The Metaverse is a hot topic with massive cashflows in the development of this emerging web 3.0.
Meta alone invested around 10B USD in infrastructure and research in 2021, with other tech giants such as Microsoft and Apple also developing technology in this area. Last year also saw explosive growth in the sales of Metaverse real estate with more than 500M USD spent, an amount that is expected to double in 2022 and keep growing with a compound annual growth rate of approximately 31% from 2022 to 2028.
In the meantime, the first opportunities for monetisation arose: Dolce & Gabbana auctioned a nine-piece virtual/physical NFT collection for approximately 6M USD. Next to this digital item, buyers got access to upcoming fashion events and other physical experiences. Adidas partnered up with big crypto names Bored Ape Yacht Club, Punks Comics and GMoney to sell NFTs including digital and physical items as well as upcoming digital experiences generating 22M USD in revenue within hours. The question really is: how much of this is fleeting hype and how much will stay and revolutionise the world as we know it?
Connecting the dots
The evolution of the digital age
First, let us clear a common misconception: the Metaverse is not just another platform or series of platforms comparable to the offering of current social media companies. The Metaverse is the interconnection of all these separate worlds and will allow moving seamlessly from one to the other. It will disrupt the way we play, work, build relationships and conduct businesses.
What started with static and hyperlinked web pages constantly grew in the past two decades to a network of platforms that allows users to consume, create, and share content at all times and irrespective of their location. 3G and 4G networks enabled this age of mobile and social media, and it is about to develop into web 3.0. Now, we are entering into an era that dissolves the borders between the physical world as we know it and the digital, creating completely phygital – meaning simultaneously physical and digital - environments (see figure).
The necessary technologies and architecture for the internet have been developed over the past decades and are maturing quickly. 5G networks will provide the required bandwidths. Highly sophisticated virtual and augmented reality technology will dissolve the physical entrance of technology, namely screens and user interfaces. Blockchain will ensure a safe data standard by which we will own and trade in the future and enables the Metaverse’s decentralisation. While there are numerous challenges to be solved regarding system safety, legal framework, and sustainability, we believe that the technology will disrupt our economy.
Metyis, Evolution of the web, 2022
Physical world and internet merge into one “phygital” environment
Massive investments by tech industry
2. Mobile & Social Media
Users can consume, create and share content at all times and irrespective of their location
Enabled by 3G / 4G and increasing quality of mobile photography
Users are able to read through static and hyperlinked web pages
Low level of interaction
4. Analogue era
World prior to the digital age
Communication, collaboration and exchange take place in the physical world only
The Metaverse is the inter-connection of all these separate worlds and will allow to move seamlessly from one to the other.
A new economy
In 2020, the whole Metaverse market accounted for approximately 500B USD, and estimates are that this number will grow to 800B USD in 2024.
Growth will be mainly driven by hardware manufacturers and game developers (expected to account for 400B USD in 2024), with the rest stemming from live entertainment and social media. It is worth mentioning that gaming already represents today's biggest entertainment industry worldwide (see figure), with in-game purchases representing 78% of the market volume. The majority of this market demographic will consist of Millennials, Gen Z and Generation Alpha, with 62% of Millennials considering online reputation more important than offline.
Dressing up virtual avatars and buying digital fashion are set to be growth markets for the premium and luxury fashion industry. Morgan Stanley estimates a 25% uplift to the industry’s profit pool by 2030 with a total EBIT of 29.5B USD, 10% of the total addressable market for luxury goods.
To remain competitive, brands should open up Metaverse stores, host events, offer gaming experiences, and explore partnerships.
One example is Hugo Boss’ Spring/Summer 2022 show that yielded more than 4 billion impressions across social media platforms. This was a collaborative effort with American sports brand Russell Athletic and several high-profile models and influencers, including Khaby Lame, the second-most followed individual on TikTok. Finally, NFTs offer another critical use case to the luxury industry: proof of authenticity, with LVMH, Prada, and Richemont jointly launching the “Aura blockchain” earlier this year.
Statista, Global revenue in B USD of selected entertainment sectors in 2019, 2020
Morgan Stanley, Luxury good market in the metaverse: EBIT in B EUR in 2030, 2021
5 essential steps to guide your thinking on the Metaverse and set you up for success
What does this mean to your business? While some wariness is critical in this initial stage, this digital ecosystem is rapidly evolving and comes with business opportunities for various industries. We recommend taking first but decisive actions to identify the right strategy for your business.
We have provided five essential steps for leveraging the Metaverse’s potential so that your brand can succeed in the new world.
1. Own the topic
Where do our customers stand? Can our products and services interest the current and future Metaverse’s users? What is our competition doing? These are only three of the most relevant questions management should consider. This first step aims to fully understand your industry’s current and future state in the Metaverse. Monitoring and predicting the dynamics of the customers’ demand and the competition is key, as is having a solid understanding of threats and weaknesses. Preparation will allow you to have a clear picture of your potential options.
2. Understand the fit
Joining the Metaverse should be aligned with the company’s overarching priorities. In this phase, it is also crucial to reach a first understanding of the capabilities and the number of resources needed. As outlined earlier, the Metaverse is yet in its initial stage with many questions to be answered down the road. Partnership models can help you fill the gaps left in your enterprise.
One strong example of a company that successfully went “all-in” by leveraging partnerships is Nike. Nike launched their digital playground “Nikeland” in Metaverse’s platform Roblox in November of last year. They also started to bring the “Nikeland” experience to their NYC store on Fifth Avenue by offering phygital experience-products and services. The company is already making huge investments and generating significant revenues by buying digital real estate and selling NFTs. Yet, it has recently announced its commitment to the Metaverse is only beginning.
3. Develop short-term & long-term strategy
Based on the market dynamics and opportunities, as well as on the management’s direction and resources, identify what could be your company’s vision in the Metaverse. Credibility and balance between the external and internal environments is a must. Once the desired positioning has been defined and agreed with management, the next step is to connect the dots by elaborating the roadmap. Forming a robust implementation plan will equip you and your team with a defined overview of all milestones required between the “As-Is” and the “To-Be” states. The agreement on the priorities also has the objective to highlight the relevant and low-risk use cases for short term implementation.
Gucci, the first luxury brand to release an NFT back in May 2021, expanded their Metaverse presence by hosting a two-week art installation on Roblox. The goal of this initiative was to increase brand awareness among young customers. Since then, Gucci has been intensifying its Metaverse strategy. In January, the company announced the release of a new NFT series labelled “Supergucci”, created in partnership with leading animation creator Superplastic. Enriched with an exclusive physical sculpture, this initiative demonstrates Gucci’s ambition to be the leading luxury brand within the Metaverse and expect a significant new revenue stream in the years ahead. Most recently, the company has also announced the purchase of an undisclosed amount of virtual land on Sandbox on its Twitter account. According to Vogue Business, the two companies will use the land “to create an interactive fashion experience based on Gucci Vault, which houses its Metaverse projects”.
4. Go-live with low-risk use cases
The selection of the use cases needs to match the overall vision. Today, there are already some opportunities that can be exploited at a relatively low cost and risk. From the sales of digital replicas of physical goods to the creation of other NFTs (e.g., brand logos) there are numerous ways to enhance brand awareness and engagement as well as generate revenue. Virtual tours and the purchase or the leasing of digital real estate may also benefit companies. However, the current volatility and uncertainty of the Metaverse platforms can ultimately impact those lands’ underlying value.
5. Assess and (re)align
With the Metaverse constantly evolving, we advise continuous monitoring of this environment. Flexibility will play an essential role in this phase because it will allow companies to react quickly – or in the best scenarios - to anticipate the Metaverse’s new trends.
Sharing the risk while maximising the benefits
Since the need for scalability, interoperability and security will be high for shaping the landscape, collaboration with other Metaverse players can allow companies to enter this virtual world without risking and overspending in such activation.
As outlined above, partnership models can further grant instant access to relevant capabilities and resources to companies. Designing and activating Metaverse winning business models tailored to the company’s specific needs and objectives is not an easy task. For this reason, teaming up has the potential to provide a competitive advantage. Companies may gain leverage from partners’ capabilities, networks and experience.
Thus, collaboration and co-creation will be essential parts of the Metaverse evolution. It will become commonplace to witness companies exploring new Metaverse opportunities through collaboration beyond and within their respective industries.
Partnerships with players from the same sector are already becoming more frequent. Because, as the Metaverse landscape is yet to be defined, the more use cases companies can create, the more industry potential they will be able to unlock. The value generated by the Metaverse is here, ready to be captured.