European companies, investors and talent are all vying for a ticket on the Metaversum hype train. Even political heavyweights are making moves — or at least declarations.
French President Emmanuel Macron wants to build “a European metaverse” to challenge US and Chinese tech giants. Meanwhile, EU digital boss Margrethe Vestager is considering new antitrust law. But their ambitions are far from being realized.
“The fact is that there is no relevant European big tech player in this whole Metaversum future,” says Rolf Illenberger, co-founder of Munich’s VRdirect, a virtual reality platform for businesses. “It’s defined by US and Asian players. Those are the two regions where this technology will develop.”
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In the US, tech titans Meta, Microsoft and Apple are all set for starring roles Roblox and decentralized already offer popular proto-metaverse platforms.
Your biggest global challengers are in Asia. Bytedance, the owner of TikTok and VR hardware giant Pico, is its closest competitor, but further competition is emerging from Huawei, Tencent and co The sandbox virtual world.
European startups lag behind their American and Asian counterparts.
Europe, on the other hand, is largely limited to niche providers and start-ups. These range from Finland’s Varjo, which makes high-end headsets, to Estonia’s Ready Player Me, a cross-game avatar platform that recently raked in $56 million in a funding round led by VC giant Andreessen Horowitz.
Jake Stott, CEO of Web3 and advertising agency Metaverse hype, is also optimistic that Europe’s renowned fintech sector can spawn future payment providers in space. However, he acknowledges that they face significant challenges.
“Historically, European startups have stayed behind their US and Asian counterparts when it comes to making unicorns,” he says. “Europe also lags behind the US in terms of venture capital raised. This is perhaps one of the areas where government support can help the continent’s fledgling metaverse ecosystem – by removing barriers to growth and incentivizing VCs.”
Europe’s Metaverse funding problem
Petri Rajahalme has his own plans to fill the funding gap. Finnish entrepreneur and his business partner Dave Hayes recently started FOV ventures, the first VC firm specializing in early-stage Metaverse companies in Europe. In March, the duo announced a €25 million fund for startups in the pre-seed or seed phase.
“We don’t lack talent, that’s for sure,” says Rajalhlme. “If you look at historical M&A, many companies are in the US [businesses] talent is coming from Europe… The big question is how do you keep that talent in Europe?”
Rajahalme (right) was formerly the managing director of Nordic XR Startups Fund, while Haynes previously ran HTC’s $100 million Vive X fund in EMEA. Photo credit: FOV Ventures
The talent pipeline often flows toward the best financial incentives. Finland, for example, offers free and quality education, but post-graduation salaries are not comparable to those in Silicon Valley.
EU grants can offer some help with scaling, but applying is immensely time-consuming and funding is limited. FOV Ventures prefers to retain talent in Europe by providing early stage funding and go-to-market expertise.
A key component of the strategy is an “edge network” of Metaverse professionals from established players like Meta and Decentraland. These experts can provide funding and advice on working with large platforms.
Rajahalme also wants European investors to work together to challenge US resources.
“As VCs, we should be working very closely here in Europe to share knowledge, business processes and insights – and also help at the grassroots level,” he says. “This is a big wave, but it’s a wave that’s just beginning and we need to get more and more people involved.”
Rajahalme has been investing in this wave since 2016, but he admits that the metaverse only crept into the mainstream after Facebook was rebranded to meta.
That doesn’t mean the Metaverse is now widely understood. In fact, the nebulous nature of the concept poses both problems and opportunities.
Build the unknown
members of both European Commission and houses of Parliament have called for regulation of the metaverse. However, there is a problem: they do not yet understand exactly what they are regulating.
“As legislators, we now have to think about how we can regulate something [that] is not there, or [that] already exists, but on a smaller scale,” said MEP Axel Voss a recent round table.
Voss (left), a German MEP, and Vestager, the EU’s competition commissioner, lead the EU’s push for metaverse regulation. Source: Martin Kraft and the European Parliament (edited)
Definitions of the metaverse abound. Neal Stephenson, who coined the term in his 1992 novel snow crash, describes the real version as “3D Internet”. Mark Zuckerberg, meanwhile, envisions “a virtual environment where you can be present with people in digital spaces” and “an embodied internet where you are, rather than just looking at it.”
Rajahalme prefers the description given by co-investor Matthew Ball:
“A massively scaled and interoperable network of real-time rendered 3D virtual worlds synchronously and persistently used by a virtually unlimited number of users with an individual sense of presence and with continuity of data such as identity, history, permissions, objects, communications and payments.”
All of these definitions have room for numerous use cases—and charlatans.
Almost real or just thrown together buzzwords?
if You trust Meta (and who wouldn’t?), the Metaverse will move us seamlessly between immersive digital spaces for work, education, play, and seemingly every other aspect of our physical world.
Some elements of this grand vision already exist. Virtual worlds are the mainstay of online gaming while VR vacation, Immersive Workplaces, AR training simulationsand “Industrial Metaverse” are also available to consumers.
Siemens and Nvidia are collaborating to create photorealistic digital twins that are connected to each other in real time to real factories. Source: Siemens/Nvidia.
This variety of applications can play to the strengths of different European ecosystems. For example, the Nordic countries can capitalize on their outstanding gaming sector, while Germany’s industrial economy offers promising foundations for B2B services in the metaverse.
However, critics argue that many “metaverse” vendors are merely repackaging existing technologies under an all-encompassing tagline. Their individual applications are also far removed from integration. All attempts to enforce interoperability across platforms will fraught with design challenges.
Illenberger, the founder of VRdirect, has further doubts about the decentralization of the metaverse. He predicts that major Chinese and US tech companies will remain gatekeepers to the dominant platforms.
“It’s going to be Meta, it’s going to be Apple, it’s going to be Bytedance — they’re going to control the ecosystem,” he says. “If you’re an app developer, you could develop an app for a Varjo, but your target audience will be [tiny]. So they will be developing apps for Meta and Apple.”
These future Metaverse rulers are now entering the Crosshairs of EU legislators proclaiming that strongly privacyand antitrust law Regulation is a competitive advantage.
Not everyone agrees.
Some Metaverse companies, developers and investors are concerned that EU regulations are hampering innovation.
Rajahalme, founder of FOV Ventures, shares an anecdote about a panel discussion on artificial intelligence developments in the US and China. The EU officials present said their goal is to become the best regulators for AI.
“It’s like when Europeans started car production and said we want to be the best at making stop signs,” he jokes.
Complying with European data protection regulations is a nightmare.
Illenberger, whose company offers bespoke VR experiences for businesses, has seen the downside of strict regulation.
A problem arose from VR headsets that use outward-facing cameras for environment recognition. They can therefore easily breach EU requirements for consent from people who could be accidentally filmed in a workplace.
These risks have prompted large organizations like Siemens to introduce dedicated VR rooms that reduce the risk of breaches. But these facilities are impractical for some businesses—and prohibitive for others.
“It’s a nightmare to even use Metaverse technologies in compliance with European data protection laws,” he says. “You have to film your surroundings for the device to work.”
The speed at which such rules are changing can hamper innovation — and push pioneers to Asia or the USA.
The Reality of a European Metaverse
While European companies can play an important role in the metaverse, Macron’s dream of competing with global tech giants is imaginative.
Instead of fighting against the incumbents, European companies could be more successful by working with them. VRdirect, for example, has built a business supporting headsets developed by Meta, Pico, and HTC.
Illenberger argues that such interoperability offers opportunities in the fragmented market. He’s also confident his company can benefit from tough EU regulations, as companies will seek his services from Silicon Valley loyalists with little interest in the regulations.
“It’s kind of a competitive advantage for us,” he says. “But in terms of Europe as a region compared to the US and Asia, that’s a big hurdle.”
As for Macron’s vision of a European metaverse that rivals the tech titans while protecting the continent’s rules and culture?
“That’s wishful thinking.”