The EU leads in virtual worlds research and has the capacity to attract seed funding but faces challenges in venture capital and market growth.
Since the launch of the EU strategy to lead on Web 4.0 and virtual worlds, adopted in July 2023, the European Commission has launched a structured approach to monitor the Virtual Worlds landscape across different sectors.
As part of Action 10 of this strategy, a study is being developed by the Joint Research Centre of the European Commission aiming to identify areas for growth and innovation, and to better understand and address emerging challenges.
The first policy brief developed as part of the study highlights the EU’s strengths in research, its ability to attract seed funding, ongoing difficulties in securing late-stage venture capital, and the EU’s growing interest in foreign virtual worlds companies.
It also stresses that strategic investments in enabling technologies, such as artificial intelligence and extended reality (XR), remain important to strengthen the EU’s position in this evolving digital field.
EU’s strengths in research and innovation
The EU is a global leader in virtual worlds research, accounting for 29% of worldwide scientific activity in the field. Between 2009 and 2023, more than 3,500 project participants under the EU Framework Programmes received €3 billion in funding for extended reality technologies. These projects cover sectors such as healthcare, education and manufacturing, and use technologies including artificial intelligence, the Internet of Things, and 5G.
This strong research base gives the EU the potential to support future innovation. However, turning research into market-ready applications remains a challenge. Over the same period, European patents related to virtual worlds made up less than 4% of global patent filings.
Venture capital and startup landscape
The EU has a dynamic startup ecosystem, but it attracts only 10% of the venture capital that the United States receives for virtual worlds companies. Early-stage investment is a relative strength, with European startups securing more seed funding deals than their counterparts in China or Japan.
Germany, France and Spain have the highest number of startups in this field, while Estonia stands out for its startup density. To remain competitive globally, the EU needs continued investment, particularly during the early growth phase, and policies that support companies as they scale up.
Global investment flows and dependencies
European firms hold an 11% share in foreign virtual worlds companies, mainly in the United Kingdom (31%) and the United States (26%). The EU is the second-largest foreign investor in this field after the US, reflecting the interest of European private investors.
However, almost twice as many European firms are foreign owned, with 43% owned by US investors. This imbalance points to strategic vulnerabilities in the EU’s industrial network.
Encouraging more private investment in European companies and building stronger partnerships with countries such as South Korea, Switzerland and Japan, who have shown interest in European virtual worlds firms, could help reduce geopolitical risks and strengthen the resilience of the EU market.
With the virtual worlds market projected to grow from €27 billion in 2022 to over €800 billion by 2030, the EU must act decisively. Prioritising AI, XR, and digital infrastructure, while fostering strategic collaborations, will ensure Europe remains a competitive player.
The policy brief From bytes to business: Strategic EU ownership and dependencies in virtual worlds is also available on the webpage Next generation virtual worlds.
Source: European Commission | Shaping Europe’s digital future | News & Views (https://tinyurl.com/mrj9ddvb)