Meta's 47.5% Tax on the Metaverse
Meta announced that their metaverse offering, Horizon Worlds, will carry a 47.5% fee on goods sold within the platform.
Why does this matter? The debate emerging around the split between web2 and web3 rests on a few tenets—one of the largest being extractive fees by middlemen. One of the core visions of web3 is user ownership of data, which seeks to balance the power that platforms have over their users with the ability of users to shift to new platforms if they so choose.
A massive 47.5% fee on goods sold within Horizon suggests that Meta hopes to extract revenues using the web2 playbook while attracting users to the service with the promise of web3 innovations—which includes the concept of the metaverse.
What gives platforms the power to extract massive fees? At its most basic level, a siloed product that isn’t built around users owning their data has monopolistic pricing power. Meta can charge 47.5% because you have to exist within their closed ecosystem to use their product, and they have complete control over pricing because switching is very difficult (because you can’t take your data with you).
Low switching costs would drive down those fees if you could carry your data with you (as is the standard for much of the web3 ecosystem). This is currently the case with the competition in the NFT space between Opensea, the leader in the space, which charges a 2.5% fee, and Looksrare, a new competitor, which charges a 2% fee. If either of those fees were significantly higher, it’s very likely a new competitor would emerge and undercut the fee.
In Meta’s case, they are betting that there is no competitor in sight for their specific metaverse vision—given that they have both the hardware and software to implement a metaverse-style offering today—and thus, they have monopoly pricing power.
Which future do we want? There is a very strong case for the future of the internet being built for openness and user ownership of data. The rapid growth and the sheer amount of talent pouring into web3 points to a desire for openness and data portability.
If we support platforms that enforce web2-style platform control and extractive fee structures, we risk the future of the internet looking very much like the current state of the internet.
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