Apple Just CRUSHED Zuck's Metaverse

Mark Zuckerberg is fighting tooth and nail for the Metaverse, but it's not going well. The value of his company just fell by $230 billion in a single day. And that's largely because of increased competition from other big tech companies. Everyone wants to capitalize on the next era of the Internet, but no one has put more pressure on Zuck than Apple. This might surprise you, because most people associate the Metaverse with virtual reality, and Apple hasn't released a VR headset yet. But Apple has three advanced business strategies that will essentially make it impossible for Zuckerberg to win in the long term. If technology trends continue to progress exponentially, trillions of dollars will be up for grabs. As we shift to an increasingly connected world, everyone is going to want a piece. So let's dig into how Apple plans to stay on top. Virtual reality will clearly be an important part of the Metaverse. Just look at the success of VRChat, which recently hit an all time high of 40,000 concurrent users. Now, that's still small by the standards, but with more and more people buying VR headsets each year, the technology is clearly here to stay. But Apple has taken a peculiar stance on virtual reality. Even though 7 million people bought Oculus headsets last year, over 230 million people bought iPhones. And these new iPhones come with some key pieces of hardware that make it clear that Apple thinks augmented reality and not virtual reality is the future. Now, to be clear here, Apple has been dabbling in virtual and augmented reality for decades and even showcased a prototype headset all the way back in 1987. But Apple is an incredibly secretive company, and they don't typically announce new products until they're ready to go. When Steve Jobs announced the original iPhone, it shipped just six months later. But even though Apple hasn't said anything publicly about their augmented reality project, there is a good amount of information out there about it if you look close enough. See, back in 2015, a financial analyst published a report claiming that Apple had quietly built a small team to explore the augmented reality field. Google Glass had just launched a few years earlier and ran into a number of adoption issues. People felt like they were being spied on since the headset had a camera on it. And in general, the user experience was pretty awkward.

It's very much one of these where they're clearly not looking in front of you, they're reading something. Like something's hovering up above your head and you're like, what are you looking at over me.

Apple knew that launching a half baked product Would tarnish the brand they had spent decades building. So they took their time with the project and and started laying a foundation for a truly revolutionary product. In order to build this team, Apple hired hundreds of engineers and product designers to focus on augmented reality full time. They also started buying up any company that had relevant expertise. Apple's first purchase was Prime Sense, a company that had figured out how to track body movements and use them to control computers. Next, they bought a company that could quickly create augmented reality scenarios. The tech was still rough around the edges, but has improved steadily over the past few years. Then Apple acquired three separate companies that were working on facial capture and analysis. This technology not only enabled face id, but also went on to power the Animoji system that's available on newer iPhones. Animoji might look primitive compared to the remarkably realistic animated faces we see in big budget Hollywood movies, but it's an important stepping stone to enabling emotive communication in the metaverse. With facial recognition quickly becoming a solved problem, Apple has moved on to buying companies focused more directly on augmented and virtual reality. In 2017, they bought Vrvana, which had been working on a mixed reality headset called Totem. And then one year later, they bought Akonia Holographics, which was focused on making lenses for AR glasses. But these acquisitions aren't the only way to track Apple's progress in augmented reality. They also have a ton of publicly available patent filings, and these actually date back even further. In 2008, Apple patented four different prototypes for head mounted displays. This was years before Oculus even started, and it's crazy to think about it, but Facebook didn't even have a mobile app back then. These patents look pretty basic by today's standards, but they show that Apple was exploring every possibility. There was even one that showed an iPhone slotted in directly in front of the user's eyes, much like Google Cardboard and Gear VR would do years later. And more recently, apparently, Apple patented a finger mounted device that will allow users to control virtual content using natural hand movements. So Apple is clearly spending a ton of time and effort on research and development here. But people often overlook what Apple is doing right in front of our noses. See, Apple might be delaying the launch of a real pair of AR glasses, but they aren't holding back on adding those innovations to their current products. Every year, the iPhone, the iPad, and the Apple Watch become slightly more powerful, and it can be easy as a consumer to move miss what's really going on? Apple has been slowly shrinking every piece of technology and including more Sensors in each iteration. For example, LiDAR sensors are extremely valuable when you're trying to map an environment in augmented reality. And Apple has been able to get this technology in the hands of hundreds of millions of people. It started with the top tier iPad, but now lidar ships with each new iPhone Pro. These phone enabled experiences are still far cry from the immersive worlds that Zuckerberg has promised. But Apple has an army of independent app developers who who are eager to capitalize on every new piece of technology Apple deploys. This wouldn't be such a problem for Zuck if Apple products weren't so popular. See, Globally, only about 20% of people carry iPhones. But among young adults in America, Apple's market share is 70%. So when developers want to release the next big app, they look to Apple immediately. Instagram is a perfect example here. They wanted to capture that young American market, so they went a full two years without an Android app at all. This is exactly what Apple wants to have happen. And if this strategy works, the Metaverse will just slowly develop on top of Apple products and they will essentially win by default. But this strategy is a double edged sword that could wind up killing the Metaverse before it even gets started. And to understand why, we have to look at this one simple button. It's the App Store purchase button. And if you've ever used an iPhone, you're probably very familiar with it. But behind this simple design lies one of the most controversial business models in history. It wasn't controversial at launch though. When Steve Jobs first introduced the App Store to the public in 2008, the audience cheered.

There is no charge for free apps at all. There's no charge to the user.

It seemed like an amazing deal. After all, there was no way for developers to load custom software onto iPhones at the time. And the App Store had no hosting fees, no marketing fees, and no credit card processing fees. But the next decade would change everything. Smartphones became ubiquitous, and every business needed to launch an iPhone app, and fast. The App Store worked perfectly for companies with advertising based business models. In 2018, Facebook and Google controlled eight of the top 10 smartphone apps in the US and because these apps were free to download, Apple didn't get a cut of the revenue they generated from advertising. But things are changing. Increasingly, people are willing to pay for services that they love, and they don't want to be constantly advertised to. Just look at Fortnite. The game is wildly successful and often pointed to as an excellent bridge to the Metaverse. What started exclusively as a competitive Shooter is now regularly hosting concerts. In a few years, I wouldn't be surprised if you can do a whole lot more. There's only one thing standing in the way. Apple's App Store fees. Even though games like Fortnite are free to download, Apple still takes a 30% cut of in app purchases. This might have seemed reasonable in 2008, when the iPhone was still brand new. But when developers have the option of going direct and paying just 3% to a service like Stripe, 30% seems exorbitant. And here's the crazy thing. Apple actually admitted that they couldn't possibly expect to hold on to their precious 30% cut forever. In 2011, an Apple executive wrote an email suggesting that Apple should consider consider lowering the fee once they started making over $1 billion per year. Well, that never happened. And Apple made $85 billion from the app Store last year, way beyond that proposed cap. So why does this matter and how does it affect Zuckerberg? Well, we have to clarify our definition of the Metaverse a bit here. See, I don't think it's fair to just throw on a VR headset and say that you're in the Metaverse. That's cool and all, but it's not quite what people mean by the term. It's best to throw out the buzzword and just ask the question, what will the Internet look like in 10 years? Will VR be a part of it? Almost certainly. But there are going to be a ton of other important developments. The type of content that can be streamed will change thanks to faster wireless connectivity. More real world data will be represented virtually, enabling the type of AR experiences that Apple is working on. And entire economies will develop online. This last part is really critical. We're already seeing some of this happen with crypto communities and and game development is increasingly funded by the sale of virtual goods. As soon as people can start trading digital items and moving them from one virtual world to another, markets for these items should flourish. But Apple wants to take a 30% cut of every transaction that happens on an iOS device. And that could wind up crushing innovation. When Apple launched the App Store, they promoted it with an amazing ad campaign called There's An App for that. It was remarkably catchy and introduced the world to the idea of apps as friendly and helpful tools that they could easily download. One big benefit of the App Store was that every piece of software was reviewed by Apple.

Now, will there be limitations? Of course there are going to be some apps that we're not going to distribute. Porn, malicious apps, apps that Invade your privacy. So there will be some apps that we're going to say no to.

That safety guarantee from Apple was a huge boon to user adoption. Everyone from children to grandparents felt comfortable downloading and using apps. But Apple didn't just restrict malicious apps, they they also put up barriers to competition. Steve Jobs made this crystal clear in an email to his team when he I think this is all pretty simple. Ibooks is going to be the only bookstore on iOS devices. Adoption of the Metaverse will most likely be driven by today's young adults, and 70% of them are currently using iPhones. If people end up wanting to use their iPhones and Apple watches to interact with the Metaverse, Zuckerberg is going to have to fork over 30% of his profits. Apple is pressuring Zuckerberg on two fronts. Right now. They're leveraging their top tier product development teams to build competitive AR hardware and then standing strong on their app store fees to ensure they get a cut of mobile revenue going forward. But there's actually one more reason why Apple is in such a strong position. And to understand it, we have to go back nearly 40 years in history. It was 1983, and the computing revolution was well underway. Personal computers were making their way into the homes of everyday people, and technology was beginning to transform every aspect of American life. Apple was still a small company back then, and Steve Jobs needed to recruit as many talented people as possible. So he traveled to Aspen, Colorado, and gave a speech at the International Design Conference. In his speech, he outlined a remarkably prophetic vision for the future of technology.

Apple's strategy is really simple. What we want to do is we want to put an incredibly great computer in a book that you can carry around with you, that you can learn how to use in 20 minutes. That's what we want to do, and we want to do it this decade. And we really want to do it with a radio link in it so you don't have to hook up to anything. You're in communication with all these larger databases and other computers.

The device he was describing sounds a lot like an iPad to me. But here's the thing. Jobs wanted to ship this device by 1990, but the iPad didn't launch until 2010, so he was off by 20 years. Even so, the iPad wound up becoming a massively successful product. And there's an important lesson here. Even when technology entrepreneurs can predict the future accurately, they often get the technical timing wrong. That's okay, though. As long as the technology does arrive, eventually, they'll be remembered as visionaries. So here's the key. Can Zuckerberg deliver on the vision he's mapped out within a reasonable amount of time? Apple was still a small company back in 1983. Meta has 58,000 employees. Zuckerberg is clearly going to be duking it out with Apple for the next decade. And there's still the question of how Fortnite and Epic Games fits into all of this. The story of how Fortnite became so massive is really fascinating, and you can learn all about it by watching this video next. Thanks a lot.