metaverse

Virtual reality

7.791 billion world population

4.95 billion internet users (8.6 per cent compound annual growth rate since 2012)

5.31 billion unique mobile phone users

4.62 billion active social media users (8.6 per cent compound annual growth rate)

Source: Digital 2022 Global Overview Report

Any parent with a teenager who prefers playing Fortnite to speaking face to face knows that the lines between real and virtual worlds are increasingly blurry. Globally, companies like Meta, Tencent, Epic Games, Microsoft and SK Telecom are embracing what is known as the “metaverse” — a collective virtual shared space, created by the convergence of virtually enhanced physical and digital realities.

Global social media and social networking service Facebook Inc changed its name to Meta in October 2021, announcing it was making multibillion-dollar investments in metaverse technologies. In January, Microsoft announced it would become a pioneer in the sector and spent US$75b on video game publisher Activision Blizzard, giving it control of the iconic Call of Duty and World of Warcraft gaming franchises.

Hundreds of other global brands — from American Eagle Outfitters to Gucci, Qantas and Prada — are moving to reimagine their wares in digital form as the metaverse promises to open up opportunities for marketers, retailers and employers.

But how relevant is the metaverse to directors and is it the right time to invest?

Brave new world

Defining the metaverse is similar to trying to describe the internet to someone in the 1990s, says Tuong Nguyen, senior principal analyst in emerging technologies and trends at Gartner, a Connecticut- based technological research and consulting firm. In the same way that the internet led to email, websites and social media, the metaverse will be used for many purposes, some of which are clear already.

Gartner defines the metaverse as “an immersive digital environment of interconnected networks. It enables persistent, decentralised, collaborative, interoperable digital content”. In other words, the metaverse is a very broad church — if you have to ask whether something belongs in the metaverse, the answer is usually “yes”.

We already spend many of our business hours in Zoom meetings and typing words into online documents. Our children spend many hours at school following online lessons and watching videos. Families spend their social time conversing with friends in social forums and playing games with friends on games consoles or smartphones. The metaverse links all these separate worlds together. It will also enjoin new experimental worlds such as augmented and virtual reality, and unimagined immersive experiences.

These fictional worlds could be literally world- sized landscapes like in Minecraft, a single venue for a conference, sports event or music concert, or a boardroom for a presentation. Instead of awkward, multi-person Zoom meetings, you could step into a room of avatars and have an (virtual) in-person conversation.

One aspect of the metaverse is that you will be able to create, buy, sell and, most importantly, display digital assets — whether artworks, designer clothes or chic accommodation. The interoperable nature of the metaverse means you’ll be able to buy assets such as NFTs (non-fungible tokens) from one company and display them in a world that is controlled by another.

The metaverse will effectively compete for our attention with the real world. The early adopters believe that nearly every company will need to follow their customers and employees into the metaverse just to remain relevant.

Where we are at

Interest in the metaverse is at fever pitch. Nguyen has been fielding calls on the topic every day for the past eight months, despite the fact that the metaverse is at the embryonic stage. “In my view, the metaverse does not exist yet,” he says. “What we’re seeing today are precursors.”

For example, interoperability — the ability to take owned content from one virtual world within the metaverse to another — is a technical feature yet to be solved. Nguyen estimates that a fully functioning expression of the idea is still a decade away.

In the meantime, the experimental edges of the metaverse are promising and profitable. The gaming industry has been creating immersive, persistent worlds for “massively multiplayer online role-playing games” (MMORG) for decades. The largest worlds, such as the hack-and-slash fantasy game World of Warcraft, have been played by 117 million people, with 1.1 million monthly active users. The latest hit, Lost Ark, has 1.6 million active users.

The free-for-all game and cultural phenomenon Fortnite Battle Royale drew more than 125 million players in its first year and earns hundreds of millions of dollars a month. Although it is not a persistent world — other activities are a big draw, too. For example, 33 million attendees showed up to four performances by American rapper Lil Nas X in Roblox, a collaborative game-creating platform.

Gaming platforms and technologies are reimagining the entertainment industry. By 2025, global marketing communications agency Wunderman Thomson says in its 2021 research report Into the Metaverse, the gaming market could become a US$300b industry — three times the global film industry record high of US$101b in 2019.

“Gaming is replacing not just old games, but also TV and Netflix,” venture capital firm Madrona Venture Group partner Daniel Li told online publication TechCrunch.

Persistent worlds outside the gaming industry are smaller, but growing. Decentraland — a 3D virtual world browser-based platform where users can buy virtual plots of land as NFTs — has 300,000 monthly active users.

Digital assets

Consumer interest in digital assets is clearly booming. Business Insider reports that the market for digital artworks registered with NFTs in 2021 hit an astonishing US$41b, only US$10b shy of the real arts and antiquities market. And the success of NFT artworks has created a taste for other digital objects. People would be happy to pay on average US$76,000 for a digital house, US$9000 for original digital art and US$2900 for a digital designer handbag, a 2021 Wunderman Thompson data survey in the US, UK and China found.

In Australia, businesses have already been engaging in a variety of ways, from NFTs at the Australian Open to Australian food brand All Saints reimagining cereal box collectibles. In March, Qantas announced plans for mid-year release of a set of digital art collectables as NFTs, using blockchain technology.

“Fashion is a sector that is wildly good at using this space,” says Kashi Somers, an independent creative technologist who works with global brands in Sydney, Singapore and New York. “Luxe brands should be at the forefront of whatever way that humans are finding each other or expressing themselves,” she says.

Fashion labels are gearing up for what could be a transformative moment. Gucci has released a line of clothes that only exist in the virtual world, hoping to catch up to startups like Dutch company The Fabricant, which sold a digital dress by artist Johanna Jaskowska for US$9500. Untrammelled by the constraints of the physical world, designers can create items of clothing that would be physically impossible to wear or commercially unviable to produce.

“The point of difference to the real world is that you have endless opportunities to create whatever you’d like,” says Somers. “Collaboration with consumers is going to be a huge element of how brands can live in these spaces.”

That collaboration could even go as far as shared equity in digital products. A consumer could create a pair of digital shoes in partnership with Prada and receive a share of any sales through Prada’s digital marketplace. A metaverse gives everyone the chance to create their own branded equivalent of Michael Jordan’s Nike Air Jordans or Kanye West’s Yeezy sneakers. Already, a buyer has snapped up two pairs of digital-only Yeezy 2 Cheetahs at US$2400 each.

Marketing monster

As people spend more time in digital worlds within the metaverse, conventional forms of marketing through mediums such as TV, radio and magazines will appear increasingly blunt. The infinite possibilities of the metaverse gives brands a tool to create hyper-personalised experiences for consumers based on their individual input, says Somers. “Everybody’s on the edge of how you form culture. Because it’s decentralised — and you hope that it’s democratic — everyone in the world has a place to have more power in their expression.”

High fashion has proven that personal expression and status matter as much in the digital world as real life. When our avatars turn up for board meetings in the metaverse, we will want their outfits to reflect our tastes and attitudes.

Somers compares the current metaverse to the early days of cryptocurrency. “It took some time for brands to understand what Bitcoin was and the potential,” she says. “Now it’s worth investing time into understanding NFTs and how there will be six other worlds or more that you will need to be selling in, creating in and paying tax in.”

For employers dealing with the world of hybrid work, meta workspaces are also beckoning. Meta has introduced Horizon Workrooms, a “collaboration experience” that allows co-workers to collaborate, communicate and connect through virtual reality. Microsoft Mesh uses mixed reality (MR) to create interconnected worlds where the physical and digital come together so people in different physical locations are able to collaborate and work in real time on the same project via holographic experiences across different devices.

“Whether it’s a beauty brand or a mattress company, every industry will find a place where they are going to make so much money,” says Somers. “And people will find fulfilment that they haven’t been able to find in the real world.”

True believers are heralding the metaverse as an inescapable future for society and business. The likelihood is that the metaverse will supplement our existing lives rather than supplant them, says Nguyen. “If you remember when the tablet came along, a few tablets were going to kill the phone and laptop. Well, that didn’t happen. We started using the tablet in use cases where it made a lot of sense. With the metaverse, it’s going to be very similar.”

How should directors think about these wild experiments of digital self-expression? The challenge is to look past the headlines and appreciate the underlying technology and economics, says David Webster, founder of The Carrot Collective and former Asia Pacific managing director of BBH Asia Pacific. “I think about the metaverse as the first post-scarcity society. It’s the first sizeable society where the amount of materials or resources available are infinitely scalable. In practical terms, the incremental cost of producing one or 1000 items of clothing in the metaverse becomes negligible. And that becomes really interesting because it turns the economics of a business completely upside down.”

High price tags for questionable art have engulfed the conversation about NFTs. Webster believes a better way to think about NFTs is simply as proof of digital ownership. “How does digital ownership help to create artificial scarcity to create value for your business?” he asks.

Making a choice

While the collection of technologies referred to as Web3 (powered by blockchain technology) is here to stay, it hasn’t reached critical mass. Webster sees parallels with other technology movements such as digital photography or electric cars, which rose slowly and then quickly to overturn slow-moving incumbents.

Nguyen says companies need to choose between two roles — will they be a user of the metaverse or will they help build it? Just as there were companies that played a critical role in building the internet — supplying networking switches, writing browsing software, creating user platforms — there will be similar opportunities for the metaverse.

Webster adds that for everyone else, now is the time to start a limited engagement to build up knowledge of how the technology works and the potential it holds. “It’s not too early to start dipping your feet in and understanding space,” he says. “Don’t over-invest, but don’t ignore it as yet another fad because that’s where a lot of companies will get burned. People are often evaluating technology by the very basic use cases that exist today. You could look at NFTs as basically overpriced JPEGs (image files). But if you look at the underlying technology and start thinking about what use cases are relevant to me as a company, then a whole universe of possibilities opens up.”