What is the Metaverse? Can you Develop Real Estate in the Metaverse? How to Monetize It?
What is the metaverse in very basic terms? Why should someone invest in land in the metaverse? Can you be a developer in the metaverse? How to monetize it? Dave Carr, head of Business Development at Parcel, who also previously worked at Decentraland, one of the most popular metaverses, shares his knowledge.
Tell us a little bit about you. I'm the head of Business Development at Parcel, it is a marketplace for virtual real estate in the metaverse, I joined them after 2.5 years at Decentraland, which is one of the more established virtual worlds, which seems a bit strange to say, given how new everything in the metaverse is, but it's one of the most established virtual worlds and it has recently seen a big increase in virtual land sales. Beyond that, my background extends to video games, toys, and entertainment. I've worked in product and brand development as a creative director and content strategist. I've always been around this space of new ideas and new worlds. And the metaverse is a very creative and exciting place currently being developed.
What is the metaverse, from someone that would not even know it is to begin with? The Metaverse is a more immersive version of the internet. In the very early days of the internet, you would go to very specific websites, now it’s very much a seamless part of our lives. But you would visit these destinations, and you would do things and then you would go to another website. I think we can look at the current virtual worlds as these new versions of these websites that you used to visit. If we take an example of Decentraland, you can access it via your regular browser. There are other virtual worlds that you can access from a desktop client, like an app that you will put onto your computer, there are some worlds that you can access through your virtual reality headset and you are effectively walking, or your avatar is, and you look around and see buildings that have been created. You're able to play games, it's what we say is an immersive version of the internet. Then brands and organizations can have an existence and a profile in these virtual worlds, whereby because of its interactive nature, you can interact with brands. So what that means for virtual real estate is that if I am walking through a virtual world, I'm walking around on land that can be purchased and can be used to create a shopfront, a game world, an art gallery, all sorts of different mechanisms and experiences for the people who are logging in and walking around these worlds to interact with an experience.
If any of your audience has children, they will see their kids playing on Roblox or maybe in Fortnight, so for the next generation coming up, they are native to this experience. They understand the notion of using an in-game token to buy a skin for the car or something for the house that they've built, they're creating these incredible worlds in Minecraft. In the case of the decentralized Metaverse, it's a little more different than what Facebook is building, but it means that you have cryptocurrency that is unique to that world, that token can be used to buy the land, or buy things from traders and creators who are putting up these stores in the metaverse, in these virtual worlds. You as the user will own this thing that you buy in the metaverse, for example if you buy a land, then you will own that. It will be unique to you and you will not be able to create a copy of that, that’s a fairly straightforward description of the metaverse and what virtual land is.
Besides being able to create a store in your metaverse real estate, is there anything else that people should understand as to why they should invest in the metaverse? I think if anybody who's reading articles about a landrush in the metaverse, this race to buy properties in places like Decentraland, another very popular one is the Sandbox. If you've been reading about this, you'll have seen that Snoop Dogg has bought a large parcel of land, others who have been keen to capitalize have bought properties nearby and paid huge amounts of money. Then you see a whole heap of other virtual worlds coming up and land is very much a component of what they're offering. For the investor community, the reason why they're going into buying land is because they see that in the long term. If we are talking about this being the next version of the internet, then it's very much having those pieces of real estate that will be potentially high traffic areas, and potentially resell it to brands who are also looking to get a foothold in this space. If people are going to be spending a lot of time in the metaverse and we're going to be doing a lot more daily interactions with it than to hold land in that space, I think it is seen as valuable.
There's another perspective if you are part of that creative class, this comes down to who are the types of people who are buying in the metaverse, you have that investor group, the creators who want to, let's take the example of fashion, which I think is going to be a big area in 2022. In fact, many of the big purchases of the last month or so have been fashion related. If you have a label, you're able to purchase land, put up a storefront, attract users to your store and sell items that can then be transferable for physical items potentially. There are organizations that exist, on protocol for example, who bought a large parcel of land and who are bridging the gap between virtual and physical assets. You can redeem for physical assets in the physical world and vice versa. And there are also brands and organizations that are buying into the metaverse as well, because they see that there is a growing number of people who are existing in this space and creating, enjoying concerts, art galleries, etc. So they obviously want to be where the foot traffic is, I think you're probably looking at three main types of people who are getting into this at the moment.
I get the part that we don't have to deal with tenants, we don't have to deal with leaky roofs or cleaning up after anything, you can lease the property out. Is there anything else that an investor would be able to monetize within the metaverse that we haven't covered yet? I think anybody looking to buy land in a virtual world really needs to think about the long game. Let's think about it like a video game, you can be a console owner, like you can own PlayStation, an Xbox, or a Nintendo, but if you don't have the games and the experiences on that console, it's just a box. I think you can probably think about this the same way with virtual worlds, you can build these worlds, you can sell the land. But if there is no value being added to these properties, in the form of festivals or games that people enjoy playing, or content that makes people want to visit and also come back and revisit then the land will not have the value.
And I think this is very much an economy that is going to be created and driven. There appear to be a lot of benefit to getting in early and to investing. Anybody who is looking to buy needs to do their homework on what the community is doing. What is the long term goal? What partnerships are they creating with brands, with organizations and with creators? How are they incentivizing users? Are there benefits to users coming in and creating things? We see a lot of different mechanisms like play to earn, you'll start seeing things like build to earn so you'll be compensated for building. In terms of monetizing and earning a return on your investment, I think it all comes down to what you do with the land as an owner. You can rent that land so there can be a rental income, there are also things like fractionalization that could potentially divide up the land and sell off those individual parcels.
That could be to an advertising company to put up advertising experiences or billboards, or it could be in the case of a tower block renting out different spaces within that tower block. There are Metaverse projects out there that are looking into these different types of arrangements and selling off land in that respect from a tower perspective or a piece of real estate, that's not just that foundational piece of land. And I think it's important to remember that when you buy land, you're buying an NFT. NFT's are obviously the word of the year. Somebody determined that it was the word of the year in 2021, which is not surprising, but I think when people think of NFT's they think of crypto punks or Bored Ape Yacht Club. These digital artworks, these avatars and NFT's are much more than that. NFT's are the underlying foundation for land, which means that they are not transferable, that they are unique, they have that code and contracts. So when you own that, the possibilities will be in place to rent that land out, fractionalize that land, share ownership, all of these things. On top of that, I really feel that it's going to be what you do with the land that makes the difference. If you're not a creative person but you still want to invest, then that's when things like rentals and fractionalization come into it.You could rent to somebody who could do something incredible with it, that's where investors are seeing that opportunity to buy up land in strategic areas of maybe across different worlds and waiting for the mainstream to catch on and they want to have a part of that, they hold the keys so to speak.
Does that mean that I could build a multifamily apartment complex in the metaverse, or condos and sell each unit? I imagine that's entirely possible and that comes down to fractionalization. If you look at some of the things that are coming up with just digital art NFT's, whereby a group of people individually can't afford to buy this one piece of art so they pull their resources, they then identify those pieces that they each want to have shared ownership. And just as a developer puts up a building, then each of those different apartments are bought by different people, and they form that corporation that ends up managing the building, then I think there's no reason why this couldn't happen in a virtual world.
So the way that we could subdivide that parcel into other parcels is just by selling to a group of people, instead of actually subdividing it in the metaverse? Yes, my example before was how fractionalization works with that particular type of NFT. I think there's every possibility that you would be able to take the overall piece of land and then to subdivide that. There are organizations and companies working on that, I know that Parcel, the business that I work for, will support fractionalization down the track. At the moment, it's the early days, if people have the idea they'll find a way to make it happen and the technology that exists now will enable it to happen.
How do I know that my parcel that I'll be buying is in a good location within the metaverse? A lot of people buy virtual land and are very strategic about where they have it. A lot of the advice that I see comes down to if you want to be in a good position in terms of foot traffic, and that makes sense because avatars and users, via their avatars, do port to a certain area. If there is a lot going on in that area, then they will move around between the different experiences. I think one of the other things you have to consider is that you can pull it into an area and you don't have to walk. This idea of foot traffic is a very physical world concept that has been applied to the metaverse and it's not always applicable. If you think about investment in land from a precinct perspective or a district, if a district is devoted to festivals or a district is devoted to games, then you're more likely to stay in that area and move between the different experiences in that area without porting to another place in the virtual world. That resonates for someone looking to buy land, the thought of what I want to own the land for, if I think games are going to be a big thing in the metaverse or this virtual world which looks like it will specialize in games, we see The Sandbox, they’re doing lots of partnerships with game makers, and it enables its creators to make games and monetize those games. An investor might think games in the metaverse are going to be a very big thing, therefore, The Sandbox is probably a more attractive prospect in terms of investments, so I think it's about understanding the different destinations, what they'll be used for, and that can help to determine exactly where you might want to park your money.
I spoke with a friend who told me that avatars could not be transported somewhere else and that was one of the benefits, so you’re saying that you can just click a button and be somewhere else? Within the specific virtual world, yes, you can move between places on the map. For example in Decentraland, you have an art district where all of the galleries that host digital art are clustered, it makes sense for your avatar to walk between those areas. That's why Sotherby’s, for example, recreated it’s London gallery inside that general area. It doesn't make any sense to open the map, click on the spot when you can easily just walk there. Therefore, if you feel that art is going to remain a really big feature, or gaming, or fashion, there's a fashion district in Decentraland as well, or if hanging out with Snoop Dogg is going to be the thing that everybody wants to do, then you're likely to buy land close to that area. So you're going to capture people who are moving to that position. But ultimately, it really comes down to what's happening on that land. And that's what's going to draw people to that real estate.
Which can also change overnight, right? If I have a store in my piece of land today, tomorrow I can have a home? Particularly if you're leasing that land to somebody, then depending on the agreement, the builder on that land is able to effectively do what they like. In a lot of cases, builders will submit architecture and designs to a general creator. A landowner can pull down different things to the lands and try things out for a while, remove that and try something else. So there's a lot of flexibility with what you can do with that real estate. And I think this brings up another interesting point about a concept called interoperability, which is the ability for people, creators and owners to have various different assets to pick up and move those assets between different worlds. So for an investor looking for a spread across different worlds, interoperability is an interesting concept because they can effectively pick up their assets and drop them between Decentraland, The Sandbox, Cryptovoxels, or one of the many other worlds that exist. I’ll use as an example the console, the game that you can play on PlayStation is also the game that can be played on Xbox. There are many companies developing that technology and so it truly becomes this open metaverse.
As you mentioned earlier that you would talk about which is what Facebook is building is different than what The Sandbox and Decentraland and these other metaverses are, is that correct? Yes. Facebook/Meta is in all likelihood going to be a centralized metaverse, what that means is that it is a walled garden, a curated experience, and it's not an experience that people can own. I think there'll be some ownership there, but in the case of a decentralized metaverse, like Decentraland or The Sandbox, the world is owned and governed by the people who own land and hold tokens in those worlds. That means they have the ability to submit policy ideas that are voted on by the community and then are enacted as laws. That's how the community develops, that's what we mean by a decentralized open metaverse. After Meta announced that it was going to build the metaverse, which put a lot of people's noses out of joint because they argued that the metaverse is already being built. You found these two teams coalesced into the open metaverse, that are owned and governed by its people, I'm a landowner, I hold tokens, I get to vote on what I believe the world should be, as opposed to Facebook, Roblox, Fortnight or Epic Games is coming out with. Which are the curated experience.
You have to imagine that, given its wildly successful business model, Meta would likely want to maintain control of the development of the metaverse experience that it is building. It wouldn’t be handing that over to the community, that would be giving away its business. That gives you an idea how these two tribes are shaping up.