Mark Zuckerberg and Meta don't understand the Web3 Economy...let's see why!
Meta will charge creators fees of up to 47.5 percent to sell virtual objects (NFTs?) in its metaverse world, far more than Apple charges developers in its App Store and far more than NFT marketplaces operating in the Web3 space. The announcement was met with enormous skepticism in the blockchain space, with most NFT collectors and Web3 experts claiming, correctly, that Mark Zuckerberg does not understand Web3.
TL;DR
Meta will charge creators fees of up to 47.5 percent to sell virtual objects in its metaverse.
No indication if NFTs will represent objects.
Average fee on major NFT marketplaces is between 2% and 10%.
The Web3 community calls Zuckerberg and Meta clueless and out of touch.
In a blog post Monday, April 11, Meta wrote that it is testing virtual sales within its custom metaverse platform Horizon Worlds. Creators will be able to sell things like fashion accessories for users' avatars and exclusive access to customized virtual worlds. The announcement contradicts Zuckerbergs previous promises to help developers circumvent Apple's 30 percent App Store tax for developers on in-app purchases. 🤔
Meta's fees explained
Meta charges a 30% platform fee for sales made on Meta Quest, its virtual reality system formerly known as Oculus. On top of that, Horizon Worlds, Meta's metaverse system, will charge a 25% sales tax. This means that Meta will take up to 47.5 percent from the sales price, leaving the seller with 52.5 percent. To explain further, if a creator sells an item for $1.00, then the Meta Quest Store's tax would be $0.30 and Horizon's tax would be $0.17 (25% of the remainder), leaving $0.53 for the creator, before any income tax is applicable (another key aspect to consider).
A further nuance to this is that the items being discussed through the Meta platform might not be NFT items and instead just virtual clothes and game skins, which is more like Roblox, where creators can sell on their marketplace. However, a fee of nearly 50 percent seems unfair, especially considering that fees on platforms such as Opensea and LooksRare are a fraction of the amount.
What do NFT marketplaces charge?
Apple's App store charges creators a 30 percent tax on sales of in-game items, which make up most of the revenue for free-to-play app creators. However, NFT marketplace fees are much lower, ranging from a maximum of 20% to a minimum of 2.5% for marketplaces currently monitored by Cryptohubble.
It is important to note here that NFT marketplaces incur gas fees and that most are on Ethereum, which suffers from the highest gas fees of any blockchain. Creators who mine NFTs on the blockchain must pay gas fees, which is why platforms on alternative networks such as Solana and BNB Chain are growing in 2022, as they offer creators a lower barrier to entry with zero gas fees.
A similar example of what Meta, Horizon World, could look like is Decentraland, where creators are encouraged to participate in the open, decentralized economy of their metaverse by creating and selling items to other players.
Decentraland's marketplace fee is only 2.5 percent, which is 45 percentage points lower than Meta's planned fee. Below we have listed the commission structures for the major NFT marketplaces. The highest commissions are found on NFT marketplaces where creators sell fewer items for higher values, such as Nifty Gateway or Foundation.
Commissions on NFT Marketplaces:
Opensea - Gas fee + 2.5% marketplace commission per sale
Rarible - Gas fee + 2.5% marketplace commission
Solanart - 3% marketplace commission on the sale price of each transaction
Decentraland - 2.5% marketplace commission on the sale of items in the Decentraland marketplace
Axie Infinity Marketplace - Recently increased commissions to 5.25%.
Foundation - Gas fees + an additional 15% marketplace fee
Known Origin - Gas fees + 15% marketplace fee.
NFT markets are still booming
In March, the NFT market, excluding suspicious activity on LooksRare, generated $12 billion in Q1, down slightly by 2 percent from the volumes recorded in Q4 2021. Another positive sign for the NFT space is the increase in the number of sales taking place on blockchains other than Ethereum. The number of trades on Avalanche increased by 582 percent compared to the previous quarter, while the number of sales on Solana and Polygon increased by 34 percent quarter-on-quarter (QoQ).
The best Ethereum NFT projects have an established market that may be out of reach for most people. Therefore, it is good to see that NFTs on other networks are also increasing the pace, showing that NFT adoption is just beginning.
META Marketing
While the announcement of a 47.5 percent tax has been met with heightened criticism throughout the blockchain world, it has raised awareness among retailers of Meta's intentions and the platforms it will use to deliver those ideas. Arguably, this is just a fact-finding mission, as there is nothing to stop Meta from making a U-turn on high fees.
At the same time, the announcement clearly shows, especially to us NFT collectors entrenched in this industry, that Meta is once again putting profit margins above community collaboration and participation, using its large user database as justification for insane fees to the creator community. Coupled with declining ad revenue streams and a lack of new users, this could spell the end of the once dominant social media platform, Facebook ---> META.
Time will tell...
