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Last year saw a huge number of new UK tech incorporations, with an unprecedented 38,240 new Tech companies incorporated in 2021 – a rise of 62 per cent compared to 2020. But is this thriving early-stage ecosystem positioned for the evolution of the internet and society into the Metaverse?

What is the Metaverse and why does it matter to UK Tech?

Whilst definitions of the Metaverse differ, most will agree it is an evolution of our current internet technologies to where our digital interactions balance equally to our physical ones. A world where children, instead of building papier-Mache models, learn about volcanic eruptions by travelling into a rendered 3D world, or where you test skis from the comfort of your living room before travelling to the alps for a winter holiday.

The economic potential of the Metaverse is vast. Recent projections by . Citibank is not alone in projecting the vast potential of the Metaverse. Many companies, including and , are beginning to pilot ideas and invest in their metaverse offerings.

Building the Metaverse will require huge advancements across a range of technologies. Start-ups today are developing the ideas and technology that will provide the solutions and infrastructure required for an immersive and engaging metaverse. So, what are the chances of key metaverse players emerging from the current cohort of the UK’s early-stage tech businesses?

Will UK Tech power the Metaverse?

Data from software company Beauhurst indicates that, at present, over 48,000 people in the UK are working across 2,822 companies that develop technology which is expected to be foundational to the Metaverse. These companies alone are estimated to generate combined revenues of £5.4bn. 911 of these companies have raised over £5bn in the 12 months to 30 June 2022.

Much like the Metaverse itself, the UK’s Metaverse technology ecosystem is at an early stage. A defining characteristic of these companies is their small size, with an average employee number of only 17 heads per company. Only 255 companies report full financial statements, indicating that 91 per cent of the UK Tech metaverse ecosystem are small companies, with further promise to deliver as they grow and develop their technologies.

The importance of software, immersive, Web3 and Gamification

A huge range of businesses and organisations will benefit from the Metaverse. Retail businesses will trade in digital malls, education providers can hyperscale and advances in medical care will look and feel like science fiction. The companies that facilitate these developments, and access the considerable rewards, will be the businesses that feed into the pillars needed to advance to enable the Metaverse. These pillars can be broken down into four columns: software, Web3, immersive and gamification.

Software

The UK has a range of software businesses but it is the businesses that specialise in Artificial Intelligence (AI) and Open Source that will be key here.

Advances in AI will be a key driver in creating the intricate, detailed and real-time environments required in the Metaverse. The UK has strength in this area, with over 1,700 companies in the UK working across AI and employing over 31,000 people. It is also a field that has benefited from over £39m of Innovate UK funding since the beginning of 2021 – the benefits of AI are already wide-ranging and expected to feed into many areas both inside and outside the Metaverse tech stack.

Open-Source is a software field where source code is made freely available and can be redistributed and modified. 122 UK companies work in this space, and it is an important area. With so many challenges to overcome in Metaverse enabling technology, collaboration will be essential. Many Metaverse advocates firmly believe that progress will not be achieved without sustained collaboration across developers – the ability to work in Open Source and a mindset to collaborate will be key.

Web3

Web3 Technologies are considered to be so fundamental to unlocking the potential of the Metaverse that often areas such as cryptocurrencies and blockchain are bundled in with the Metaverse, and talked of as one and the same. Cryptocurrencies are a form of digital tokens – prone to high levels of volatility in value. However, these tokens do have broader functionality. In some metaworlds crypto tokens are already being used to facilitate forms of democracy, acting as a mechanism to support voting rights in the community. Crypto token functionality can be extended far beyond being held for short term investment.

Crypto sits on the Blockchain, a digital and decentralised ‘ledger’. In the Metaverse this ledger will be crucial to supporting records of digital ownership and trade. It is very likely that the Metaverse will be composed of many different digital worlds and Blockchain technology is widely believed to be the solution that facilitates interoperability through metaverses. If you own an item of digital clothing for example it may be the underlining Blockchain that records your ownership of this item. Metaverse platforms will be able to identify ownership of your assets from the Blockchain and allow you to use it consistently in each world. Finding the solution for interoperability will be no mean feat, but Blockchains will almost certainly have a role to play.

With Web3 established as emergent and potentially fundamental, it is no surprise to see many UK Tech companies working in this area.

374 companies in the UK work across Web3 blockchain and crypto – from challenger banks, to businesses developing technologies, to track waste-to-energy treatment or the ownership of art and antiques. Despite the much published ‘crypto-winter’ of early 2022 it is very likely that interest in this area of emergent technology will continue. However, further centralised investment in this area is needed.

Immersive and Gamification

Our interaction with the Metaverse will be through a combination of virtual reality hardware and augmented reality hardware. These hardware solutions are often grouped as ‘Immersive’ businesses. The UK has numerous market leading Tech companies in this area, although the number of people working in this space remains relatively small compared to those in AI and Web-3.

Current challenges with virtual reality headsets are their heavy weight, unattractive appearance and hefty cost. A truly successful headset will need to deliver a high-quality visual screen whilst tackling complaints of nausea from many. Mark Zuckerberg’s bet on the Metaverse relies on exciting developments in this area, and thankfully for Zuckerberg, there are 149 UK companies currently working on virtual reality.

Augmented reality places a layer of the digital world onto real world devices – think GPS integrated into your sunglasses or touchless keyboards that allow you to type on air. 134 UK companies are working in augmented reality.

187 UK companies are developing wearable technology. Wearable technology overlaps with augmented reality – for example the development of heads up displays within motorcycle helmets. It also includes smart devices with applications as broad as from health tech to entertainment. One of the key barriers to stepping into the Metaverse is the digital experience being as fulfilling and exciting as the physical world. The wearable devices we will be wearing in 2030 will be crucial to the success of the Metaverse.

Gamification is based on the foundation that when we play we learn at more quickly. One of the key drivers of the Metaverse will be Gen-Z and Millennials’ high level of comfort with virtual experiences from their childhoods playing immersive video games and consuming entertainment through Netflix and YouTube. 177 companies are developing applications and tech solutions in this space – often for entertainment. Video gaming technology underpins many of the metaworlds that exist today and is widely expected to drive the evolution of the Metaverse. The UK already has a world-leading gaming industry, (not included in these numbers) which will complement the emerging companies focusing on gamification.

Funding is key to facilitate innovation and collaboration

The UK is the only country in the world with a $3tn Tech economy – a strong starting point. The number of UK start-ups in Tech has never been higher. At a time when the short-term economic forecast contains deep levels of uncertainty, many UK Tech companies will be making long term bets on the success of technologies that feed into the Metaverse.

There will be missteps, experimentation and misjudgements. For example, at the launch of the iPhone many derided its lack of a keyboard. Few in 2000 predicted the rise of social media. But it is possible, that within the 2,822 tech companies in the UK today, an early-stage business will go on to produce fundamental technology for the Metaverse. However – funding will be needed to retain global talent, attract further investment and encourage innovation and collaboration in these game-changing technologies.

Over £39m of Innovate UK funding has been approved in the AI space since January 2021 – but more funding is needed for other areas in the Metaverse Tech space. There are some success stories- for example Plymouth University’s VR and Game Lab is a great example of a space that encourages a key pillar of emergent technology. Funding will be essential in creating centres of excellence and innovation in both our universities and the early-stage UK Tech.

Innovate UK Funding Projects Search by Keyword from 1 January 2021