The Breakdown - What Facebook’s Patents Tell Us About the Fight for the Soul of the Metaverse

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, Abra, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, January 23rd, and that means it's time for Long Reads Sunday. And today, the theme is the corporate versus open metaverse. Before we get into that, however, if you are enjoying The Breakdown, go subscribe to it, rate it, review it, or join the Discord. The Breakers Discord is where we discuss not just the shows, but anything going on in this industry or frankly beyond. You can find the link in the show notes, or you can go to bit.ly slash breakdown pod.

Starting point is 00:00:52 Finally, a disclosure. In addition to them being a sponsor, I also work with FTX. Now, one of the big themes from this week that we've been discussing, especially in light of Microsoft's big acquisition of Vactivision, Blizzard, is that there are very competing visions for a Metaverse coming to market. One is an open, permissionless, interoperable kind of crypto-powered system. The other is a new type of owned-walled garden that sure maybe has NFTs, but ultimately is still controlled by the same people who control all the social networks and internet experiences now. We should remember, right, that the term Metaverse has an inauspicious origin.

Starting point is 00:01:29 It was coined by Neil Stephenson in the book Snow Crash and referred to a corporate dystopia. Even the oasis of Ready Player 1 was a corporate affair ruled by a benevolent dictator, and the whole battle was trying to keep control in the hands of a nude benevolent dictator. And I think this is relevant because when Facebook announced their shift to meta, there was sort of shockingly all positives in the crypto industry. And on the one hand, it's understandable, right? It was validation.

Starting point is 00:01:54 But potentially, meta represents a very different type of force than all the things that people who were cheering it on are building. That, I think, is perfect setup for, for this week. The Financial Times wrote a piece where they reviewed hundreds of patent applications from meta relating to the Metaverse. Many of these patents have to do with taking advantage of user's biometric data in order to help shape what the user sees. But many of them also make it clear that the business model of the Metaverse that Facebook sees is basically just a one-to-one mirror of the existing ad-based model of social networks. So what are some of these patents? Well,

Starting point is 00:02:30 there's things like personalized augmented reality advertising based on interactions, which again is just the current model but brought online. There's brand sponsorship of digital stores, third-party sponsorship of the appearance of objects in virtual retail stores, and all of this is sort of to be expected, and it's also worth noting that patents don't mean that those things will be brought to market. But the thing that has people more concerned is that there are lots of biometric tools available in Facebook's version of the Metaverse that aren't currently available to them now. For example, eye-gaze direction and pupil activity that contains implicit information about interest can be directly monetized through advertising.

Starting point is 00:03:07 Now, from Facebook's point of view, they view this similarly to how they do things now, where they're not selling data to advertisers per se, they're serving ads based on the data that they know. Still, that doesn't make people feel really comfortable. Britain Heller, a tech lawyer says, quote, My nightmare scenario is that targeted advertising based on our involuntary biological reactions to stimuli, is going to start showing up in the metaverse. Most people don't realize how valuable that information could be. Right now, there are no legal constraints on that.

Starting point is 00:03:37 All of this is just my setup to another piece from David Morris, which is called Meta Leans into Tracking Your Emotions in the Metaverse, and that's what we'll be reading for LRS. Meet the New World, same as the old, Horizon World, where you will be bagged, tagged, and mercilessly monetized. New patents held by Facebook parent company meta platforms have given us an utterly predictable and bleak glimpse of our zucked future. The concepts suggest that once its shared virtual space horizon worlds has reached its full potential,

Starting point is 00:04:05 users' facial expressions and other biological processes can be tracked and cataloged to make in-world advertising more effective. We should expect nothing less from a company whose main product is, in essence, mind control. Nexo is a trusted and easy-to-use crypto platform, where you can buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest. that is paid out daily. They support all of the major assets on the market

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Starting point is 00:04:58 Join over 1 million users and conquer crypto with Abra, an all-in-one, simple and secure app where you can trade over 110 cryptocurrencies. Get 0% interest loans using your crypto as collateral and earn interest with up to 14% APY on stable coins and 8.15% APY on Bitcoin. Visit Abra.com or download the app or download the app from the Google Play or Apple App Store today. Abra, Conquer Crypto. The breakdown is sponsored by FTX. FTX is the safe, regulated way to buy and sell Bitcoin and other digital assets. Trade crypto with up to 85% lower fees than top competitors.

Starting point is 00:05:40 FTXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTXUS, and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FTX.us today. That's FtX.us. The patents, compiled by the Financial Times, might or might not wind up in actual products. But several of them are conceptual layups that follow clearly from the one thing that Facebook has done effectively on the two-dimensional internet, spying on user behavior and using that data to target users with tailored advertising. Meta spokesman Nick Clegg effectively confirmed to Financial Times that Horizon Worlds will rely on the same basic model of targeted advertising and commerce. Meta is working to make sure that it's tracking and targeting with Horizon Worlds, though, will be even better.

Starting point is 00:06:33 For the record, Horizon Worlds thus far appears to be a walled garden owned by one company. That is by definition not part of the quote-unquote Metaverse. That means it will gather even more data about users than Meta's current sprawling surveillance apparatus, including, potentially, biometric data about one of the most innate nuances of your real-world body. One metapatin found by the FT, for instance, would change media content based on the user's facial expression through Meta's virtual reality headset. Another was for body tracking hardware nominally for use as an input control. but also right for gathering data about users, poses, or other bodily data. A complementary patent would allow meta's customers, its advertisers, that is, not its users,

Starting point is 00:07:12 to, quote, sponsor the appearance of an object in a virtual store. These tools would allow meta to track your moods and reactions and alter your metaverse experience to elicit the responses that best serve its business model. In the current version of the Facebook app, the desired responses broadly, engagement, that is, reading, clicking, buying, or otherwise interacting with a piece of content. As a variety of investigations have shown, Facebook slash meta over the years has relentlessly optimized for engagement even when the engagement was with harmful content. This could amount to a vastly deeper level of emotional influence than meta already has over

Starting point is 00:07:46 its users. Meta's machine learning models of individual biometric response data could be massively powerful for influencing users' behavior, not just within Horizon worlds, but anywhere online. That presents immense privacy concerns, particularly given Facebook slash Meta's track record. Quote, these patent applications indicate that meta has not learned its lesson, having been accused previously of storing users' biometric data without permission. Emma Taylor, a technology analyst at global data, said in a statement, responding to the report. It is likely that the same issues surrounding data privacy from existing social media platforms

Starting point is 00:08:18 will be extended or even exacerbated in the Metaverse. For investors, of course, all this terrible prognostication just sounds like thousands of cash registers going, ka-ching. If emotion targeting ads work, they'll be laughing all the way to the bank, as Meta's users seed their willpower. That demands a different question. Meta's plans are just deliciously evil, but do they actually make sense as a business proposition? Investors are the main audience for the entire meta project at this point, but what if they're the ones getting snowed? The focus on advertising is a good start if you're a meta stockholder. Targeted advertising is basically

Starting point is 00:08:49 the only thing Facebook has ever actually done well. Check out the genuinely hilarious chart on which Facebook's advertising revenue is an up into the right line and other revenue is a worm crawling along the C4. Even Google, whose revenue comes mostly from ads, 80%, is much more diverse. Meta has no equivalent to Android, the Play Store, or the Chromebook. It is consistently flubbed and fumbled its attempts to diversify. Arguably, its biggest expansion success was its acquisition of Instagram, which ended with the founders reportedly leaving acrimoniously. Mark Zuckerberg isn't a genius. He's the caretaker of an enhanced hot or not clone, who will go to his senticence, mumbling about community from behind those dull-dead eyes while cashing a river of checks from Chinese

Starting point is 00:09:29 factories making knockoff Skylander fidget spinners. So building an ad-back social network but in 3D is about as ambitious as investors should trust Meta to be. But despite the dire warnings, I wonder just how much actual advertising alpha meta can generate from the emotional content of a facial expression. The real meat and potatoes of a social advertising platform is product and service sales. And understanding a user's desires on that front mostly relies on text or language, searches they input or things they enthusiastically post about. Rest assured, meta will be tracking all of that within Horizon Worlds as well, but the addition of facial expression may turn out to be a marginal advance, at least in the short term. And we must turn again to the bare truth.

Starting point is 00:10:07 Meta is just absolutely abysmal at actually building usable products. So far, Horizon Worlds looks incredibly low rent and generic, and being constantly targeted with tailored ads while cripply aware that your body is being tracked won't make it more pleasant. I can't imagine a critical mass of human beings wanting to spend enough time there for meta to learn very much about them, however sophisticated the spy gear. So there are a few things that I want to follow up on here. The first is a reminder that we very rarely have such a dramatic inflection point where these big companies are signaling what they're going to care about next.

Starting point is 00:10:40 Part of the power that gives you as a consumer, as an entrepreneur, as a builder, as an investor, is to go do the things that are the better versions of the things that they're trying to do. Throw your lot in with the competition that's trying to build a different type of metaverse in this case. Certainly that will resonate with many of you out there who are building projects in the crypto space, but I think it's really important to remember that that is within the power set here. Second, I'd also point out that there is no indication yet that a metaverse mediated by augmented reality or virtual reality physical inputs is the metaverse that people actually want to spend their time in.

Starting point is 00:11:18 So far, the greatest successes of the metaverse, the things that have people excited about them, don't require you to put on goggles or glasses. There's simply a different imagination of what gaming worlds can be and how people can shape their own characters when they're put behind a chosen avatar. That's not to say that in the future we won't all have virtual reality glasses, but it's certainly far from a foregone conclusion. Whatever you think about the Metaverse, however much you're loath to even engage with

Starting point is 00:11:46 such a buzzy term, this is where a big part of the business and cultural conversation is headed, and I think it's important if you have the appetite to engage with it. I'm certainly going to keep paying attention, and so I appreciate you hanging out for the ride. I want to say thanks again to my sponsors, nexo.io, Abra and FTX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - What Facebook’s Patents Tell Us About the Fight for the Soul of the Metaverse

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