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Explaining the metaverse: opportunities and reality checks for merchants

Explaining the metaverse: opportunities and reality checks for merchants

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The metaverse has prompted some bold claims from big tech companies and trend-spotters alike. But it’s also left a lot of people – both consumers and merchants – confused about what the metaverse really is. How might it have the potential to benefit your operations and customer experience (CX)? When should you start thinking about a metaverse strategy? We have the answers.

Introduction

Companies like Apple, Microsoft, Amazon and Meta (owner of Facebook) are talking up the metaverse - but they have a vested interest in its success. They’re spending significant amounts on hardware and software development and placing big bets on the role of the metaverse in all our lives.

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McKinsey forecasts that the metaverse may generate up to $5 trillion in impact by 2030 and says: “We estimate it may have a market impact of between $2 trillion and $2.6 trillion on ecommerce by 2030, depending on whether a base or upside case is realized.”[1]

The ability and need to develop full metaverse capabilities may be years away for many merchants but it is sensible to understand the different technologies involved, when the metaverse might tip into a mass market phenomenon and what your customers’ expectations are likely to be. 

This discussion document will help you cut through some of the hype to better understand the ongoing developments taking place around the metaverse, distilling consumer intentions and revealing where commercial applications might lie.

Defining the intangible

There are multiple definitions of the metaverse - and they are constantly changing. The one thing most people grasp and accept is that the metaverse refers to a shared immersive 3-D digital world.

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Cathy Hackl, CEO and Chief Metaverse Officer of the Futures Intelligence Group and co-author of Navigating The Metaverse: A Guide To Limitless Possibilities In A Web 3.0 World, says:

I tend to have a pretty expansive view of what the metaverse is. I believe it’s a convergence of our physical and digital lives. It’s our digital lifestyles, which we’ve been living on phones or computers, slowly catching up to our physical lives in some way, towards that full convergence. It’s enabled by many different technologies, like AR [augmented reality] and VR [virtual reality], which are the ones that most people tend to think about.[2]

But as she points out there are other entry points to the metaverse, such as blockchain.

The metaverse is linked to web 3.0 or the ‘semantic web’, the third generation of web technologies based on open-source software and powered by AI. Some claim the world is heading to a more decentralized web based on blockchain technology and individuals will be able to access the internet without going through big tech gatekeepers.[3]

But it must be stressed this is only one potential future of the internet. Essentially the metaverse and web 3.0 are viewed as supporting technologies – one decentralizes control and the other allows people to move freely between worlds.

Or that’s the ideal. But maybe not the way things will develop.

Excursus Blockchain

Blockchains are distributed databases or ledgers that are shared among computer nodes. Blockchains are digital databases that store electronic information. Cryptocurrency systems, such as Bitcoin, use blockchains to maintain a secure and decentralized record of transactions. Blockchains guarantee the fidelity and security of data and generate trust without requiring third parties to verify them. The Blockchain technology owes its name to the underlying type of documentation: blocks of data records are strung together, creating a constantly growing blockchain. 

It’s possible we could end up with a huge number of unconnected ‘walled garden’ metaverses if each big tech company presses on with developing their own virtual worlds without common standards, interoperability and portability. There are already a host of ‘metaverses’ where brands and merchants can build a presence,including Roblox, Epic Games’ Fortnite, Sandbox, Minecraft, Decentraland and Horizon World. 

Companies do need to consider what will drive mass market engagement with the metaverse. Consumers will want the ability to transfer their digital avatars and assets from one virtual world to another easily and seamlessly – and this is likely to be a priority and a dealbreaker for many participants.

There are efforts to standardize approaches to world-building and unified systems. The Metaverse Standards Forum launched in June 2022 with a mission “to encourage and enable the timely development of open interoperability standards essential to an open and inclusive Metaverse.” Among its principal members are IKEA, Adobe, Google and Meta (owner of Facebook) - but it’s not a standards organization itself. It will “coordinate requirements and support for existing standards organizations” of which there are several, such as the Open Metaverse Alliance for Web3. The OMA exists to bring the evolution of the metaverse in alignment with the core principles of Web 3.0, which it says is characterized by inclusiveness, interoperability transparency and decentralization.

What are consumer expectations?

Films like Ready Player One have primed people for a hyper-kinetic, highly visual metaverse experience where you can appear and materialise in a  visual guise of your choosing.

Many consumers have had a taste of an immersive experience via Virtual Reality and Augmented Reality. They’ve been able to take virtual tours of potential holiday destinations, try on clothes or accessories virtually via body scanning technology, visualize new home interiors and, of course, play in detailed gaming worlds like Fortnite.

The consumer understanding of the metaverse is not as sophisticated or detailed as the technologists or ‘expert commentators’ - but McKinsey found 55% of respondents had heard of one of the existing metaverse platforms like Fortnite or Decentraland.[4]

There is a consumer expectation that they’ll be able to transact in whatever form the metaverse takes. 

 

Accenture research among 11,000 adults in 16 countries found more than 80% are interested in buying products in the metaverse and 64% had already bought virtual goods or taken part in a virtual experience in the past year.[5] 

 

Virtual-Reality-Shopping

And more than half (51%) are interested potentially buying virtual clothes to wear in a metaverse environment. Nielsen also drilled down into what consumers want from a metaverse experience and found that “Commerce is a strong motivator toward engaging with the metaverse.”

What might stand in the way of mass engagement with the metaverse? We’ve mentioned the need for free and seamless movement across a metaverse but there are also questions around the physical interface or gateway. Currently people can use AR glasses, smartphones and the bulkier immersive headsets such as Meta’s Oculus Quest 2.  etc. There are a range of VR headsets available and the big tech companies like Apple are working on developing the next generation of more powerful and convenient units.[6]

Current drawbacks include motion sickness that affects many people if they spend too long in immersive VR environments. Fully immersive headsets are still wired so restrict movement and are uncomfortable to wear over long periods. Premium units are also expensive - Meta has just raised the price of its entry level Quest 2 model by $100 to $400.

Until there’s a portable, lightweight and affordable way for full immersion for consumers the biggest dreams of the metaverse lie some distance away.

Merchants in the metaverse – innovation and experimentation

Reality hasn’t caught up with the most extravagant VR visions yet, while the current limitations on the customer experience combined with the economic downturn is causing some businesses to hold back from investing in metaverse plans. 

Identifying use cases for the metaverse is still a challenge. Global brands like Coca-Cola, Nike and McDonald’s are willing to experiment with the metaverse for differentiation – creating consumer experiences that make their brand stand out. Such activations can create excitement, build loyalty, and strengthen the perception these first mover brands as ‘cool’ innovators. McDonald’s has indicated it is looking at creating virtual restaurants where people can ‘hang out’ and order physical food and drink to be delivered to their homes.[7]

McDonald’s is also one of a number of brands that believe there will be a hunger to purchase virtual goods. Gamers have long been used to customizing their characters and buying items that enhance their character’s abilities within their games. Magic flaming sword anyone? 

Nike, for example, has acquired RTFKT, an NFT company that makes virtual sneakers for metaverse users to wear in their virtual worlds. Gucci has sold virtual clothing exclusives in Roblox that were only available for a limited time – some of which re-sold at very high prices.

Some brands are pinning their hopes on customers wanting to have the same items in both virtual form for their avatar and physical for themselves. Forever21 has a Roblox world via a license agreement with Virtual Brands Group. The two parties have a revenue share agreement and have been selling ‘Forever’ branded digital beanie hats for 50 cents a unit. They’ve reported sales of 2,000 units a day with an expectation of 1.5 million sales by the end of 2022. Cost of goods is apparently less than $500 in total.[8]

Now the partners are planning physical versions of the beanie alongside other merchandise lines developed in the Roblox environment. Virtual Brands Group CEO and founder Justin W. Hochberg said: “To R&D this costs them zero, and there are zero refunds and defects, but now they know there’s a market.”

 

McKinsey’s survey of business leaders found 95% “expect the metaverse to have a positive impact on their industry within five to 10 years.”

  

On the other hand, there’s some caution. The Chairman and CEO of LVMH Bernard Arnault said

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Practical considerations for the merchant

Engagement with the metaverse may be a way off for many. But to avoid being left behind as momentum builds, it’s worth considering some of the essential points that will have a bearing on planning and executing commerce in the metaverse.

1) As is usual with new platforms or channels, from smartphones to social media, a big question will be ‘who owns the customer’ and ‘who owns the data?’. There could be a scenario where you as a merchant will have to negotiate terms and conditions with every metaverse operator you want to work with, be it Fortnite, Roblox or Apple, just as you do with media today from digital advertising to streamed TV

2) Where do you see the metaverse sitting in your customer purchase journey? Digital experiences are enjoyed by all age groups but there’s a younger skew to those who participate in the current immersive worlds and gaming experiences of offer. Channel mix and resource allocation will be big questions for commerce and CX directors.

3) There’s a growing eco-system of intermediaries, technology partners, designers, brand licensing experts and other solutions providers surrounding metaverse development that merchants will need to work with to take their first steps. These will have to be researched and evaluated – maybe by the ‘Chief Metaverse Officer’ of the future.

4) Payment solutions will be key to the user experience and commercial transactions. Current operators may have their own financial economic system e.g., Robux in Roblox. These currencies can be exchanged for ‘real world’ currency. The future scenario is likely to involve transactions based on a mix of legal tender, digital currency using crypto wallets and/or non-fungible tokens (NFTS) created on blockchain platforms.[10]

5) Which metaverse to experiment in? As explained, right now there are a number of different virtual worlds in which brands and merchants can test ideas. Which one is right for you? Just as when evaluating marketing and social channels you will need to look at the audience demographics of those gathering in these virtual locations, metrics like hours spent per user in location, purchase data if any available and other variables to decide where to carry out your brand’s activation or build a virtual store.

6) Regulations on buying and selling goods could become a potential legal minefield. For instance, if buyer and seller are in different geographical locations but meeting in a shared metaverse, then which jurisdictions’ legal consumer protections will apply when goods are purchased?  Whose laws apply? Could it be where the servers are based or where the metaverse operator is headquartered rather than the location of seller or buyer?  What precedents have been set and have any of them been tested in law?

Of course, the biggest question of all is when will there be a full-blown, interoperable metaverse, as opposed to the platforms and tech we have now which many believe just stepping stones to the final realization?

Mark Zuckerberg, CEO of Meta, believes it could take five to 10 years before what we think of as the metaverse goes mainstream. Less optimistic is the latest iteration of the Gartner Hype Cycle for emerging technologies from August 2022. It states that the metaverse is only at the beginning of a decade-long journey and has not even reached the ‘peak of inflated expectation’ yet, as Gartner puts it in its schematic.[11] 

hype-cycle-for-emerging-tech-2022

Conclusion

Some say the metaverse is here and we are experiencing it in a variety of ways. If by that they mean immersive worlds and avatars that can interact do exist then they are correct – and the technology is becoming more sophisticated by the day.

If we mean a fully immersive, shared digital universe that transcends individual platforms and which everyone can enter and move seamlessly through, then that is looking a little more distant. The forecasters suggest this will not be until the early 2030s.

Its definition is fluid and how it’ll eventually manifest in daily lives open to a number of interpretations. The unpredictable factor in this is consumer behaviour; consumers will decide the success of the metaverse. If they enjoy participation in a metaverse experience, then their enthusiasm will spur on research and development and the necessary technological advances. If they do not find value and benefit in the experience, then the metaverse will develop as more of a novelty used as a marketing channel than a mass market commerce opportunity

As merchants you do need to plan for future scenarios while at the same time keeping the day-to-day operations running – if the metaverse materialises as some imagine and takes off, then speed to market will be essential. Senior management should watch carefully how the advocates of the metaverse fare and what successes international brands enjoy. If budget allows, then small experiments within the current available virtual world options will provide useful data and insight. 

There’s no substitute for knowing your customer at a granular level. The more data you have on their behaviours and customer journeys now, the better you’ll be able to gauge how soon and by how much they will embrace future technologies and the next iteration of the internet.

Want to learn more about the future of metaverse?  

Then don't miss the LinkedIn Live Session by Boris Redlich and Marcus Diekmann, who will be joined by metaverse expert Johannes Grilly from Bizzlogic to discuss what's behind the term metaverse, the benefits it offers, and when merchants should think about a metaverse strategy. Join them on LinkedIn on November 30th, 16:00 CET to learn how to get started with your business in the virtual world. 

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Join the LinkedIn Live Session

 

[3] Joydeep Bhattacharya, What is Web 3.0? The Future of the Internet, https://www.singlegrain.com/web3/web-3-0/

[4] McKinsey & Company, Probing reality and myth in the metaverse (2022), https://www.mckinsey.com/industries/retail/our-insights/probing-reality-and-myth-in-the-metaverse

[5] Chloe Rigby, Eight 10 now interested in buying in the metaverse, and half may buy virtual clothes to wear there: study (2022), https://internetretailing.net/technology/eight-in-10-now-interested-in-buying-in-the-metaverse-and-half-may-buy-virtual-clothes-to-wear-there-study-24756/

[6] Tom Pritchard, Apple VR/AR headset – everything we know so far (2022),  https://www.tomsguide.com/news/apple-vr-and-mixed-reality-headset-release-date-price-specs-and-leaks

[8] Maghan McDowell, What teen brands can teach us about fashion in the metaverse (2022), https://www.voguebusiness.com/technology/what-teen-brands-can-teach-us-about-fashion-in-the-metaverse

[9] Samuel, LVMH Boss in Wait-And-See Mode on Metaverse –WWD (2022), https://quicktelecast.com/lvmh-boss-in-wait-and-see-mode-on-metaverse-wwd/

[10] João Paulo Notini, The future of payments in the metaverse and main challenges (2022), https://blog.ebanx.com/en/the-future-of-payments-in-the-metaverse-and-main-challenges/#:~:text=According%20to%20the%20Digital%20Journal's,transactions%20in%20the%20digital%20world

[11] Ledger Insights, Gartner’s latest hype cycle rates metaverse as 10 year+ journey (2022), https://www.ledgerinsights.com/gartners-hype-cycle-metaverse-10-year/

 

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