Digital Identity Update: One to Rule Them All?

Building the Future of Identity Online

Last year, we wrote about the future of self-expression via digital identities. Since then, Meta has expanded their VR avatar integration and marketplace to be compatible across all of their owned platforms (Facebook, Instagram, Messenger, and Quest) and more recently, Ready Player Me (a Konvoy portfolio company) announced their $56m Series B led by Andreessen Horowitz (a16z announcement). Given this activity, we wanted to share our perspective on the framework of a universal digital identity and where we think the space is going.

Key Factors for a Winning Avatar Platform (a Framework)

In order to become the digital identity layer of the future, we believe that a successful avatar platform should serve the following needs:

For the Consumer

Goal: The user should be able to curate each aspect of their digital identity - your digital characteristics (visual representation), digital behavior, the inclusion of various aspects of your real-life identity, and even personal information (here is a great primer on this topic).

Visual Representation:

• Full creative control of body design - The user should be able to fully customize the “physical” representation of the avatar’s body, regardless of if they want an accurate representation of their bodies in real life or not.
• Customization of wearables - Users should be able to showcase aspects of their identity through a variety of cosmetics. Customization should enable a full range of style and should also have the ability to signal brand and cultural affiliations.
• Creator tools - Full customization of wearables is only possible to do at scale with a solution that enables user-generated content (UGC). Collections released by top tier brands (such as Balenciaga, Thom Browne, and Prada on Meta) should be considered one-off marketing projects and should not be depended on to fully populate an asset marketplace or closet. Anyone from digital-native fashion houses, to game studios designing assets for their own games, to independent creatorsshould be able to learn and use these tools to create their own custom wearables (and sell them in the marketplace, just like people do on Etsy today with physical items).

Non-Visual Characteristics:

• Federated Identity - A federated identity is a method of linking a user’s identity across multiple separate identity management systems. A user should be able to utilize a form of single sign-on (SSO) to access multiple platforms. Ideally, this centralizes other avatars or digital identifiers that the user leverages across virtual worlds (similar to how people have used social media logins across lots of online platforms).
• Captures online social networks, new and existing - Digital identities do not exist in a vacuum. As representations of the self in virtual spaces, they are also connected to online communities. Friends, guilds, forums and other community affiliations should be captured by a strong avatar platform in order to sustain the cross-platform network effects.
• Online purchase history and interactions - Purchases and other interactions (explicit likes/dislikes) are results of online behaviors and should be captured and represented by an avatar platform (at least in part, depending on the level of user opt-in). It remains to be seen how customers want to manage their data and manage who has access to this behavioral data. As we have seen in recent years, users are fine sharing their data if it is a two-way street (i.e. they get an improved experience or financial reward in return) (Gartner).

Trends to Watch:

• Will people want their avatars to look similar to what they look like in real life? Will digital identities be curated / idealized versions of yourself or more “true to self”? -While early data says consumers want their digital identities to represent themselves - 87% of all respondents to a survey by the Institute of Digital Fashionsay their digital identities correlate quite closely with their “IRL” identities - we believe this may evolve as the use cases for digital avatars expand.
• Should digital identities capture real-life interactions (purchases)? - We think that they will likely include tracking of real-life purchases for more tailored digital marketing yet be limited in other real-life events (i.e., location data).
• Should an avatar platform have both web2 and web3 integration? - Absolutely, this is a natural integration as users more regularly interact with both.
• Should users have full control of their data? - Most likely, but this will be difficult to navigate. It has profound implications on user acquisition (UA) budgets for games if users opt-in with their avatar data.

For the Developer

Goal: Developers of third-party platforms and virtual worlds should be able to easily integrate an avatar SDK and monetize with it.

Dev Kit Features:

• Easy to integrate (days, not months) for all types of movements and visual angles for any 3D use case - supported by the avatar platform
• Supported by multiple engines (if not all of them)
• Offer new monetization opportunities for developers and creators - Rec Room’s clothing customization, which is limited to just shirts, shows how hard it is for creators to build and distribute assets on UGC-friendly platforms (Road to VR). Offering this directly via an avatar marketplace removes the need for developers to build this in house and enables them to focus on other platform features. Developers are better able to benefit from the network effects of a cross-platform marketplace, especially if they produce IP-specific assets.

Trends to Watch:

• Should developers be able to control which avatar features to allow on their platform as a condition for avatar integration? - we think many avatar systems will allow for this control feature for developers.
• What percentage cut should avatar platforms be allowed to take of transactions of integrated platforms? - given the other platform fees involved in the virtual asset market, we think this will likely be between 5-20%.
• How powerful are the network effects of an avatar platform itself compared to the platforms it is integrated with? I.e., will people want their digital identities to be in the same style, will people join the same platform their friends are on? - we think there is a long track record of network effects playing a critical role at the intersection of consumers and digital self-expression.

The Market Leaders Today

Meta

Meta’s Avatar SDK was initially tested with 3rd party developers in April 2021 in the games Epic Roller Coasters, PokerStars VR, GOLF+, Synth Riders, and ForeVR Bowl before releasing publicly in December 2021 (Oculus VR). The SDK is only compatible with Unity. Meta began expanding 3D Avatars to Facebook and Messenger, and for the first time Instagram Stories and DMs, to people in the United States, Canada, and Mexico the following month (Meta). In June 2022, Zuckerberg released their clothing marketplace called the “Meta Avatars Store” for Facebook, Instagram, and Messenger and allowed users to buy digital clothes for their avatars (TechCrunch). Balenciaga, Prada, and Thom Browne were design partners (Forbes).

While no public numbers have been shared on the number of avatars created, it is possible that Meta is the frontrunner in the number of avatars created. Despite Horizon Worlds, Meta’s only 3D digital space, having only 300k MAU as of February 2022, Meta’s avatars can be used across their family of products, meaning Meta’s 3.65b MAU (across all products) have a significantly lower barrier to entry to create their avatars and link it to some of their social platforms (Meta Earnings Report).

Ready Player Me

The Ready Player Me avatar platform is free and consists of 2 parts: The Avatar Creator tool which can be integrated and accessed within any application or through the Ready Player Me website, and the SDK which developers integrate to pull user-created avatars into their platforms. Avatars can be built from scratch or with images. Using 20,000 face scans, they have built a deep-learning-based platform, which can produce real-time animated avatars in a single 2D or 3D photo (TechCrunch). The SDK supports Web, Unity, Unreal, React Native, Android, and iOS native. No Ready Player Me avatar is allowed to be on chain (Ready Player Me).

Ready Player Me manages ~5m avatars across >3,250 partners (TechCrunch). While monetization opportunities for developers and creators have not been released, as a part of their $56m Series B funding announcement, they have said this is in the roadmap (TechCrunch).

Genies

Genies was founded in 2017 and offers a mobile application for consumers to create avatars that can be used in apps such as Giphy, iMessage and Instagram. They also offer an SDK so that brands can create avatar experiences and online marketplaces directly in their apps, however, developers must apply for access (Genies).

Genies avatars are off chain, however, today, the fashion assets sold on their marketplace are NFTs. The Genies marketplace, The Warehouse, was announced in December 2021. The platform was initially invite-only with the intent to phase public access within a few months, however, 8 months later, this has not happened (Coin Central). Notably, this warehouse was a collaboration with Dapper Labs, the web3 collectibles product company and is fully integrated with their Flow blockchain.

Compared to Ready Player Me’s “bottoms-up” approach in integrating with applications and games, Genies is much more “top down” and less games focused. Although gaming is mentioned on their website, Genies are not used in any games today. Their large partnerships are with celebrities, influencers, and affiliated brands. For example, they are the official avatar and wearable NFT partner for Warner Music and UMG, and Bob Iger sits on their board.

The company began shifting their focus to be more creator-driven in 2022 by granting ownership rights of all Genie avatars and their respective assets to their creators (Genies). In late July, Genies announced their DIY Collective program (Genies). This program is a 3 week long, in-person program for creatives to launch their own avatar ecosystems using their tools with Genies funding and direct support.

Genies has raised a total of ~$270m to date, their latest funding was a $150M Series C led by Silver Lake at a $1b valuation (Venture Beat) in April 2022. The number of avatars created and platforms integrated is not publicly known.

Avatars Produced by Social Media Platforms (Bitmoji, Memoji, Facemoji)

Avatars utilized by other social media platforms have the same user base and addressable market as Meta. Snap (Bitmoji) has >530m MAU and 200m people use Bitmoji stickers every day, there are >1b active iPhones (Memoji), and the keyboard application, Facemoji, is compatible across Apple (iMessage) and Android. However, all of these avatars have a distinctly simple style and have no public gaming integrations. All usage of these avatars are either in 1:1 conversations or within a user's immediate friend group - none are used at scale for public-facing interactions.

Notable Mentions

While Roblox, Zepeto, and Second Life have their own avatars and have built very strong marketplaces supported by creators, the usage of these avatars and ownership over clothing is limited to each of the individual platforms.

Who is NOT Positioned to Win in Digital Identity Today:

NFT PFP-based projects (RTFKT - CryptoX, CryptoPunks, CryptoKitties, CryptoAvatars)

We see these “avatars'' more akin to a badge or signal of a cultural affiliation rather than something that has the potential to become a singular, holistic digital identity. These collections lack some combination of usage in 2D/3D virtual spaces, visual customization (body types, clothing), and easy developer integration. Additionally, the style of these PFP collections is necessary for identification - CloneX, CryptoPunks, CryptoKitties, etc would all be undifferentiated and unrecognizable in a fully-customizable world. The potential exception to this rule is Yuga Labs, who is currently building Otherside.

Hyper Realistic Avatars (Unity / MetaHuman / Ziva, Avatar SDK)

A majority of gaming applications do not yet support this level of fidelity and these avatar platforms have not shown that they want to be compatible and convertible with other art styles. While these avatars capture a high level of detail, some require some level of body scanning (Metahero, in3D, Texel x MetaHuman). It remains to be seen if people want their digital representations to be visually 1:1 with the real world.

Our Perspective: We are still in the early stages of digital identity adoption and those who are building are still laying the groundwork to build a sustainable network of platforms and users. We believe the winners in this space will enable a federated identity and we are looking forward to continuing to invest in digital identity and expression.