European companies, investors and talent are all vying for a ticket on the metaverse hype train. Even political heavyweights are making strides — or at least making statements.
French President Emmanuel Macron wants to build “a European metaverse” to challenge American and Chinese tech giants. The EU’s digital chief, Margrethe Vestager, is meanwhile considering new antitrust rules. But their ambitions are far from being realized.
“The reality is that there is no European major technology player that is relevant in that whole metaverse future,” said Rolf Illenberger, the co-founder of Munich’s VRdirect, a virtual reality platform for enterprises. “It is determined by American and Asian players. Those are the two regions where this technology will develop.”
Their biggest global challengers are located in Asia. Bytedance, the owner of TikTok and VR hardware giant Pico, is the biggest contender, but more competition is emerging from the likes of Huawei, Tencent and the sandpit virtual world.
European startups are lagging behind their American and Asian counterparts.
Europe, on the other hand, is largely limited to niche operators and startups. These range from Finland’s Varjothat produces high-quality headsets, to Estonia Ready Player Mea cross-game avatar platform that recently raised $56 million in a funding round led by VC giant Andreessen Horowitz.
Jake Stott, CEO of Web3 and metaverse advertising agency hype, is also optimistic that Europe’s renowned fintech sector can produce future payment providers in the space. However, he recognizes that they face major challenges.
“Historically, European startups left behind their American and Asian counterparts when it comes to producing unicorns,” he says. “Europe is also lagging behind the US when it comes to attracting venture capital. This is perhaps one of the areas where government support can help the continent’s fledgling metaverse ecosystem – by removing barriers to growth and creating incentives for VCs.”
Europe’s metaverse financing problem
Petri Rajahalme has his own plans to close the financing gap. The Finnish entrepreneur and his business partner, Dave Hayes, recently launched FOV companies, the first VC firm to specialize in metaverse start-ups 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 historic mergers and acquisitions, many of the companies that [businesses] have hooked up talent from Europe… The big question is how do you keep that talent in Europe?”
The talent pipeline often flows to the best financial incentives. Finland, for example, offers free and quality education, but the salaries offered upon graduation are not comparable to those in Silicon Valley.
EU grants can provide some support in scaling up, but applying for them is extremely time consuming and funding is limited. FOV Ventures prefers to keep talent in Europe through early funding and go-to-market expertise.
An important part of the strategy is an ‘edge network’ of metaverse professionals from established players, such as Meta and Decentraland. These experts can provide funding and advice on working with major platforms.
Rajahalme also wants European investors to work together to challenge US resources.
“As VCs, we should work very well here in Europe to share knowledge, deal flows and insights – as well as help at the grassroots level,” he says. “This is a big wave, but it’s a wave that’s just getting started and we need to get more and more people involved.”
Rajahalme has invested in this wave since 2016, but admits that the metaverse only entered the mainstream after Facebook was rebranded as Meta.
That doesn’t mean the metaverse is now widely understood. The vague nature of the concept brings problems as well as opportunities.
Building the unknown
“As a legislator, we now have to think about how we can regulate something [that] is not there, or [that] already exists, but in a smaller dimension,” said MEP Axel Voss at a recent roundtable discussion.
Definitions of the metaverse abound. Neal Stephenson, who coined the term in his 1992 novel snow crash, describes the real version as a “3D Internet”. Mark Zuckerberg, meanwhile, envisions “a virtual environment where you can be present with people in digital spaces” and “an embodied internet that you are in rather than just looking at it.”
Rajahalme prefers the description taught by fellow investor Matthew Ball:
“A massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and permanently by an effectively unlimited number of users with an individual sense of presence and continuity of data, such as identity, history, rights, objects, communication and payments .”
All of these definitions allow for numerous use cases – and charlatans.
Virtually real or just assorted buzzwords?
if you trust Meta (and who doesn’t?), the metaverse lets us move seamlessly between immersive digital spaces for work, education, leisure, and seemingly every other aspect of our physical world.
Some elements of this grand vision already exist. Virtual worlds are the pillars of online gaming, while VR holidays, immersive workplaces, AR training simulationsand “industrial metavers” are also available to consumers.
This multiplicity of applications can capitalize on the strengths of different European ecosystems. For example, the Scandinavians can leverage their great gaming sector, while Germany’s industrial economy offers promising foundations for B2B services in the metaverse.
Critics argue, however, that many “metaverse” vendors merely repackage existing technologies under an all-encompassing buzzword. Their individual applications are also far from integrated. All attempts to impose interoperability between platforms are: full of design challenges.
Illenberger, the founder of VRdirect, has further doubts about the decentralization of the metaverse. He predicts that Chinese and American major tech companies will remain gatekeepers for 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 what you’re going to do is develop apps for Meta and Apple.”
Not everyone agrees.
Some metaverse companies, developers and investors are concerned that EU regulations are hindering innovation.
FOV Ventures founder Rajahalme shares an anecdote about a panel discussion on developments in artificial intelligence in the US and China. The EU representatives present said their ambition was to become the best regulators of AI.
“It’s like the Europeans said we want to be the best at making stop signs when you started making cars,” he jokes.
It is a nightmare to comply with European data privacy rules.
Illenberger, whose company offers custom VR experiences for businesses, has witnessed the downsides of heavy-handed regulation.
One problem arose from VR headsets that used outward-facing cameras to identify the environment. They can therefore easily violate EU requirements for permission from anyone who can be accidentally filmed in a workplace.
These risks have led large organizations such as Siemens to introduce dedicated VR rooms that reduced the risk of violations. Yet these facilities are inconvenient for some companies and unaffordable for others.
“It’s a nightmare to even use metaverse technologies in compliance with European data privacy laws,” he says. “You have to film your surroundings for the device to work.”
The speed with which such rules are changed can hinder innovation — and push pioneers to Asia or the US.
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 the incumbents, European companies can be more successful by working with them. For example, VRdirect has built a business on supporting headsets designed by Meta, Pico, and HTC.
Illenberger argues that such interoperability offers opportunities in the fragmented market. He’s also confident his company can take advantage of tight EU regulations, as companies will seek his services over Silicon Valley stalwarts who have little interest in the rules.
“To some extent, this is a competitive advantage for us,” he says. “But in terms of Europe as a region versus the US and Asia, it’s a big roadblock.”
As for Macron’s vision of a European metaverse that competes with the tech titans while protecting the continent’s rules and culture?
“That’s wishful thinking.”