Is gaming the future of the virtual world?

Even before the pandemic and the lockdowns, digital games were fast emerging as one of the world’s favourite pastimes. But when live entertainment came to a halt, the virtual kind just took off.

Since April, every week has ended with US box office receipts down at least 97 per cent and gaming revenue up by more than 50 per cent, compared with the same week the year before. Driven by widening bandwidths that make digital games fun to play on mobile phones, global gaming revenues have risen steeply from under $20 billion in 2010 and are on track to hit $160 billion this year — more than books, music or movies.

But gaming is doing more than displacing other forms of entertainment. It is also providing digital three-dimensional environments in which people can interact freely, develop content and pass on knowledge in new ways. Though built by a creative class of coders for the purpose of play, these rapidly growing platforms are shaping the future of the virtual economy — indeed, the future of the virtual world.

During the lockdowns, gaming platforms have been thriving as venues for all manner of events. Savvy teachers are holding online classes where their students are already spending their time: on game-focused sites like Twitch and Discord. People have held beach weddings inside Animal Crossing and concerts inside Fortnite. Students at the University of Pennsylvania, the University of Chicago and other universities built 3-D replicas of their school settings inside Minecraft and some held graduation celebrations there.

There is even evidence to suggest that playing these games can have beneficial effects, including improvement in spatial skills, motivation and learning concepts.

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These 3-D worlds are good business. Consider Fortnite. Made by Epic Games, it uses the “freemium” model: Players are allowed into the game’s 3-D world free of charge, but once there, they can buy virtual accessories — equipment, outfits (“skins”), dance moves, even branded merchandise from outside vendors like the National Football League. Fortnite made an estimated $1.8 billion last year, most of it from sales of virtual goods to its more than 350 million registered players. The game is seen as the harbinger of a day when consumers move seamlessly between physical and virtual commercial spaces.

Aware of the threat posed by gaming companies, internet giants like Apple, Amazon and Google are racing for controlling stakes in what is sometimes called the “metaverse” — a term borrowed from Neal Stephenson’s 1992 sci-fi novel “Snow Crash,” which anticipated the arrival of a parallel online world. Companies like Microsoft have already bought out online gaming pioneers like Mojang Studios, the creator of Minecraft, and have the resources to swallow many more.

Virtual world is young and rapidly evolving

Critics accuse the internet giants of taking an unfair cut of the nearly $120 billion global market for mobile apps, three-quarters of which is spent on gaming apps. It is a sign of the times that one company bold enough to take on the tech giants is a gaming company: Epic. On Thursday, after Apple and Google banished Fortnite from their app stores for dodging the 30 per cent cut that they take from app purchases, Epic shot back with lawsuits, calling the cut an “oppressive” tax.

The tech giants are not as invincible as they may appear. Remember that IBM, Intel and Microsoft were once seen as too big to challenge for supremacy in the digital age — but they weren’t. The virtual world is young and rapidly evolving, and no company can claim a permanent place in it.

Many gaming companies have reached the stage where Google and Facebook were a decade ago — attracting millions of users but not yet making as much money on each user as they might. In other words, they have room to grow. These companies also have powerful backers: The Chinese tech giant Tencent, for instance, holds a stake in the companies behind seven of the 10 top-grossing games since 2008, including Epic.

The prospect of a virtual world built on gaming platforms may unsettle those who see digital games as a mind-deadening waste of time at best and full-immersion training in antisocial behaviour at worst. But this is an outdated view. There is even evidence to suggest that playing these games can have beneficial effects, including improvement in spatial skills, motivation and learning concepts.

What gaming is likely to do is take the common 2-D online experience and add a richer third dimension. The result would be fully realised “worlds” where people can work, play, study and shop in a more immersive way, fostering greater social interaction, creativity and innovation.

— Ruchir Sharma is the chief global strategist at Morgan Stanley Investment Management, the author, most recently, of “The Ten Rules of Successful Nations” and a contributing Opinion writer.