Meta vs. Apple: What digital ecosystem builders can learn from the metaverse

Such ecosystems will become more important for more firms as economies rely more and more on digital technologies. Therefore, a growing range of companies will need to develop ecosystem strategies based on a clear understanding of what makes an ecosystem successful – whether they are “orchestrators” who build the ecosystem, or contribute and transact within it. this one.

Two recent developments should stimulate reflection on the dilemma between openness and control in ecosystem design. On the one hand, Meta’s Mark Zuckerberg has publicly articulated his vision and arguments for an open AI ecosystem built around the Llama family of models. Although in a different realm, this is a striking reversal from the Meta’s years-long (and notoriously expensive) play for a closed, tightly controlled metaverse. On the other hand, Apple has chosen to enter the metaverse, renamed “spatial computing”, with a similar model of tight orchestrator control built around its VisionPro headset. The spatial computing ecosystem that Apple hopes to foster would give it full control over the hardware and operating system that would allow developers to sell VR and AR experiences

What are we to make of these conflicting bets? Apple could try to replicate its exceptional success with the iPhone by leveraging its prowess in creating an easy-to-use interface to lock in consumers. However, we argue that an orchestrator’s belief that they must create and control everything themselves is more often than not a cardinal sin of ecosystem design. Indeed, the lessons from Meta’s foray into the metaverse remain valuable and applicable beyond the web3. First: total openness and absolute dominance is a false dilemma for ecosystem orchestrators. And second: Complementors have the power to shape the trajectory of a viable and scalable ecosystem.

Meta’s bitter lesson

About a decade ago, it was Facebook that aspired to extend its social media dominance into a new virtual realm dominated by orchestrators. The company began investing resources into building an island ecosystem where it could exercise total control. It developed its own proprietary devices to deliver augmented reality (AR) and virtual reality (VR) technologies, bought headset maker Oculus for $2 billion in 2014, and even launched a social VR space called Horizon Worlds in 2021. The final touch and a strong statement of intent was to render under the name Meta.

The belief that the metaverse had arrived sparked a gold rush as tech giants like Microsoft and Apple raced to build their own immersive ecosystems. But fast forward a few years and the reality has fallen far short of the hype. By 2023, two years after launch, Meta’s Horizon Worlds had less than 200,000 monthly active users, and only 9% of its worlds had been visited by more than 50 people. Meanwhile, US sales of VR headsets and AR glasses plummeted, falling nearly 40% to $664 million in 2023. This understandably dismayed content creators who were paying fees of up to to 47.5% to sell their virtual goods on the platform, reducing the incentives for them. complementary to invest in creating value-added content.

Humiliated, Meta belatedly recognized that collaboration might ultimately be a better course; open sourced the operating system that powers its line of MetaQuest VR devices earlier this year. This shift allowed third-party hardware manufacturers to build mixed reality (MR) experiences. Meta also allowed “pre-approved” partners to develop specific use cases: hardware manufacturer Asus will develop a gaming headset under the Republic of Gamers brand, while Lenovo has developed MR devices for productivity, learning and entertainment. In 2022, Meta partnered with Microsoft to bring the immersive tools of Mesh for Microsoft Teams to MetaQuest devices.

Meta’s current approach is a middle ground between open and closed ecosystems, and has allowed it to attract addons while controlling who can use its OS and (to some extent) for what.

Ecosystem building models

Meta’s change of heart shows that there are more ways for orchestrators to attract and benefit from complementors in their ecosystems. Meta first aspired to a “hardware lock-in”, where users are locked into proprietary devices but third parties can create content for them. Meanwhile, Microsoft has pursued it even higher with its own metaverse game: a “total lock-in,” where both hardware and software are under the control of the orchestrator.

Apple’s strategy is somewhere in the middle: a hardware lock, with selective and limited opening for add-ons. Other companies are exploring different paths: Blockchain game developer Axie pursued a “content lock” where it controlled content creation but was device independent; and Decentraland, a truly “open platform”, is not only device agnostic, but actively encourages content creation by multiple third parties.

Based on our recent research project on the metaverse, we looked at the approaches of different orchestrators and found that, as a rule, firms that tried to control too much were unable to generate complementary support and ultimately they failed. It makes sense then that we’re seeing a broader trend of orchestrators abandoning this “orchestrator-takes-all” approach and embracing partnerships that instead multiply use cases and drive user adoption.

Only time will tell if Apple’s bet on the kind of hardware-blocking, high-fee, tightly controlled content strategy that Meta abandoned will pay off. But for now, it predictably struggles to attract participation. None of YouTube, Spotify, or Netflix currently offer a dedicated app for Apple’s Vision Pro headset. In fact, 46 of the most popular apps in Apple’s App Store were unavailable the day Vision Pro was released. These add-ons are clear why they’re staying away, but their reluctance is already having an impact, undermining the appeal of Apple’s high-quality hardware and user experience, and apparently causing Apple to scale back production goals for the Vision Pro.

Lessons for ecosystem participants

Even though Big Tech giants might be tempted to use their tremendous power to impose their will on a new ecosystem, this not only hinders complementors, but can often jeopardize the ecosystem’s success. An effective ecosystem strategy doesn’t always benefit from hardball tactics, as the Meta’s own evolution shows. Through its strategic pivot, Meta now hopes to address the two biggest drawbacks of augmented reality: slow hardware development and unpleasant experiences that few users enjoy. To do so, the company is now betting on the future of an interconnected, interoperable metaverse and seeking first-mover advantage when it comes to setting the standards for transferable digital identities. And these lessons are now being carried over into Meta’s gameplay and the generative AI space.

Opening up the ecosystem means making the social layer within the Horizon OS that powers Horizon Worlds more engaging for users, allowing profiles to slide seamlessly between virtual spaces, giving them ownership of their virtual identities. Meta’s calculation is that if Horizon OS becomes the engine of social experiences for users everywhere, the company can collect customer data and strengthen its existing market position in digital advertising.

Ecosystem complementors, that is, partners struggling to compete in a world of tech giants, still have the power to influence the ecosystems in which they operate—most importantly, by refusing to do so. For complementors, strategic alignment can replace the power of technology, and smart positioning can make the difference.

In the new ecosystem growth zone enabled by GenAI, getting the ecosystem strategy right will be crucial for both complementors and orchestrators. As I argued earlier, the locus of innovation and investment will over time shift downstream to small, domain-specific models that many companies will be best positioned to develop “on top of” the core models created by startups. uri and hyperscalers leading GenAI.

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The metaverse itself is far from dead. In fact, the space computing race has only just begun. Which ecosystem building strategy will prevail: Meta with its new semi-open strategy or Apple and its “total lock” hardware approach? Or will it be another orchestrator that already dominates the metaverse, like the online gaming platform Roblox, with 60 million daily active users? One thing is certain: orchestrators will need to become much more sophisticated and nuanced in how they run their ecosystems – whether in the virtual world or in the real world.

Read others wealth columns by François Candelon.

François Candelon is a partner at private equity firm Seven2 and former global director of the BCG Henderson Institute.

Michael G. Jacobides is Sir Donald Gordon Professor of Entrepreneurship and Innovation at the London Business School, Academic Advisor at the BCG Henderson Institute and Senior Advisor to Evolution Ltd.

Katie Round is director at BCG Xthe technology design and construction unit of the Boston Consulting Group.

Some of the companies mentioned in this essay are past or current clients of the authors’ employers.