While the metaverse is one of the most talked about technology topics of 2022, no standard definition of what it actually is exists. Confusion is as much a part of the metaverse trend than the hype surrounding it. GlobalData defines the metaverse as “a virtual world where users share experiences and interact in real time within simulated scenarios”. The analyst’s company filing analytics database recorded more than 4,300 mentions of the metaverse in the first quarter of 2022, an increase of 223% from the last quarter of 2021 and 106% higher than the annual total for 2021.
As media attention grows around the topic, so too does the pressure on companies to not miss out on what could be a lucrative opportunity for early movers. By 2030, the metaverse will represent a $13trn market, according to Citi Global Insights. Many speculate that it will transform how people work, shop, interact and consume content. Investment is already under way, but how will companies monetise the metaverse?
What exactly is the metaverse?
First, it is important to clarify that ‘the metaverse’ is not, in fact, a singular concept as the name suggests. Different companies are in the process of building their own metaverse platforms enabled by the market maturation of the metaverse’s foundational technologies: virtual reality (VR), augmented reality (AR) and blockchain technology. While these technologies are not new, when used in the development of the metaverse they promise to make digital media experiences more immersive, inclusive and accessible than ever.
Meta’s (formerly Facebook's) commitment to the concept of the metaverse began with a major company rebranding in addition to development of its metaverse platform, Horizon. Microsoft’s metaverse platform, Mesh, is an opportunity for the tech giant to showcase how well its mixed reality products blend the digital and physical aspects of life, which until now had failed to find consumer or enterprise success – and it is not just technology companies that are developing metaverse platforms. Consultancy Accenture is building a metaverse platform as part of its overall digital transformation and will use it as an enterprise tool for business processes such as employee onboarding, events, meetings and conferences.
Interoperability between different metaverse platforms will be key to the development of a wider ecosystem, and companies are said to be developing their platforms with this in mind. However, that doesn't mean the space will not become fiercely competitive, just like any other emerging trend. Lorne Sugarman, the CEO of virtual real estate company the Metaverse Group, advises companies and brands on their metaverse strategies. He likens the development of the metaverse to the early competition of existing technology channels such as social media platforms, browsers or search engines. “In my view, we are going to end up with five to ten very significant metaverse platforms, just as we have done in the social media space,” he says.
In essence, the metaverse is another distribution channel providing access to a new demographic, whether that is gamers, a younger demographic or those not exposed to traditional channels such as TV or billboards. “It is really just the internet 20 years ago,” says Sugarman. Indeed, analyst Gartner has predicted that by 2026, 25% of people will be spending an hour a day in the metaverse.
However, before companies can come up with effective metaverse strategies they must understand what this new distribution channel is, says Philip Ranta, CEO of software company Wormhole Labs. “I hate the term metaverse,” he says, preferring to describe metaverse platforms as “useful virtual worlds”. It is not as if everyone is going to jump into a single metaverse, he says, adding: “Attending a virtual open house as an avatar with your real estate agent’s avatar is really useful, but it is not the right metaverse for you if you are not buying a house.”
Wormhole Labs is advising and building metaverse platforms for a number of clients across different sectors. Ranta believes that once a business has figured out its use case in this way, the metaverse is relevant to almost every business's future because a digital identity has become just as important as a physical identity. “If you ask Generation Z if they would rather break their arm or lose their Instagram account, I think most of them would rather break their arm,” says Ranta.
The rise of business use of the metaverse
Most early development, and indeed commercial success, of metaverse products has been focused on consumers through gaming and social media, but the enterprise market will carry the baton in the next three years as development of the metaverse begins to shape the future of work, according to GlobalData thematic research. A more general shift post-Covid towards hybrid working will drive this corporate development of the metaverse as a tool for enabling a more online workspace.
Rather than companies building their own metaverse platforms, a market in metaverse-as-a service is likely to emerge, says GlobalData principal analyst Rupantar Guha. Although metaverse-as-a-service is still in development, Guha believes it will be predominantly a subscription service for companies to run conferences, events, employee engagement, promotional activities and much more.
For consumer-facing businesses, revenue models will be largely based on in-app purchases while making access to platforms free, says Guha. Online gaming giant Activation Blizzard reported that 61% of the company’s 2021 revenue came from in-app purchases, demonstrating this monetisation model’s viability.
“There is further opportunity to monetise by converting these in-app purchases of virtual items into non-fungible tokens (NFTs),” says Guha. Metaverse microtransactions will be part of a company’s Web3 strategy, which will include the commerce of digital goods and NFTs. From there an economic ecosystem of NFTs, virtual goods and real estate will emerge – blending the real-world and metaverse-based economy.
Advertising revenue is another way of monetising the metaverse and retailers are already aware of the huge opportunity. The involvement of large consumer brands such as Nike, Wendy's and Hyundai has seen several major advertising agencies, including WPP, Publicis, Wunderman Thomson and Havas, move into the space. In fact, in June 2022, Publicis announced the appointment of an avatar named Leon as its chief metaverse officer. Gaming giant and Fortnite creator Epic Games has also partnered with agency WPP to train advertising specialists on creating custom brand experiences in Fortnite, as well as on how to use its Unreal Engine for developing metaverse content.
In terms of sectors, while consumer-facing businesses such as gaming and retail are investing heavily and already have use cases, Guha believes automotive, and manufacturing as a whole, will be big beneficiaries of the metaverse. Software and chip giant Nvidia’s metaverse platform Omniverse uses digital twin technology that is being used by BMW, PepsiCo and Amazon to improve efficiency in factories and warehouses.
“Omniverse can help customise products and services, upgrade machinery and test processes,” says Guha.
While not directly monetising the metaverse, automotive companies can use a metaverse platform as an extension of their production line to test and refine manufacturing processes in the virtual world, ultimately cutting costs.
In addition to the non-monetisation business benefits, the metaverse has a strong PR component for companies, according to Sugarman. Just like the Twitter or Tik Toks of today, some will use future metaverse platforms to provide a channel for more experiential promotional activities. Metaverse Fashion Week, hosted on metaverse platform Decentraland in March 2022, had 70 different brands participating in an event where the usership spent significantly more time than they would on a traditional ecommerce site in different virtual buildings, looking at the wearables and other fashion items. “There wasn't a huge amount of commerce that occurred during that week, it was more PR and brand exposure,” says Sugarman.
However, in terms of PR and advertising reach, the metaverse is not yet able to access a mass audience. Despite this, Ranta and his team are helping companies explore future opportunities by testing avatars, virtual events and how interaction with virtual video streams feels experientially.
Metaverse platforms may incorporate AR, VR or mixed reality, which includes both, but AR is where Ranta feels the most useful innovation will take place in the short term. “The question is whether there will ever be a VR device that is cheap and intuitive enough that people would rather do that than what we are doing right now,” he says.
Using a fully immersive headset such as Meta’s Oculus hardware for interaction between avatars may not be all that useful, according to Ranta. “I have been talking to people face to face as a human for my whole life," he says. "There is no dizziness. I can check my phone while I do it, for example. This is still a useful experience, so why change it?” However, AR allows real-life experiences with a layer of technology to enhance it.
“In an environment where you can use wearable technology such as glasses for more information about that environment, like Terminator vision, to meet someone and immediately know how you are connected, without the awkwardness of forgetting their name, or walking into a room and knowing which way the drinks are – that is a layer of useful information that makes me half-robot. That is the metaverse that is really going to take off,” says Ranta.
Challenges to development of the metaverse
Evidence that the metaverse is indeed taking off includes mergers and acquisitions activity picking up, according to GlobalData thematic research, with access to technology being the key rationale for most deals. Providers of the metaverse's underlying technologies – AR, VR, AI and blockchain solutions – are becoming prime targets for acquisition. But while these technologies are maturing, semiconductor and hardware component shortages will be a real challenge for development of the metaverse in the short term, according to GlobalData.
In addition, the computing power required to merge digital and physical worlds represents a 1,000 times increase in computational efficiency. In the long term, the quality and speed of development of more advanced semiconductors may impede the development of the metaverse. On this, it is still too early to tell, according to Guha.
Data privacy and online safety concerns are also big hurdles for development of the metaverse. The use of AR, VR and advertisements will be integral in metaverses, which, in turn, will bring data privacy concerns to the fore, says Guha. Regulators worldwide will force metaverse platform developers to address existing privacy issues associated with the underlying technologies that power metaverses. In fact, lawmakers are already voicing concerns about how to legislate for online personal safety in a virtual world.
“Metaverse developers must also view moderating behaviour as a foundational aspect since harmful actions will only increase as more consumers sign up for platforms," says Guha. "Failure to filter toxicity will have a detrimental impact on the company's metaverse ambitions and reputation.”
Maintaining consumer and business appeal for the market is another challenge. Some early-stage platforms are struggling to attract users, and it will be up to early-stage platforms such as Meta’s Horizon, Nvidia’s Omniverse and Microsoft’s Mesh to come up with use cases faster if they are going to attract the volume of users needed to create a viable ecosystem, according to Guha.
While businesses that ignore the metaverse trend will be at a disadvantage in the future, it is also important that they research and test the best use cases for their interaction with a metaverse platform. Development of the metaverse is largely being led by Big Tech companies, which are now in the process of helping their clients understand and identify opportunities in the metaverse. “Use cases are under development and every company will have to identify its own unique needs to find benefit in the metaverse,” says Guha. That way the metaverse will become a universe of 'useful digital worlds'.