that the battle for the metaverse is playing out. Companies are colliding on the same course.
You may like to ask, who is great at product innovation? Graph 1 (below)Â displays the relative position among the tech giants. Weâve created graphs like this by running large-scale text analyses at IMDâs Center for Future Readiness. Weâve downloaded more than 10 years of records from more than 60 news source. Weâve written an algorithm to unpack companiesâ behaviors. Weâve fed it the text data and asked the computer to score companies along various constructs. Is the company focusing on near-term opportunities or long-term prospects? Is the management team risk-adverse or risk-seeking? In the graph, we aim to know which company focuses the most on new product innovation; that when compared to its peers, it focuses on pioneering the development of novel products and services? And this reflects on the vertical axis. On the horizonal axis, we ask, which company focuses the most on new market entry in terms of geographic territories with new distribution channels.
Of course, no research method is perfect. Even an annual survey can be biased. But we think leveraging the large-scale reports across a decade will provide us a realistic measure of how things evolve. Â Â Â Â Â Â Â
The result shouldnât be surprising. Microsoft is a poster child for corporate reinvention. Â When Satya Nadella became the CEO of Microsoft, the company was almost in a free fall. Product flops were common â Zune, Vista, Kin, and Bing. The software giant took a $900 million write-down on unsold Surface tablet inventory. It was losing out to Amazon, Apple, and Google in music players, e-readers, and smartphones. And the PC market was in decline.
Today, Microsoft has made the transition to a subscription for Office 365. Itâs broken into cloud computing with Azure. Itâs strengthened its leading position in the gaming sector via Xbox. In November 2021, the company was valued at all-time high.
Then you have Apple succeeding in new market entries because of its commercial discipline. Tim Cook is the true master of scaling up excellence. And Apple is a scaling machine that has brought the iPhone not only to the US and Europe, but to China as well. Not just in good times, but also during the depth of the pandemic, when there has been a shortage of chipsets.
What this shows is that you canât run experiments forever. At some stage, success requires commercial discipline and a strong execution plan to realize meaningful results. When it comes to hardware and software integration, no tech giant has so far been as successful as Apple in capturing the upswing opportunities at a global scale.
âEven when Facebook wants to move fast, it really canât. Itâs ability to innovate is hampered by its lack of likeability among the publicâ
Tech giants have no time to spare. They donât predict the future; they make it. Facebookâs Oculus says youâll get to metaverse through Quest 2. Microsoft say you should wear a HoloLens 2. Google these days focuses on image recognition for augmented reality. Thereâs hardly any agreement. In fact, itâs a fight for a dominant standard.
They approach the opportunity differently because they are limited by who they are, or what they are good at. Some companies are better at forming strategic alliances and undertaking joint ventures than others. In Graph 2 (Strategic Partnership, below) we look at the propensity of companies forging relations with other organizations.
It explains why Microsoftâs HoloLens is now veering towards industrial application. Each industry has its distinct flavor. The use-case scenario of a mining operation implementing augmented reality will be infinitely different than that of a warehouse operator. The remote assistance provided to workers retooling production equipment has little resemblance to that required for a healthcare worker. Compared to gaming, for instance, the use-case scenario for industrial application of a metaverse is vastly varied.
The implication here is when the usage requirement becomes exceedingly complicated, a company needs to partner with many others to deliver useful solutions. To do so, it needs to behave like a trusted partner or at least a benign giant. Appleâs notoriously closed approach could mean that it might miss out on a broad-based adoption in the enterprise sector. But this way of working can also be a strength, especially when the product remains novel and user experience remains unstable.
Remember that when Google Glass was released in 2013, Google touted the benefits of augmented reality to the masses. Priced at a premium of $1,500, the product was pitted against other top-end smartphones. Consumers naturally thought they would see information of all kinds with their gaze fixed upon anything and be able to pull that information from sources like Twitter, Facebook, and Wikipedia. When futurist Robert Scoble brought home the prized item, his wife asked eagerly: âCan I look at someone and see something about them?”
Predictably, Google Glass fell short of all expectations. The technology wasnât ready yet, not even for Google. What this early example illustrates is for a new technology to take off, market demand is driven by its relative performance in relation to existing alternatives. Unless the immersive experience delivered by a headset becomes compelling enough, the metaverse has no use case. This doesnât mean the next version of the internet is not arriving. It doesnât mean tomorrowâs cyberspace canât be immersive, 3D, and all folded together. It doesnât mean that disparate websites and online services and NFTs and cryptos canât come under one roof. It just means that wonât come in the current form of a headset that straps around your skull.
The late Harvard Business School professor Clayton Christensen, who coined the term âdisruptive innovation,â once explained the imperative of such vertical integration. When the product was still ânot good enoughâ, which is the current state of metaverse, performance is driven by integrated architecture. Like that of Tesla, which also packs batteries, writes firmware, and builds charging stations, in addition to developing its own electric vehicle. Like that of the smartphone in its nascent stage some 15 years ago, when it was pioneered by Apple. Only when a product becomes âgood enoughâ does modular architecture become more effective. This is when companies can specialize in a smaller scope of activities. Some make software, some makes hardware, and still others make third-party applications. This parallel effort delivers greater speed of innovation with lower cost. But it requires a standard thatâs already proven to work.
So if you want to predict the winner, you can bet on the one that integrates firm activities to solve difficult problems. For a product that is novel and new, problem solving cannot be outsourced yet. It requires the leaders and employees of an organization to wrap their heads around all the nuances. To do it right, they need to do it themselves.
But Zuckerberg is a wild card. More than anyone else, he is standing on a burning platform. At the last company earnings announcement, Metaâs CFO foresaw a loss of $10 billion in revenue in 2022 due to Appleâs privacy change in iOS. Its share price promptly dropped by more than 20% and has yet to recover. Other tech giants may see the metaverse as a new opportunity for incremental revenue.
But for Zuckerberg, it is an existential crisis. Here is a CEO who has the absolute control over Meta and can single-handedly channel corporate resources to where theyâre needed, with no board members or investors who can veto his directives or get him fired. And he has chosen the metaverse as the solution to restore the future prospects of the company. He has even renamed the company for that. He has burned all bridges without looking back. Regardless of the outcome, Meta will forever be an iconic case study in the corporate annals.
Zuriati Balian, data scientist at IMDâs Center for Future Readiness, contributed to this article.
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