How the metaverse is planning to augment reality — not replace it

In this episode of the Decoding innovation podcast series, Mathieu Nouzareth explains how a community-driven platform is shaping the future of the metaverse.

Key takeaways:

Users can create avatars, NFTs and items for the game, and publish on the marketplace. The Sandbox’s commission is very low — only 5% — compared with the commissions charged by mobile phone app stores (between 20% and 30%).
Currently, the biggest market for The Sandbox includes the US, the UK, Canada, Western Europe, Korea and Japan.
About 65% of the current user base of The Sandbox is male. However, the organization is partnering with a foundation that is working to bring women into Web3.

For your convenience, full text transcript of this podcast is also available.

Intro

We don't want to replace reality. We just want to augment it or complement it. The bar to create content is very low and anyone can become a creator. But our tools are also very powerful, so that big companies with very ambitious projects can also build full-fledged experiences. So, we are really working with, sometimes with competition, to make our metaverse or make an NFT collection compatible, or interoperable with The Sandbox.

Announcer

Welcome to the Decoding Innovation Podcast series brought to you by the EY-Nottingham Spirk Innovation Hub, where we explore the innovative technologies, business models and ideas that are shaping the future of industries. During each episode, Mitali Sharma, a principal in the EY-Parthenon Strategy practice, meets with stakeholders at the cutting edge to discuss innovations in their space, challenges they need to overcome and their outlook on the future.

Mitali Sharma

Hello. I'm your host Mitali Sharma and today's topic is the metaverse. Our guest is Mathieu Nouzareth, the Chief Business Officer and former CEO of The Sandbox. The Sandbox is a community-driven platform where creators can monetize their assets and gaming experiences on the blockchain. Mathieu and his team at The Sandbox have created a community of engaged creators that are pushing the limits of what's possible on the metaverse. Hi, Mathieu. Thank you for your time today.

Mathieu Nouzareth

Hello and happy to be here. Thank you for having me today.

Sharma

Let us start with a little bit of your background — about yourself and your journey so far.

Nouzareth

Before joining The Sandbox, I was a serial entrepreneur. I started five companies over the past 27 years, sold three and two in public, and my passion is really in gaming and cryptocurrency. So, joining The Sandbox to build the US operations was quite a natural move for me.

Sharma

How long have you been with The Sandbox?

Nouzareth

I've been a board member and an advisor of the company for quite some time, but full time, since the beginning of the year.

Sharma

Mathieu, can you talk a little bit about your understanding of the metaverse today and how you've seen it evolve?

Nouzareth

The metaverse is really different things to different people. Everyone has some kind of idea of what it is. A lot of people think that the metaverse is this version of the Ready Player One movie from Steven Spielberg a few years ago. But our vision of The Sandbox is a bit different. For us, The Sandbox is a metaverse. It's like a 3D virtual space on your computer or on your phone, where people can gather. They meet, they can make friends, they can play games, they can attend concerts, they can do all sorts of things. And for us, really, this is the next evolution of the web and we're building something that's a bit more immersive.

Sharma

What are your thoughts about the reception you have seen so far from the broader audience that is beyond the hard-core gamer?

Nouzareth

The metaverse, I mean, it's still a very early-on phenomenon. In The Sandbox, we have a few hundred thousand users. So that's still fairly limited but expanding very, very fast and you're right to pinpoint that the existing or past users are computer enthusiasts, crypto enthusiasts because we are a Web3 metaverse. But as time goes by, we're attracting more and more non-tech people, non-geek and that's the reason why we are partnering at The Sandbox with so many big brands — fashion, luxury brands, entertainment, gaming, art, e-commerce and many, many types of brands. So that we can really bring everything you see in the real world, we think you'll have some version of it inside The Sandbox. We're ramping up right now.

Sharma

Shifting the gears a little bit, let's talk about The Sandbox story. What have been the highlights in the journey so far and what it took to get the company off the ground?

Nouzareth

The company is quite old actually. I think it started around 2012 or 2011 and at the time, the company was building a mobile phone called actually The Sandbox, but there was another version that was mostly 2D game on iPhones and Android. Then, the company decided to change to do a pivot in 2018, and move from 2D to 3D and from single-player to multiplayer. And from using the iPhone or the Google app store as the economic engine to using the blockchain. That's how we started in 2018 before everybody else. That's the reason why we have such a head start today in the market.

Sharma

Okay. Let's talk about the business model going forward. What do you think were the major challenges in the adoption rate, even the morphing of the business model in the evolving landscape?

Nouzareth

Initially, from say 2012 to 2018, there was a regular business model of regular freemium model for games. And then, when we rebooted the franchise in 2018, The Sandbox franchise, the model completely changed. One of the big, big moves we decided very early on was to create this metaverse and base the metaverse on the concept of virtual lands. So, we created a map with a finite amount of land that people could buy. Part of our economic business model is selling land. That's the first step and the next step is selling experiences. Selling an experience can be selling a ticket for a virtual concert for example. It can be selling ticket to access to game. It can be anything you can think of. It can be an experience. We moved away from the typical freemium model to a blockchain-based business model. I’m not speaking specifically about us, but I think I can speak for the whole Web3 industry, one of the biggest challenges is to reduce the friction, the onboarding difficulty for ordinary users into Web3. I think it's still a bit too difficult and we're working really hard at The Sandbox to make this onboarding way, way easier. I think it's probably one of the biggest challenges of the industry. Then, over time, just the challenge is about making a great product that people want to use, that people enjoy, people have fun with. And then, the business model and the monetization will follow. So, we're very much focusing on building a great experience.

Sharma

What industries do you believe would be the early adopters? You talked about fashion and some others. Could you expand on that a little bit? What were the direct applications and maybe some more of the indirect applications?

Nouzareth

The early adopters of the metaverse today are: number one, gaming companies. It's obvious because gaming is a very natural match for gaming. You actually already have gaming Web2 companies already in the metaverse. So, I think there is a strong affinity between gaming and the metaverse that's already happening. Number two is digital fashion and luxury, in general. It turns out that, like in the real world, fashion is part of your identity, and it's the same in the metaverse and online. It turns out that people really want to, are interested in buying digital handbags or digital sneakers, T-shirts, hats that can really tell their community who they are. So, that's expanding very, very fast and we’ve partnered with a number of the highest or the most famous luxury brands in the world. Number three, right now, is entertainment, especially music, and we're going toward also TV series and movies. Metaverse users also want to be entertained. So, they're interested in attending virtual concerts. They also want to extend the experience they had watching a movie or TV show by going back into the same “look and feel” of the TV show, the movie and experience. It can be a minigame or it can be experiencing in 3D the same set for example. The entertainment category is growing very fast for us and then more long term, I think we’ll probably cater for every type of vertical. We’re talking about social. We're talking about dating, sports, e-commerce, retail. Everything you can think of, I think you'll have some version of it inside The Sandbox and other metaverse. Obviously, it's not going to be the exact translation and we don't pretend or we don't want to replace reality. We just want to augment it or complement it. We have a lot of work ahead of us in the next few years to accommodate all those verticals.

Sharma

That's really interesting. You said you don't want to really replace reality, but to augment it. Tell us a little bit more about that, because for most people, metaverse itself is a little bit removed from reality.

Nouzareth

Yeah. I think a lot of people envision the metaverse as this place where you put virtual reality goggles on and you spend 12 hours a day, in this amazing, synthetic world. I hope it's not going to be that. What we are very interested in, though, is to try to find this convergence between the reality and the metaverse. For retail, for example, it's really possible that you buy a digital handbag in the metaverse, for example, and the proof of this digital handbag could be transferred into a retail shop, for example. And you could go to a retail shop and say, “Look. I bought this digital handbag. Give me something.” Or it can be a discount, or it can be even like the real physical bag. Or it could be the other way around, where you can go to a physical store, buy something and with the proof of purchase, you could redeem something in the metaverse. It's usually called the digital twins. We believe it's going to be very interesting and it's going to be a big part of our future.

Sharma

In terms of adoption, who do you think would be the early adopters? In your experience, do you have a perspective on the age, region, geography, where would it take off more than other places?

Nouzareth

I can tell you the type of users we have now and it's about 65% male. It's a bit more male-focused and hopefully, this will change over time. We're spending a lot of time and effort onboarding women and minorities inside The Sandbox. For example, we are partnering with a foundation that's bringing women into Web3. In terms of gender, that's the split today and I think over time, it's going to be evenly split between men and women. In terms of age group right now, surprisingly we are mostly 18-plus. And a lot of people assume that we are targeting teenagers or young adults. It's really not the case. It's really like 18 to 55. I think over time, I think the metaverse is going to be so broad and it's going to appeal to everybody. There will be something for everybody. So, I think it's going to reflect the overall demographic of a specific country. At the moment, we are mostly focusing on English-speaking countries. The US is our biggest market. UK, Canada, Western Europe, Korea and Japan are our biggest market, and over time, I think it's just going to expand to every country. Over time, I think whether it's us or whether it's other metaverse, whether it's the industry in general, I think we'll converge toward reaching out everybody, all genders, all geographies and all age groups.

Sharma

Can you give your perspective on the two stakeholders that you're dealing with — the creators and the content users? And how does The Sandbox interact with both of them?

Nouzareth

The Sandbox, at the end of the day, is a two-sided marketplace. Our goal and ambition is really to put in touch creators, on the one hand, and users on the other. So, we've decided to build easy-to-use free tools for creators. Anyone can become a creator, whether you're a very big company or whether you're an individual, or a student in your dorm. That's another reason why actually if you go to The Sandbox, you have this pixelated style. These tools make it very, very easy for our creators to build content. It's super easy. It's a bit like bricks. You don't need any manual. So, the bar to create content is very low and anyone can become a creator. But our tools are also very powerful, so that big companies who have very ambitious projects can also build full-fledged experiences.

Sharma

For the content creators, what are the economics for them on The Sandbox?

Nouzareth

Becoming a creator on The Sandbox is very easy. You go to The Sandbox game. You create an account. It's free to create the account. You download the tools. The tools are free and also, we have a no-code approach to the tool, meaning even if you want, you can't even code, or even write one out of a code. Everything is drag and drop, pull-down menus, checkboxes, super easy to use. Anyone can do it. Right away, you can create avatars, you can create NFTs, you can create items for the game and publish that on our marketplace. Our tech rate, our commission is very low. We only take 5%. So, if you compare that to mobile phone app stores, which often take 20% to 30%, or even console manufacturer stores sometimes taking 50% to 60% commission. It's very, very low. This model is very creator friendly. And then, you can go to the next level. If you want to build full-fledged experiences — a game, a concert, a retail experience — then, you will need to buy a piece of virtual land inside The Sandbox. Easy to use. You can buy a small piece of land for maybe a few thousand dollars. Then once you have the land, you will use the same tools to build the logic, to build the experience, and you use tools to create assets, like a car or building, people, trees. Then, you create the logic and say, “Oh. This part of the land is going to be about this game, or this other part of the land is going to be like a stage for a virtual concert, for example.” So, it's extremely easy to use. And then, you can publish your content and start selling. We only take 5%.

Sharma

For the content users, so for example, people buying land, is some land more expensive than the others? What is the logic?

Nouzareth

Yeah. I mean it's very much like the real world, right? Real estate, it's all about locations. Some locations are more desirable than others. If we've sold land for a very, very big, big amount, like hundreds of thousands of dollars, sometimes millions of dollars, if you want to be a neighbor for a celebrity, for example. Or if you want to be in the fashion neighborhood or the musician neighborhood, for example. It's a marketplace. Price is set by supply and demand. We don't really set the price. And it fluctuates with market conditions and location, and how desirable your neighborhood is.

Sharma

How would that be operated and how do you think about competition?

Nouzareth

In terms of competition, we have the Web2 types of companies that have been building metaverse, or close to metaverse-like products for even sometimes decades. They've been very successful. But I think that they're going to have, they're going to have a very hard time moving those “metaverse slash gaming slash large-scale, real-time multiplayer games” into the Web3 space, because they've been building their operation for sometimes decades. So, they have their process. The people are used to working with Web2. Their commission is pretty high, 30%, sometimes 60% to 70%. And I think it's going to be hard for the Web2 companies to really migrate to Web3 and really embrace Web3 at core. It's the typical innovators’ dilemma and especially for publicly traded company, they have to focus on next quarter’s result. So, it's like changing the Web2 engine while the plane flies via Web3 engine. It's going to be extremely difficult. I'm more concerned about other Web3 companies. There are very interesting Web3 companies entering the space. But I want to note a few things. So, the first is that we have a big head start because we started four-and-a-half years ago, before anyone else. We were one of the pioneers of the Web3 metaverse. But the other thing I will say is that we are embracing competition. We are wishing our competition success. And the reason is that as opposed to Web2, Web3 is very much a nonzero sum game. Web3 is about creating value for all the players in the space, different metaverse, different NFT projects. So, we’re really working with, sometimes with competition, to make our metaverse or make an NFT collection compatible or interoperable with The Sandbox. It brings value for them. It brings value for us and for the whole community. And that's really a fundamental difference between Web2 and Web3.

Sharma

Thank you, Mathieu. Could we go back to the point that you made around working with your competitors? Is it more around the technology that you are collaborating or is it also about developing the market space and the monetization aspects?

Nouzareth

The way we work with competition or partners is working on the interoperability of the assets themselves. So, let's say you have, for example, you bought an NFT. It's just a picture. It's called a PFP for profile picture and it's representing a portrait of somebody, so 2D image. So, the way we would work with this NFT collection is we would work on bridging this to the image and turning this into a 3D avatar for when you come inside The Sandbox, for example. That's one way to do it. But then, one of our competitors could decide to read. Let's say you buy a virtual car inside The Sandbox. It's also an NFT and this NFT is all open source, so anyone can read it. So, if you're the owner of this virtual car in The Sandbox, then you should go to a competing metaverse. This competing metaverse could actually read the NFT and decide to render the car in whatever shape or form they want. It could try to make it the high definition of it instead of the pixel version that we have in The Sandbox, for example. At the end of the day, we really try to create value for all the NFTs and all the assets, and we want to make sure that those assets can flow from us to others — from an NFT collection to another metaverse or from any other Web3 apps, products or services. And again, just with the idea of creating value, use and utility for those NFTs.

Sharma

That is fascinating. I had not thought of that. And in terms of the commercialization aspect, what is the prime driver? Is it the scarcity of resource?

Nouzareth

Scarcity is part of it, but the value created inside The Sandbox, I know this is all about the economic activity being built by creators, by brands, by artists, by individuals. And that's really what we're focusing on. Think of The Sandbox as what Manhattan was 200 years ago. It was an island. People started to build stuff on it. The value of Manhattan is not really, today, is not really the value so much of the land itself. But it's the value of all the businesses, the companies and the people who came to Manhattan, and built something of value. And we very much see The Sandbox as something similar. We don't want to be the only metaverse. So, as I said, we want to be interoperable with others. We want to cooperate with competition. We just want to be one of the most exciting metaverse. So that's why we're spending so much time wooing big brands and celebrities, musicians, artists, and try to attract the most exciting people in The Sandbox.

Sharma

As you think about how technology is evolving, what's your vision of how that would interact and help or hinder your vision as to The Sandbox?

Nouzareth

We're going to live in a multi-platform world. I think desktop computers will still exist and people will still use that. I think people also, as you know, they're spending a lot of time on their mobile phone and we believe the metaverse will be on mobile. And not a replacement. Maybe the next evolution of desktop computers and mobile phones will be virtual reality products and augmented reality (AR) products. That's going to be very interesting to see when that happens. Today, it's taking off a little bit. It's still very early on. I personally think that the AR or the XR for extended reality, whether it's virtual reality or augmented reality, will probably take off in a couple of years. And I think this will also change the landscape for not only the metaverse, but also for lots of companies around the world.

Sharma

As you look at interesting companies out there that you are watching maybe as partners, collaborators, competition, what is exciting you in terms of what's happening?

Nouzareth

What is interesting with partners is the partners are working in ways, they are really leveraging the power of Web3. And the power of Web3 is really giving ownership of the digital goods to the users and to the creators. NFTs, at the end of the day, they are nothing more than digital property right. But compare this to the real world. The real world, I don't think we would live in this world if we didn't have physical digital property right. And I think this innovation, this digital property right is really going to create a lot of economic activity, a lot of products and services that we can't even think of today. So that's why I'm excited to work with Web3 companies that are leveraging this.

Sharma

For sure. The other aspect of this is around privacy. How are you thinking about data? And you touched on it a little bit, getting the user to own their own creation. But apart from the creation, there is the controversy around who owns data, who has the ability to monetize it. How are you thinking about that and how's the thought process evolved in the community that you work with?

Nouzareth

It's an interesting question because it's another fundamental difference between Web2 and Web3. The biggest Web2 companies and I'm not going to give their names. You all know who they are, but their business model is around selling advertising, selling data. And in Web3, at least as of today, nobody’s selling advertising, nobody’s selling data. At The Sandbox, we don't even have a business side for this. We don't care. What we want to sell is great experiences. We'll see. Maybe this will evolve over time, but right now it's not even on the horizon.

Sharma

That's interesting. So, when you think about an experience, it's a virtual music festival. From the perspective of somebody who's not much of a gamer, not much used to that universe, frankly, I'm trying to understand what would be the attraction of going to a virtual universe. I get your NFT aspect, like the interaction between reality and the virtual world. I get that pretty clearly. But when it's an experience which is entirely on the metaverse, explain some of the psychology behind what would attract people to that.

Nouzareth

Let's take the example of, you mentioned, a virtual music festival. As a user, I mean, first of all, going to a real music festival is not sometimes easy. You may not be close to one. It can be expensive. It can be far. It can be very time-consuming. So, one of the big advantages of going to a metaverse-based music festival is it's easy. It's fast. It can probably be cheaper, and you can still enjoy and live something not as if you were there, but close to being in person. What is also interesting is we're trying not to exactly replicate reality or replicate a concert with just having the stage and having an avatar of the artist come on stage. We're trying to go beyond and really take advantage of the powerful narrative features of a platform. So, if you go to a music festival, you can interact with the artists, you can also interact with other people, you can make friends with other attendees of the concert or the festival. Also, you're not constrained by space and physical things like gravity. So, you can really go beyond just having a replica of the music festival and it can really be much more creative. I think it's going to create very appealing experiences.

Sharma

Fascinating. So, what you're saying is, if I were to meet somebody or the artist, maybe there is an ability to translate that relationship into reality too? Maybe or maybe not, like there's a question mark. Is that where you're going with the ability to transcend time and space?

Nouzareth

Yeah, well, we are also trying to bridge the physical world and the digital world. For example, you could buy a ticket for an online virtual festival, but also this online virtual festival could give you access to a pass or a real one, for example, or this kind of thing. I think in the real world, it's hard to talk to a celebrity, talk to a musician. But in The Sandbox or inside of the metaverse, it's much easier. And this is something that we want the metaverse to enable experiences that are not possible in the real world. And that's how it's not going to replace the real world. It’s just going to go beyond and augment it.

Sharma

And as Sandbox or as the company enabling the platform, your role would be in creating the means to an end and then, it would be the creators’ creativity, I guess, whoever is creating the content to figure out what they can or cannot do. Is that how I should understand it?

Nouzareth

Yeah, this is correct. We're just a platform and we're providing the tools for creators and users to connect with one another. And it's really up to the creators to be creative, come up with new ideas and concepts; experiment and see what works.

Sharma

Thank you Mathieu for a very interesting insight into the world of metaverse. You told us things we didn't think about and we will definitely keep an eye on The Sandbox, and hopefully have you back here in the near future.

Nouzareth

Thank you for having me. It was a pleasure.

Announcer

The Decoding Innovation podcast series is a limited production of the EY-Nottingham Spirk Innovation hub, based in Cleveland, Ohio. For more information, visit our website at ey.com/decodinginnovation. If you enjoyed this podcast, please subscribe. Leave a review wherever you get your podcasts and be sure to spread the word.

The views of third parties set out in this podcast are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

Presenters

Mitali Sharma
Former host, Decoding Innovation podcast

Mathieu Nouzareth
Chief Business Officer, The Sandbox

Podcast

Episode 14

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0h 25m 44s

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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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How the metaverse is planning to augment reality — not replace it

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In this series

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