This piece was originally published on Doug’s Substack, Uncomfortable Profit.
Any idea that touches gender or race is uncomfortable. It’s easy to devolve into political and ideological beliefs when you talk about the most powerful components of personal identity. But this isn’t about politics or ideology. It’s about profit.
The demotion of gender and race as primitives for identity in the digital world gives way for digital assets to assume that role. Never has anything other than genetic code formed the fundamental basis for human identity. That’s why I think identity will be the defining theme of the 2020 decade. As we embrace the metaverse, we need to establish new, digital-first identities where race and gender are irrelevant.
The Helen Question
A few months ago, I saw a Twitter exchange between a reporter from Forbes and a popular NFT influencer, Beanie. The reporter was building a list of NFT influencers and asked Beanie for recommendations, diversity strongly appreciated. Beanie recommended himself, was told by the reporter it was TBD if he would make the list, then informed the reporter that he was an Asian trans woman. When Beanie asked if his claimed minority status helped, the reporter replied that “plenty of people in this world are fully pseudonymous, so it doesn’t always apply.”
The last line stuck with me. If gender or race may not apply to fully pseudonymous accounts in a world built on pseudonymity, when should it apply?
Pseudonymity is a core feature of the metaverse where identity is built on avatars, digital assets, and activity rather than physical being. All avatars begin as full pseudonyms. The person adopting the avatar may choose to remain fully pseudonymous or connect his identity — parts or all of it.
Pseudonyms easily and often have a gender or race different from the person behind it.
There’s a popular pseudonymous hedge fund manager on Twitter that goes by the handle Trailer Park Helen. The manager is known to be male but uses a female avatar. His followers call him Helen. People often refer to him in third person with she/her pronouns.
What applies here? Should Helen be viewed as male because that’s who runs the pseudonymous account, or female because that’s the identity of the pseudonym?
On a Forbes fintwit influencers list, should Helen represent male or female? What if Helen were Hank, and Hank’s account owner was a female?
Exploring the Helen Question requires consideration of two higher-order questions:
– What is the purpose of the metaverse?
– How then do gender and race fit into the metaverse?
The Purpose of the Metaverse
Most definitions of the metaverse are abstract and esoteric. They center around VR, Ready Player One, and futuristic utopias. Those definitions may paint a vivid picture, but they fail to capture the imperative characteristics of what makes the metaverse the metaverse.
The metaverse is a holistic digital world built on the inseparable necessities of property ownership and a functional economy.
The metaverse is the metaverse, not a metaverse because it must expand everywhere we are digitally connected. Any corner of the digital world that does not recognize the property ownership defined in the metaverse are not separate metaverses. They are something else that depends on a centralized, walled environment. It may be a game or a social network, but it isn’t a separate metaverse. Just as we own all of our stuff in the physical world in aggregate, not in separately defined spaces, we must own all of our stuff in one metaverse.
To span across the digital world, the metaverse will likely rely on a decentralized blockchain or blockchains. While there can be only one metaverse, that metaverse can incorporate many chains of ownership so long as those chains are recognized by substantially all participants similar to different countries in the physical world.
As property rights extend to every corner of the metaverse, a digitally native and self-governing economy can form. Ownership includes the right to trade, and trade is the basis for all economies. As digital assets hold fiat value, a trade economy allows resources useful both within and outside of the metaverse to change hands.
The combination of property rights and a functional economy make the metaverse fundamentally play-to-earn. Play-to-earn economies are meritocracies where participants are rewarded for effort and skill. It’s no accident the play-to-earn concept has flourished on crypto protocols that serve as a digital property rights layer.
Property rights are the primary building block for any civilization. Without acknowledgement of property rights, there can be no life, liberty, or pursuit of happiness, and there can be no economy. If property rights are also the fundamental building block of the metaverse, then the purpose of the metaverse must be to create a digital civilization optimized around digital assets.
Physical and digital worlds have far different constraints. One deals in the constrained and challenging form of atoms, the other in abundant and flexible bits. Atoms are hard to reproduce. Bits are not. Ownership of atoms is not the same as ownership of bits, nor are economies built on moving atoms the same as economies built on moving bits. We shouldn’t build the metaverse in the guise of the physical world given these differences.
Gender and Race in the Metaverse
An identity born in the metaverse starts as an entry on a ledger — a blank slate to be given meaning through effort at the game that results in ownership of assets. That identity is unbound by any influence from nature. It’s completely opt in, not opt out, and it starts with no information about the person’s gender or race unless we add it.
Back to the Helen question: Should Helen be viewed as male because that’s who runs the pseudonymous account or female because that’s the identity of the pseudonym?
We can split the question into two parts:
– Genetic traits — the gender and race of a person participating in the metaverse
– Chosen traits – the gender and race used in the metaverse
I’ll start with chosen traits first.
The name Trailer Park Helen and the Caucasian female image were chosen by the account owner. A lady in a trailer park is probably the last person you’d expect to share hedge fund insights. Those chosen traits are playful and ironic. They guide the tone of the character, but neither trait impacts the usefulness of the content Helen creates. In a play-to-earn world, a male pseudonym in a glass tower would have garnered the same attention given the same quality of content.
Twitter is the most important play-to-earn game in the world right now. Those who excel at playing the game earn influence, which is valuable in the contexts of both money and power. Follower counts are the digital asset of Twitter. The follower count is like a bank account of non-fungible, non-tradeable tokens that earn interest through influence and, ultimately, money.
Players can only win the Twitter game through skill at playing the game — creating great content — not through advantages inherent in someone’s genetic makeup. The chosen traits of a pseudonym do not guarantee great content or even attention.
The other part of the question, about the importation of genetic traits into the metaverse, is answered with the same idea of meritocracy.
Gender and race are not digital imperatives in the metaverse. They are optional entries on a ledger, no more important than any other ledger entry. Since every identity in the metaverse starts as a full pseudonym, the creator must intentionally import aspects of his real identity to the digital one.
The question becomes what benefit someone might gain by importing his or her genetic traits into the metaverse?
The harmless answer is that genetic characteristics provide such a strong part of real-world identity that people entering the early metaverse may see gender and race as inseparable from their digital identity. In this sense, gender and race can serve as a bridge between the physical and digital worlds for those uncomfortable with the flexibility of full pseudonymity. This bridge will only prove temporarily valuable as new generations grow up in the metaverse comfortable with fully pseudonymous identities.
The harmful answer is that some may want to import genetic traits because they believe it will create an advantage for them in the metaverse just as it has in the physical world. Those who attempt that are likely to be disappointed. Removing the issue of genetic bias is a natural feature of play-to-earn games. The playing field is inherently level.
If Helen were Hank, she’d still get the same attention through great gameplay. If the person behind Helen were female instead of male, she’d also still get the same attention through great gameplay. So, the answer to the Helen Question is gender and race don’t matter in the play-to-earn metaverse.
Apple will likely announce new AirPods next week, which will be a small step for a much bigger hearables vision. We got another data point this week suggesting it’s a matter of when, not if, valuable health features will arrive on AirPods. The WSJ reported that Apple is studying how to make AirPods a health device, including the ability to function as a hearing aid, along with monitoring body temperature and posture. For example, similar to how the Watch can remind you to wash your hands, AirPods could prompt users to stand up straight when they detect slouching.
Adding health features to AirPods will align with a foundational investment concept at Loup, which is the idea of a virtuous cycle of mutual benefit. A virtuous cycle of mutual benefit is when a business provides increasing value to a consumer at comparable or lower prices, which in turn allows the business to extract more value in the form of more revenues and profits:
- Consumers will benefit from more powerful AirPods. For example, assuming AirPods are eventually approved as over-the-counter hearing aids, consumers will get a pair of fashionable hearing aids, which simultaneously function as noice-cancelling Bluetooth headphones, for a fraction of the cost (traditional hearing aids can cost thousands of dollars, aren’t fashionable, and don’t have features like noise-cancelling headphones or Siri).
- Apple will extract more value. As Apple increases AirPods’ capabilities, more revenue and profit will accrue to the company because it will expand the market for hearables by targeting a more specific consumer segment.
Expanding the hearables market
Although AirPods Pro can already function as light-weight hearing aids through their Conversation Boost feature, Apple is unable to market them as hearing aids due to antiquated federal regulations that require hearing aids to be sold by licensed specialists. The FDA is working to update the regulations and is expected to clear the way for a new class of over-the-counter products that would allow companies like Apple, Bose, and Samsung to market certain headphones as hearing aids. We believe this legal stamp of approval and further hearing aid features would significantly expand the market for AirPods by targeting a new, large customer segment.
We were surprised to learn that an estimated 40m, or 15% of US adults, have either mild or moderate hearing loss, yet only 10-15% of them use a hearing aid. A common reason for the low adoption is the stigma and aesthetic barrier that traditional hearing aids bring. If we assume a similar percentage globally have hearing difficulties, it would imply a pool of 850m adults. While the majority of this 850m are not iPhone users, and therefore less likely to buy AirPods, the market is still huge. For perspective, we estimate the global AirPods user base today is around 135m, or 15% of iPhone users, and the segment accounts for about 5% of total Apple revenue. Putting it together, bringing robust health features to AirPods should be financially material for Apple.
The AirPods virtuous cycle of mutual benefit will continue
Apart from health features, there are various augmented reality features we envision Apple could add to AirPods over time, further increasing the utility of the hearable for consumers and allowing Apple to extract more value:
- Hearable Spaces: Imagine walking through Central Park listening to an audiobook that takes place in Central Park. An audiobook with Hearable Spaces could navigate the reader through a story while experiencing the story’s location physically in real-time. Wikipedia could bring the physical world alive with its information plus an audio AR layer; museums could automate tours; retail stores could enrich their merchandising with additional product information; drive thrus could be a thing of the past.
- Crowd Noise: Live sports, gaming, and esports could be augmented by a real-time crowd noise audio track. Use the microphone on AirPods to gather the reactions of the audience, mix the audio into a single track of crowd noise, and feed that track back to the audio to augment the live viewing experience.
- Hello, My Name Is: Siri could notify you of someone’s name before entering a room or upon encountering a person you’ve met based on location and/or nearby iOS devices.
- Remote Listening: Listen to an event remotely via an iOS device at that location and your AirPods. This would require double opt-in from the source and the recipient. It could work much like the crowd-sourced location information Apple is gathering from the network of iOS devices around the world for the new Find My app. Selective Hearing could leverage the global network of iOS devices to share audio from a certain location to your AirPods.
- Teleportation: Users could enable the same type of audio sharing within their private network of iOS devices. Tap into your HomePod to check in at home.
Apple Watch Series 7 deliveries begin on Friday, October 15. The initial batch of Watches will be limited to consumers who pre-ordered a week ago. If you missed the pre-order window, get ready to wait. Our survey of Watch Series 7 lead times from Apple in the US, along with five other countries, shows average lead times ranging from 4-8 weeks. For perspective, in a typical year initial lead times range from 2-4 weeks. The lead times are of course a function of supply and demand. In the case of Watch 7, we believe the extended lead times are in part attributable to tight component supply, and more related to the rising tide of Apple Watch adoption.
Watch Series 7 subtle improvements are measurable
The headline improvement for Series 7 is a 20% bigger screen compared to Series 6 and a display that wraps around the edges. The increased display allows for larger buttons, along with a keyboard that slightly increases the utility of the Watch. Additionally, charging is reported to be 33% faster than the previous edition. Pricing remains the same as Series 6 at $399. Notably missing this year was any additions to the Watch’s biometric tracking capabilities. The foundation of Apple’s health offerings is data captured through the Watch, which today measures heart rate, AFib, blood oxygen levels, ECG, and fall detection. In the future, blood pressure and blood glucose monitoring are logical next features, showing Watch has room to grow as a data collection device.
Good news for Apple investors
Overall, we expect Watch will account for 5% of sales next year, growing at 15% a year. We believe 14% of the iPhone base has a Watch, and that this percentage will increase to 35% plus in the years to come as more biomarkers are added in the next couple of years, including blood pressure and working with third-party blood glucose monitoring applications. If the Watch continues to grow at 15% for each of the next five years, it will be a $38B annual business in 2026. Applying a 5x multiple to Watch revenue suggests the Watch business will be worth $190B. Big potential for a small product.