The answer carries major ramifications for what metaverse creators and explorers will be able to build and do in tomorrow’s virtual worlds.

Key Takeaways:

• Open worlds provide the capacity to freely create, sell, and exchange in-system assets for currency, and often include open-source software, common standards, browser compatibility, rich and open APIs, and asset interoperability and ownership.

• Most metaverse projects are currently operating on generally closed systems, with some major players acting to solidify their competitive advantage and build siloed worlds to protect their user and data moats.

• Hoping to realize the full potential of the spatial web, both industry leaders and builders, such as the Open Metaverse Interoperability (OMI) Group and Metaverse Standards Forum, are rallying to create common standards for a more open and collaborative metaverse.

The metaverse is still being built, and with it, a major tension is emerging: Will the metaverse be open, closed, or somewhere in-between?

A handful of metaverse projects are already live in some form, with at least 50 more in the works. McKinsey & Company predicts the metaverse’s market value could reach $USD 5 trillion by 2030.

Even in its early stages, the metaverse has seen more than $120 billion worth of investments in 2022 alone. Still, this initial “proto-Metaverse,” as Pangea DAO describes it, is comprised primarily of “siloed digital worlds” that don’t interact, fragmenting users’ experiences instead of composing into a persistent, immersive digital environment.

There are understandable reasons for that. It’s easier for developers to build metaverse worlds using closed systems. Opening up source codes and decision-making structures presents a variety of obstacles and vulnerabilities, from increased complexity and time-to-market to decreased stability and security – especially early on.

Still, many metaverse leaders and builders believe it’s critical to build the framework for an open metaverse now, before any single organization has dominated the market.

The gaming industry is relatively mature and concentrated. The emerging metaverse narrative, based on the promise of greater interoperability, creates an opportunity to facilitate easier travel between metaverse worlds by coalescing around common standards for transferable assets, identities (such as metaverse aviators), and cross-world portals (including mapping, indexing, and wrapping).

It’s difficult to pin any one metaverse environment as fully open or closed — although Outlier Ventures gave one early overview of the landscape with this graphic from its November 2021 paper, “Reintroducing the Open Metaverse OS”:

Still, the relative openness of a metaverse world is a nuanced distinction. While virtual world platforms like Sandbox and Decentraland are open in some ways, land-based models may not be as practically open for creators, since they often must own or rent land from others to build on them.

Yet both metaverse companies are working to implement some features of a more open metaverse, such as greater asset interoperability. “It’s important to us that the content you own or create in The Sandbox can be transferred to other open metaverses, and vice versa,” The Sandbox founder Sebastien Borget said in March.

Since there is little consensus on what “open” means, the term functions more as a branding narrative than as a precise technical definition.

Indeed, as a result of the backlash against the closed ecosystems of Big Tech companies such as Meta, Google, and Amazon that capture and monetize user data without returning that value back to users, most metaverse companies position themselves as open, even if that’s only partly so.

But the distinction nonetheless has real consequences for developers, creators, and end users. After all, system design decisions made now drastically affect how metaverse builders and explorers can innovate in the future, whether creations and experiences can be transported across environments, and whether users can realize value from the assets and objects they own and trade.

The Closed Metaverse

Interacting with closed ecosystems online is what we’ve been accustomed to over the last 30 years, from meeting with friends and loved ones over Zoom and Skype to working together on Slack and Notion.

Most metaverse platforms are closed today because, simply put, it’s pretty difficult to build a functioning standalone platform without taking into account openness and interoperability. Exchanging data and information across platforms adds complexity to an already hefty challenge.

Some of those platforms will slowly open up their data and source codes over time – a metaverse version of the “progressive decentralization” model popularized for crypto applications by Jesse Walden of Variant, an early-stage web3 fund.

However, others may choose centralized power structures and closed systems in hopes of solidifying their competitive advantage, similar to how Apple and Google have used their app stores to extract higher fees from creators.

Microsoft CEO Satya Nadella floated plans to build an “enterprise” metaverse in a 2021 earnings call. Microsoft will likely seek to make some aspects of its products open across platforms: after famously critiquing open source initially, Microsoft has emerged as one of the world’s greatest contributors to the free and open source software movement.

For now though, Microsoft has signaled a more closed approach with recent decisions. The company will require that users have a Microsoft account to log into its 2017 acquisition AltspaceVR, which closed all of its hosted social space hubs in February after Microsoft cited online harassment and safety concerns.

Apple hasn’t announced its metaverse philosophy yet, but is expected to release its own AR hardware later this year and has historically built closed systems around its products.

Meanwhile, Facebook was so bullish on the metaverse that it changed its name to “Meta,” and CEO Mark Zuckerberg himself has said he sees the competition between Apple and Meta to be one over competing visions of an open versus closed metaverse:

“This is a competition of philosophies and ideas, where they believe that by doing everything themselves and tightly integrating that they build a better consumer experience. We believe that there is a lot to be done in specialization across different companies, and [that] will allow a much larger ecosystem to exist.”

Meta’s VR hardware is intended to work across various metaverse platforms, suggesting a certain level of openness. However, Meta’s plan to take a nearly 50% cut on virtual asset sales suggests a gated approach that far exceeds even Apple’s App store take rate.

In a closed metaverse, each of their platforms would remain a world unto itself, with content policies and terms of services typically determined by its centralized platform operator. This has benefits and drawbacks, for both builders and users.

Some common traits of a closed platform include:

Rapid decision-making: Especially in their infancy, startups have many difficult decisions to make – and quickly. Closed platforms with centralized leadership can do so without having to engage an entire community of users.

• Pros: Leadership can move quickly to take advantage of market opportunities.

• Cons: Leadership may make decisions that are disconnected from, or even directly opposed to, the needs or desires of its user base.

Centralized IP: Most closed platforms today are walled gardens that compile user data for profit, obscure their source code, and aggressively protect their intellectual property in courts of law — practices that closed metaverses may choose to embrace as well.

• Pros: The platform’s technological advantage helps it box out competitors. It can charge users a premium. That potential for market dominance makes the platform more attractive to venture funds, which spend billions hoping that the 10% of startups that do succeed can make up for the 90% that fail.

• Cons: Without competitors, users have less choice. The platform has less pressure to innovate, causing users to abandon it as it no longer effectively serves their needs.

Content moderation: Users of closed platforms are beholden to the platform’s terms of service, with the platform exercising large control over who gets to participate and what they can produce on it.

• Pros: The platform can move quickly to shut down racist, sexist, or otherwise offensive content, as well as content propagated by bad actors with nefarious goals.

• Cons: Creators can be de-platformed for arbitrary reasons, potentially hurting the user experience as well by limiting the type of content they can consume.

Quality control: Put special emphasis on “control.” Closed platforms can ensure (and enforce) a base style and quality for their product thanks to their centralized structure and ability to restrict the number (and type) of creators on their platform.

• Pros: The user experience may be more intuitive, and of a higher standard, particularly in early stages of product development.

• Cons: Each platform (or, in the metaverse, each world) may require different hardware to access. New creators may have limited access, and could need to learn how to use multiple engines, software development kits, and environments.

User retention: Closed systems are more likely to make it difficult for users to transfer their assets, achievements, relationships, and other valuables across worlds.

• Pros: By increasing the opportunity cost of migrating out of the ecosystem, the platform is able to extract even more value from each user that stays on it.

• Cons: This can hurt the user experience, and potentially reduces the total addressable market (TAM) for the entire metaverse.

Developer lock-in: Closed systems often require that developers use their proprietary software to build or use assets in their virtual worlds.

• Pros: If the closed system has a valuable enough market for developers (ie. a large and active user base), it can ensure fidelity of developer building within their ecosystem.

• Cons: The developer user experience can suffer, and it limits the developer’s total TAM to just the users on that closed platform.

The Open Metaverse

Some, like the authors of this A16Z piece, posit that a closed metaverse is no metaverse at all. Instead, they see closed metaverse environments as mere “virtual worlds.” They argue that an open metaverse is the best way to realize the web’s potential “to be more social, immersive, and far more economically sophisticated than what exists today.”

Still, openness is a spectrum. Even centralized Web2 companies can build relatively open virtual worlds by adopting common standards and using open source codes and data transparency. Meta and Microsoft may end up embracing some of these elements.

However, most of the concepts behind an open metaverse are built on web3 principles of decentralization and returning value back to those who create it through shared ownership and control.

Based on that criteria, even metaverse companies that have adopted some of these principles may move up higher on the openness spectrum by, for example, adding more browser compatibility, adopting decentralized storage (such as IFPS), or publishing public API libraries.

The open metaverse is expansive rather than insular, thanks to its adoption of user-controlled identities, transparent data, and permissionless access.

Some common traits of open platforms include:

Open code, access, and control: The code is available to the public, for anyone to examine, use, fork, improve, and compose upon.

• Pros: Creators have more freedom to innovate and iterate, and greater ability to add features that enhance the user experience.

• Cons: Coordinating development can be a challenge, and open source software is not always supported across devices (i.e. Safari not supporting WebGL).

User-owned and created: In open platforms, users can more easily build their own products, which they can transfer across platforms. This means users — not the platform — are its owner. By giving up sole control over content creation, open systems are able to use user-generated content to scale much more quickly, for less cost, than centralized systems.

• Pros: Closed systems have to buy or make content, like Netflix which spent $17 billion for its roughly 50,000-title library. Open systems make it easier to implement user-generated content, with their production more similar to YouTube, which receives 300,000 videos a day and has a video library in the billions.

• Cons: Quality is hard to enforce, content moderation becomes increasingly difficult at scale, and variances in products can confuse and worsen the user experience.

Enhanced interoperability: To be truly open, platforms must follow standards that allow for easy transfer of data between them. In the metaverse, this may include adopting shared terminologies, file formats, and scripting systems, among other things.

• Pros: Products on open platforms have more flexibility, portability, and utility. The user experience can be streamlined, creating a familiarity so that the user doesn’t have to recertify their credentials and relearn basic functions with each product they use.

• Cons: It can be difficult to get the right balance. If interoperability standards are too high, they risk being exclusionary. Consider an example of a common standard that mandates NFT be 3D: 2D projects would be left out. If those standards are too low, on the other hand, stability and security threats can compromise the entire system.

Platform-agnostic ownership: NFTs and other virtual assets in open systems can typically be stored through platform-agnostic methods, such as on the blockchain through IFPS.

• Pros: User ownership isn’t dictated by the rules of a single platform that can remove that ownership at any moment. Assets are more easily transferable and usable across platforms.

• Cons: Platforms have less control over that user and their assets, limiting the amount of value they can extract from that user before the user will leave for another platform.

World-agnostic features and assets: The ability for creators to build and transport their creations across worlds enhances their permanence and opens them to ever expanding audiences and markets. Unlike a cryptocurrency or token that collapses if its associated project does, transferable NFTs in an open metaverse can theoretically live on in perpetuity.

• Pros: NFTs have theoretically limitless potential because they aren’t completely reliant on a single world for their value. Their potential audience and market is the entire metaverse and its future iterations, so long as they interoperate across worlds.

• Cons: Inter-world monopolies can still form, as they do across countries engaged in free trade in the physical world (see: Coca-Cola’s global dominance). Creators on new worlds may benefit less from being early adopters than they do in closed systems that might allow them to seize market dominance.

Broad browser compatibility: More open systems tend to allow for access without having to download a single dedicated browser, operating system, app or software to run them.

• Pros: More users can participate on the platform, expanding its total reach and TAM, or total addressable market.

• Cons: User experience may suffer if certain graphics or features aren’t easily converted across browsers or operating systems.

What Happens Next

While existing metaverses are primarily closed ecosystems for now, there are a number of tech leaders and builders working to create common standards to form the foundation of a more open and interoperable metaverse.

The Open Metaverse Interoperability (OMI) Group is an open source community of web3 professionals, while Metaverse Makers (M3) and NEON-BUIDL are two groups focused on helping builders create assets that could effectively traverse virtual worlds.

At least a dozen top enterprises, from Decentraland and The Sandbox to Animoca Brands and Dapper Labs, have formed the Open Metaverse Alliance for Web3 (OMA3). Meanwhile, the Metaverse Standards Forum is serving as a conduit between the various industry groups and common standards organizations.

There are still many pitfalls. The longer it takes to adopt common standards, the more difficult it will become, as the few dozen metaverses of today fragment into hundreds and thousands of projects.

However, many metaverse leaders, including Lighthouse, are already coordinating to create cross-platform standards for everything from transferable avatar identities to interactive 3D assets.

If the closed metaverse is a collection of separate worlds unto themselves, then the open metaverse is a galaxy of inter-connected planets. Each planet has its own unique values,  resources, and materials, yet each shares common traits and building blocks that allow for relatively seamless travel between them.

This truly open metaverse isn’t here quite yet, but Lighthouse and others continue to build the foundational infrastructure to bring it into reality.