Epic Games Announces US$1 Billion Round of Funding to Support Future Growth Opportunities (Metaverse Included)

On April 13, 2021, Epic Games announced a US$1 billion funding round, and in a statement within its release, Epic Games CEO Tim Sweeney highlights some of its goals.

We are grateful to our new and existing investors who support our vision for Epic and the Metaverse. Their investment will help accelerate our work around building connected social experiences in Fortnite, Rocket League and Fall Guys, while empowering game developers and creators with Unreal Engine, Epic Online Services and the Epic Games Store.

Investors include Sony (US$200 million), Appaloosa, Baillie Gifford, Fidelity Management & Research Company LLC, and GIC as well as funds and accounts advised or managed by several firms. While the investment to expand social experiences within its gaming properties is fundamental to its business, the mention of the metaverse is considerably more interesting, and any significant advancements on this front will engender changes to entertainment, work, society, and cultures far beyond Epic Games’ sphere of influence—or any one company, for that matter.

The term metaverse traces its roots back to 1992 when it was coined by author Neal Stephenson in his science fiction novel Snow Crash, and while this concept long predates the term—including a number of instances where a virtual world or various projects have elicited allusions to the metaverse—the prevailing technologies, markets, and societies at these points in time were not ready to build toward this future. The metaverse will require a decentralized digital economy and resources (much like the Internet), extended reality devices, open standards for media/content, programming, design, and some form of digital/virtual ownership like Nonfungible Tokens (NFTs); some would also add in the cryptoeconomy. The US$1 billion bet on Epic Games to help bring the metaverse to fruition is compelling for several reasons.

• Epic is headlining the fight against some of the largest ecosystems (Apple and Google) to more widely open its platforms to other sales channels. Ongoing litigation between Epic Games and Apple in conjunction with anticompetitive charges from the European Union (announced April 30 against Apple) could enact changes not only in the mobile app ecosystems but also in the very business models underpinning digital storefronts. While ABI Research is not passing judgment about these ongoing litigations or charges, shifts away from the walled ecosystems would, however, make strides toward widening the doors to the metaverse.
• Epic Games certainly has its own interest in mind with opening up the mobile app model (i.e., keeping more of its revenue from Fortnite V-Bucks). This extends to its Epic Games Store that, on some levels, was intended to challenge the dominance and influence of Valve’s Steam, but more broadly these are competitive steps to further open these markets and offer consumers (and content creators) more choices—again, necessary steps for a metaverse that cannot be controlled by one or a select few companies (or government[s]). Epic’s decision to take a smaller share of game revenue over its storefront (12% versus the prevailing 30% rate, including Steam) has not only pulled more exclusives its way but also has encouraged Microsoft to recently announce its intentions to follow suit with its Windows 10 App Store (for Window Games), matching the 12% rate (Xbox digital game sales will presumably stay at 30%).

• Epic Games’ Unreal Engine (along with Unity’s engine) is also powering many of the 3D environments that are used in virtual spaces, by enterprises, and in gaming. These engines are also supporting critical pieces like Pixar’s open-source Universal Scene Description (USD), which serves as an interchange format allowing previous disparate workflows and applications to work together and in parallel. It also serves as the foundation for NVIDIA’s Omniverse collaboration platform that is being positioned as a tool for creatives in Media and Entertainment (M&E) and in other verticals such as Architecture, Engineering, and Construction (AEC) and manufacturing and is also making calls to the metaverse.

It’s natural to view this US$1 billion investment through a gaming and consumer lens alone, but there is far more at play when it comes to the metaverse. More recent pop culture hits like Ernest Cline’s Ready Player One (2011) and other early media examples often paint the metaverse as a primarily virtual world that offers some level of escapism, but it is actually a fusion between the virtual and real worlds (as originally defined by Neal Stephenson) and is very much akin to the next generation of the Internet. Like the Internet, the metaverse needs to be open and to serve as the conduit for communications, commerce, entertainment, and work. Where the metaverse begins to differ from today’s Internet is the greater depths and expansion of the virtual side and the ways it will connect with the real world.

Like Epic’s work on the metaverse, perceptions around virtual worlds and goods need to evolve beyond gaming and entertainment. Linden Lab’s Second Life, created in 2003, offered an early glimpse of some of this broader market potential and economies (e.g., creating and selling virtual items, real estate, events), but as is often the case, it was ahead of its time. The push to remote and hybrid workforces is already drawing attention to immersive collaborative solutions and companies like Virbela. Virbela recently took top honors in ABI Research’s recently published immersive collaboration competitive assessment and presents an early preview of how virtual and real worlds will converge; Virbela is also notably talking about the metaverse. As virtual offices adopt floor plans and office spaces of their real-world counterparts, employees and visitors will begin to interface more seamlessly across these environments. Just as virtual real estate begins to take shape, individuals’ virtual selves will similarly begin to take on more elements of each individual.

• More realistic avatars that leverage LiDAR on mobile devices to scan a person’s face—coupled with realistic eye, facial/mouth movements and expressions (with eye and facial tracking)—will lend a 1:1 translation from the actual person to their virtual counterparts.
• Virtual goods, which today often take the form of cosmetics in video games locked within each title or platform, will become NFTs and will become untethered to any single game or virtual ecosystem. Content spending and the concept of “ownership” of digital goods (and content) will change as digital/virtual items become transferable and transactable goods. Virtual clothing and accessories, for example, will span video game worlds, virtual offices, and spaces more broadly to allow anyone to create a universal virtual persona.
• The arrival of mainstream/consumer-targeted smart glasses will provide the strongest connection between the virtual and real worlds and extend this linkage beyond mobile devices and fixed screens (i.e., kiosks and digital signage/displays). In addition to virtual displays for ads, promotions, and content, the smart glasses could also overlay virtual goods owned by people who want to display these items for the public to see. All of this will leverage the upgrades coming to cellular networks with 5G and the increasing availability of compute resources arriving closer to the edge—both in terms of embedded device compute and the network edge. Cloud services, more efficient storage, distribution, and localization of content and services (along with marketing/advertising) will dramatically change when the metaverse extends to augmented reality and public spaces.

The creation, sale, and transferability of virtual real estate/locations, assets, and goods will require cross-application and cross-platform compatibility—this is why USD is viewed as a key potential driver for the metaverse. Similarly, many people point to cryptocurrencies and the wider cryptoeconomy as a way to ensure these markets remain democratized and beyond the bounds of any centralized control.

While Epic’s efforts in the metaverse will start in gaming—Activision Blizzard’s CEO Bobby Kotick has also spoken about the coming metaverse—the groundwork and foundation being laid through cross-platform/application development and support, workflows moving to the cloud (and to distributed compute resources), hybrid workforces, and the rise in demand for virtual goods (NFTs included—even if art and sports/video clips become just a passing fad) will contribute toward extending the metaverse well beyond M&E. Companies will need to view these technological transitions made today and in the near future within the context of this longer-term evolution.

While protected ecosystems yield competitive advantages and can exert better controls (i.e., ensuring high quality), the markets are increasingly moving toward openness and flexibility. The adoption of USD in the film and visual effects industries is now mounting interest from AEC, manufacturing, design, and so on and is a testament to how work processes that were once siloed, disjointed, and often led by a few significant players controlling certain portions of the chain are now influencing these workflows to be more fluid end to end. These are critical steps not only toward a metaverse but also to greatly improve work efficiencies and to drive innovation forward.

The question often arises, will this platform become the metaverse? Or, in this case, will the US$1 billion investment into Epic Games allow the company to create the metaverse? But these are clearly the wrong questions because no one company will create the only metaverse, just as no one company created the Internet. Increasingly, the right question is no longer “Will the metaverse become a reality?” but “When and how?”