Things I Still Don’t Understand: Pricey Metaverse Real Estate


Last year I expressed (in uncharacteristically understated fashion) my inability to understand why people were paying up for metaverse real estate. The real-world dynamics crystalized in mantras like “location, location, location” and “they’re not making more of it” simply don’t apply to virtual real estate.

But that hasn’t stopped promoters from using the hammer of blockchain-induced digital scarcity to try to create (and, more prosaically, peddle) digital real estate. The assumption – whether intentional or not — has been that virtual real estate will behave like physical real estate with the potential to appreciate “to the moon”.

This land-first metaverse mindset is a recipe of slavish skeuomorphism mixed with a hefty dollop of rent-seeking financialization, with next to no thought about how to make the user experience appetizing.

The web3™ boosters at Andreessen Horowitz (aka Ethereum Horowitz because they are so far out on the crypto limb they risk becoming an orphaned hard fork), recently published a white paper entitled “Metaverse Land: What Makes Digital Real Estate Valuable”. The paper is a welcome contrast to their more typical approach of telling people they “just don’t get it” and blocking them on Twitter for airing questions or hesitation about the web3 future.

The paper acknowledges some of the fundamental differences between digital real estate and “dirt-based” real estate:

“Given that digital space is, in theory, infinitely expansible, skeptics might still question whether the concept of “owning” digital land or buildings even makes sense.”

“But at the same time, distance can be less of a factor thanks to the possibility of fast travel or teleportation.”

It is by no means a full-throated defense of the people who assert they’re buying prime real estate today in tomorrow’s digital Manhattan, but the paper makes three arguments for potential value of digital real estate.

First is a claim that “location, location, location” might still be applicable at the very local level because of “foot traffic”, while admitting “virtual proximity matters far less at middle-to-long distances.” The prime example is “people (or rather, their avatars) might walk out of a virtual concert together and then meander down an adjacent virtual shopping strip.”

The second argument is digital zoning laws and content moderation might make real estate in a particular metaverse more valuable. Assuming local proximity still has merit, you could create value by policing local surroundings and behavior, as “people might not want to set up shop next to something distracting”.

Finally, they contend that metaverses with better developer experiences will be more valuable. Superior tools and interoperability allow more compelling experiences to be built, which in turn will be more attractive to users.

A Response

I’m still not persuaded that “location, location, location” exists even at the very local level, especially once you’ve conceded teleportation is the dominant mode of movement everywhere else. It isn’t clear why you need to walk out of a concert hall after an event. You teleported in and didn’t leave a car parked nearby. This feels like atavistic skeuomorphism more than a solid foundation for real estate value.

Yet the claim is:

“We can expect to see thriving shopping malls, micro-cities, or even entire virtual worlds that are kind of like islands in digital space – packed with activity that leads people to travel locally within them – yet separated by “distances” large enough that people will just teleport across them.”

Why? Online malls on the web failed. Why will 3D malls be a thing? The early examples of commercial presence in the metaverse are ridiculous, awkward, uninhabited, and lack any reason to exist (beyond helping creative agencies bill staid BigCos desperate to seem less staid).

The second and third arguments are variants on the same theme (user vs. developer appeal), but apply more to the relative attractiveness of different platforms than the direct value of land within any particular metaverse.

Griefers are not new to digital worlds, and every platform must decide what kind of moderation is appropriate. Establishing community norms is hard (especially if your primary focus is selling vacant lots). But more heavily zoned environments (yet more skeuomorphism) typically don’t get the tradeoffs right to be compelling places. Rather they end up being sterile. Think Jane Jacob’s West Village vs. Disney’s antiseptic Celebration, Florida. Besides, in an infinite world, you don’t ever have to see your neighbors, so their distracting tastes and behaviors are not a problem. Everyone gets their own Fortress of Solitude.

Developer experience of course is hugely importantly, in every software domain. But why focus on just that one attribute of these digital systems and ignore every other attribute that makes software a unique medium? These digital platforms don’t need scarcity. Everything can be “next” to everything else. Exploring those attributes might be more interesting than just nice tooling or APIs for selling the digital equivalent of Florida swamp land.

If you’re playing in this space, listen to the technology, not your local Realtor™. Relax all the skeuomorphic assumptions (since I’ve finally learned to spell skeuomorphic, I’m getting my money’s worth). It is a complete failure of imagination to create a world where buying and selling digital land like we do IRL is the highest organizing principle.

Historically, we tinker with new technologies, and if it becomes interesting, then we figure out how to best make it a business. Put use cases before monetization. Web3 gets this backwards and sets a new high-water mark in the on-going financialization of software. We might eventually get to a place where digital real estate has value stemming from the unique characteristics of software that is actually embraced by users, but it is a terrible place to start.


But arguments about how the metaverse future might unfold are more than theoretical at this point. We can look at the scoreboard. The blockchain land barons simply haven’t built anything compelling to attract the users they’re counting on for the “foot traffic” needed to support land prices. Poster children Decentraland and The Sandbox are a rounding error (and a shrinking rounding error at that) when it comes to actual users. As the author of that post says, “I cannot emphasize enough how small these usage numbers are.”

And then there are the metaverses that aren’t premised on selling land like Rec Room (disclosure: small investor) and Roblox. They are vastly more popular, perhaps due to an actual focus on user experience. It can be hard to compete with free, and the big metaverses with armies of engaged users are giving land away. As much as you want. They can always make more.

I reiterate my hope that the “metaverse will escape the tyranny of unimaginative, rent-seeking skeuomorphism”.

web3 is a trademark of A16Z. I am surprised there is no Twitter bot that responds to every tweet containing “web3” with that reminder.

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