The Metaverse is today mostly associated with online gaming, digital entertainment, virtual shopping and social media. However, there is also a considerable industrial use case — with the ‘digital twin’ technology at its center — that represents one of the biggest opportunities for future growth and investment in this space.
As Senior Principal for Applied Research, Christoph generates insights into market trends with a particular focus on multi-asset class analysis and thematic investing.
As tech giants announce mass layoffs and the closures of their Metaverse divisions after years of overinvesting, manufacturers are only just beginning to see the potential applications of immersive and interactive technologies in an industrial context.
In this blog post, we show how forward-looking indicators like patent data are used to identify the leading innovators with significant exposure to the industrial Metaverse for inclusion in the STOXX® Global Metaverse index, providing a rules-based, transparent and systematic way of capturing the associated return potential.
The Metaverse: three in one
The Metaverse is often perceived as one, all-encompassing virtual world, but three major applications have emerged over time, each with its own focus and characteristics, that evolve largely independently and at different paces. The first — and arguably best known and most popular — of the three areas focuses on consumers and their social experiences. The second one provides virtual solutions to enterprises, while the third aims at optimizing industrial processes.
The consumer Metaverse refers to virtual worlds, games and other online platforms that are predominantly designed for entertainment and social interaction. Its primary goal is to provide engaging and immersive experiences for users, such as multiplayer video games, e-commerce or virtual concerts and museums.
The enterprise Metaverse is used for work and collaboration purposes, aiming to increase efficiency and productivity by enabling businesses to conduct operations, employee training and client interactions virtually. This includes remote teamwork, online education and virtual product demonstrations.
The industrial Metaverse is focused on optimizing industries’ production processes and operations. It aims to increase efficiency, reduce costs and improve product quality by enabling businesses to simulate and optimize their manufacturing and supply chains in a virtual environment. The applications range from remote monitoring and online simulations, to virtual replicas of physical assets — or digital twins.
Digital twins: more than just an online simulation
Digital twins are virtual representations of real-world objects or processes that can be used to model entire factories, product lifecycles and supply chains. But what distinguishes them from simple online simulations is the fact that they are linked to, and continuously collect data from, their physical counterparts.
This enables companies to not only monitor production processes, but also to experiment with changes to them in real time. In that way, manufacturers can anticipate wear-and-tear or part failures, and can proactively prevent or fix them (“predictive maintenance”), or they can try out new equipment in the virtual environment before adding it to the physical factory. New products can be prototyped in more time- and cost-efficient ways, speeding up the process from idea generation to market launch.
Vehicle and airplane manufacturers are already among the biggest users of digital twins. For example, BMW runs over 30 virtual clones of physical factories, while Boeing employs the technology for designing aircraft and for optimal cargo-load balancing. Unilever uses virtual representations of its machinery to simulate modifications to its production process when introducing new bottles, while Siemens planned and simulated the construction of an entire factory through a digital twin. NASA created a digital version of its Perseverance Mars rover before sending it to space, in order to detect and anticipate any potential issues that might prevent it from landing safely at its destination.
But it is not only the manufacturing industry that can benefit from the technology. The real estate sector can apply it at every stage of a project, from the first architectural draft, through construction, to the eventual management and maintenance of a property. Architects and engineers can simulate and optimize building designs before committing any physical and human resources, testing different materials, layouts and construction methods to identify the most energy-efficient and sustainable options. Once the edifice is built and occupied, the system can identify areas of waste and inefficiency by monitoring energy usage and adjust lighting, heating and air conditioning accordingly.
Eventually, digital twins could be used to manage an entire smart city by creating a virtual replica of its infrastructure, including buildings, roads, utilities and transportation systems.
At present, healthcare providers use the technology mainly to monitor medical equipment, but with time, as health & fitness tracking devices become ever more powerful and sophisticated, it is imaginable that human beings could get a digital twin, too.
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Capturing the greatest innovators
The STOXX Global Metaverse index aims to identify and capture the performance of the greatest innovators with the biggest exposure to technologies associated with the Metaverse. The index uses patent data supplied by our partner EconSight to select companies with the largest number of relevant, high-quality patents (HQPs) as well as the firms with the highest degree of specialization in the field.
The index methodology targets seven key technologies driving the adoption of the Metaverse: 3D-image modelling, avatars, blockchain, digital twin, graphic processing units (GPUs), non-fungible tokens (NFTs) and virtual & augmented reality. The most relevant for the industrial use case is digital twin.
As of March 2023, the STOXX Global Metaverse had 68 constituents, of which 31 had at least one high-quality patent covering digital twin. One of the most important players in this area is General Electric, with 50 out of their 77 worldclass Metaverse patents referencing the technology. Its subsidiary GE Digital is a co-founder of the Digital Twin Consortium, which aims to define best practices and enable interoperability in the field. Other members of this industry body include Dell Technologies and Microsoft, both of which are also constituents of the STOXX Global Metaverse.
Top 3 companies by number of high-quality digital twin patents in the STOXX Global Metaverse
Rockwell Automation is another company with a strong commitment to digital twin — with 43 out of 57 patents linked to it — as it leverages the technology to create industrial automation systems. Siemens is also heavily invested in the field, with just over a quarter of its EUR 72 billion in total revenues last year coming from its Siemens Digital Industries business arm. The German company works closely with Nvidia and IBM, which themselves have filed 11 and three high-quality patents in the technology, respectively.
The industrial Metaverse: more than a fad
The dynamic and evolving nature of the Metaverse means that many of the technologies associated with it are still in relatively early stages of their development cycle, with only limited attributable revenues. This is particularly true for the digital-twin use case, which has so far realized less than 10% of its projected market size, according to some estimates. But as pundits are beginning to wonder whether the Metaverse as a whole is “fad or future,” market research companies predict exponential growth for its industrial application.
For example, Allied Market Research forecasts that the global digital twin industry may reach USD 126 billion in value by 2030, from USD 6.5 billion in 2021. Calculations by GlobalData are even more optimistic, with an estimated 2022 market value of USD 12.9 billion that is expected to grow to USD 154 billion by the end of the decade. This is consistent with an estimate from Research and Markets, which reckons that digital twin could generate USD 63.5 billion in revenues by 2027. Finally, Gartner Research predicts that the technology’s market size will reach USD 183 billion by 2031.
With only 27% of turnover coming from its digital business, Siemens would likely be ineligible for inclusion in a traditional, revenue-based Metaverse thematic strategy, which customarily requires a substantial part (usually more than half) of a firm’s revenues to come from sources associated with the theme.
Using forward-looking indicators such as patents ensures that the companies that are most likely to profit from nascent technological trends are identified and included in the investment strategy as early as possible in order to capture their full potential. And it will not just be the companies researching and investing in digital twin that are likely to benefit. The photorealistic, physics-based, real-time representations of physical objects will require powerful graphic processing units, 3D image modeling software, VR/AR equipment and blockchain technology.
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