By Seb Murray
By 2026, a quarter of the global population will spend at least an hour a day in the metaverse for work, education or play, according to research firm Gartner.
Already, companies have built ways for users to pursue aspects of life in an alternative reality, from virtual-reality, or VR, gaming to attending business meetings, gaining education and even viewing real estate. At present, these experiences take place on separate platforms. The metaverse will bring these activities into a single environment, allowing users seamless access to infinite destinations and experiences.
This will create a virtual economy, enabled by digital currencies and non-fungible tokens, or NFTs – digital ownership certificates registered on a blockchain that can be traded for cryptocurrency. This emerging economy means organizations, having already adapted their activities for the internet era, will need to pivot again from a digital business to a metaverse business. It’s what many are calling a transition from “web2” to “web3.”
In the next four years, Gartner predicts 30 per cent of the organizations in the world will have products and services ready for the metaverse, across sectors from retail to gaming and entertainment.
Who will collect the spoils and set the rules? Silicon Valley tech giants – particularly Meta (formerly Facebook) – are in pole position, according to David Touve, senior director of applied innovation and new ventures at the University of Virginia’s Darden School of Business. Facebook founder Mark Zuckerberg changed his company’s name to Meta in October, reflecting its push to build the “next generation of the internet” beyond the smartphone.
Meta is already spending billions per year on virtual and augmented reality as it competes with fellow internet titans such as Microsoft and Google to build a metaverse that captures the biggest network of users. In the next five years, the company plans to hire 10,000 new staff to work on metaverse projects, such as a wristband that allows users to interact with the virtual world through subtle finger movements.
In addition, Meta is launching an app for social networking in VR, called Horizon Home, which allows users to socialize as avatars while wearing headsets developed by Oculus, which Facebook acquired for US$2 billion in 2014.
“By creating the virtual worlds, you essentially set the rules for the virtual economy,” said Touve, who anticipates a land grab. “The more people are on the network, the more valuable it is. The network effect can lead to winner-take-all markets.”
Why Businesses Are Jumping In
Touve sees advertising as one way to monetize the metaverse: Meta has already patented multiple technologies with hyper-targeted advertising and sponsored content. Revenue also will be generated in the metaverse through virtual stores, in which users can buy digital goods that correspond with real-world items developed by consumer brands.
“There are a large number of digital commerce opportunities that have pretty attractive underlying economics,” Touve says, noting that investors are now considering VR headsets more seriously after decades of disappointment.
Big-name consumer brands such as Nike and Forever 21 have created virtual world stores in a bid to increase their real-world income.
In fact, JPMorgan believes the metaverse is a trillion-dollar annual revenue opportunity, pointing out that US$54 billion in virtual goods are already sold every year.
Darden professor Roshni Raveendhran does not think such predictions are fantasy, based on current usage levels.
“On the retail side, companies already allow people to use VR and avatars to try out different products or clothes,” she said. “The metaverse will accelerate the trend.”
Darden professor Roshni Raveendhran says the potential health effects of wearing virtual- or augmented-reality headsets for extended periods can’t be overlooked.
The shoe brand Vans recently opened a virtual skatepark to connect with its customer base, while Chipotle launched a virtual restaurant where the first 30,000 visitors get a voucher for a real-world burrito. Budweiser, Gucci, Autodesk, Benetton, Coca-Cola – the list of brands building consumer experiences in the metaverse goes on.
“Some businesses are building digital spaces in these words in which they can connect with potential customers to showcase new and different products or services,” Touve said.
These big brands are often relying on small, innovative “web3”-focused startups with animation, creative design, game design, blockchain and programming expertise. From among these innovators could emerge the next generation of Metas, Apples, Googles and Amazons – rulers of the “web2” online world.
Yuga Labs, creators of the Bored Ape Yacht Club NFTs (essentially, blockchain-verified digital images of cartoon apes), recently secured a US$450 million investment from venture capital firm Andreessen Horowitz, valuing Yuga at US$4 billion. The company has announced plans to launch its own metaverse and sold or gave away 100,000 plots of digital land in that metaverse. The sale sold out in minutes for cryptocurrency valued at US$310 million at the time. Not a bad day’s work.
Proponents believe this low-cost, high-margin business could transform global retail; critics see the metaverse as a passing fad. One reason for their doubts is the major technical challenges involved in bringing these sci-fi visions to life, such as creating a graphics rendering system able to animate thousands of avatars sharing the same experience, for example, at a live concert. This would mean that computing platforms would need to support billions of operations per second, compared to thousands per second today on even the most popular live online games such as Fortnite, which can only host up to 100 players at a time.
Related to the hardware challenges, Raveendhran said, “There have been reports about VR causing health concerns, including eye strain and headaches. It will take time for people to figure out how to use these devices for prolonged periods of time.”
Investors Focusing on Technology
Metaverse-driven bets are being placed on producers of components such as semiconductors, cameras, displays, servers and sensors. This reflects higher demand for the processors, computing power, wearable devices and cloud storage that all underpin the metaverse experience.
“There are significant opportunities for investors to get involved at the start of the next evolution of the internet,” Touve said.
Apple’s recent US$3 trillion market valuation has been fueled in part by speculation that it will launch a headset this year that could revolutionize consumer technology, just like the original iPhone.
Beyond this, Touve said a big opportunity exists for creating a framework for immersive virtual workspaces as working practices change. Microsoft has already said it was developing an “enterprise metaverse,” a version of the metaverse for corporations. “VR is predominantly used for gaming, entertainment or social experiences, but corporate users will boost adoption rates very quickly,” Touve predicts, pointing out that the shift to remote work during the COVID-19 pandemic looks sticky and is driving demand for virtual collaboration tools while potentially ushering in a new era of globalization in talent management.
