Does the prospect of a shared virtual world provide your business with a transformational opportunity? Or does the Metaverse represent an existential threat? Is it simply another fad that’s distracting corporate thinking when there are more fundamental issues to address? Your future success may depend on how you answer those questions. And the answer may be "yes" to all three.
WHAT IS THE METAVERSE?
While a single definition of the Metaverse is elusive, there is a broad consensus on some of the fundamentals, including:
- Seamless integration of physical and digital worlds
- Sense of total immersion and engagement in a virtual 3D environment
- Real-time interaction
- Interoperability across devices and platforms
- Scaled concurrency
- User agency
The Metaverse and the next stage in the evolution of the web are inherently enmeshed. Web3 is often described as a key enabler of the Metaverse, incorporating technologies such as blockchain, which allow for data decentralization and potentially support a more democratic internet that empowers individuals and corporations to better control who profits from their intellectual capital.
Does this represent an exciting opportunity to subvert established ways of doing things? A transformative addition to your business or customer strategy? Maybe not.
Nevertheless, countless businesses have had their heads turned by the glamour and opportunity of the Metaverse.
If it’s still so nebulous and unclear, why is it such a hot topic? And why have at least one-third of Interbrand’s top 100 global brands already entered Web3?
THE SIZE OF THE PRIZE
There have been several studies into the potential value of the Metaverse. They vary wildly from less than 1% to potentially more than 10% of global GDP by 2030. In reality, no one really knows how much it is potentially worth. With figures over $10 trillion, is this really incremental?
The Metaverse contribution to economic growth will strongly depend on major technological and infrastructure developments, user adoption, and critically, access to the huge investment required.
However, lack of agreement around the potential value is not a reason not to explore the Metaverse.
In recent years, successful experiments have shown how it may become a reality. Using Epic's Fortnite gaming platform, an avatar of hip-hop star Travis Scott played a massive real-time concert to 12 million people. It then sold exclusive digital and physical merchandise shortly after that. This phenomenon was one of the first successful Massive Interactive Live Events (MILE), which, if done correctly, could open new and exciting marketing channels to engage with customers.
Roblox believes that the Metaverse is the natural next step of communication: from text to video to immersion. Clear opportunities are emerging to enhance multiplayer games, live interactive events, entertainment, and social spaces. But this is potentially just the tip of the iceberg.
Microsoft sees great potential for scaled enterprise communications tools, while at the same time, the company is making massive acquisitions in the consumer gaming space with Activision and Minecraft. Satya Nadella, Microsoft's chair, and chief executive said, "The Metaverse is here, and it's not only transforming how we see the world but how we participate in it—from the factory floor to the meeting room."
Meta, the parent company of Facebook, is going all in. It committed $10-$15bn annually for the next decade to Metaverse-related development—a number more significant than the capital expenditure of Apple, Tesla, Twitter, Snap, and Uber combined.
According to AlixPartners analysis, the estimated cumulative value of Metaverse-related transactions was $149bn in the first ten months of 2022 vs. $90bn in the same period for 2021. This year-over-year growth was heavily impacted by Microsoft's announced $69bn acquisition of gaming giant Activision Blizzard, described as a "building block for the Metaverse." Currently, this transaction is opposed by the U.S. Federal Trade Commission, the U.K. Competition and Markets Authority, and the European Union.
The broader investment landscape (including both M&A and non-M&A activities) is dominated by three categories of investors: Big Tech; VC & PE, and Big Brands. In 2022 this was heavily skewed to Big Tech.
IT'S NOT ALL NEW NEW NEW
As with any business trend; there’s a misconception that this is all new. This gives rise to the belief that established businesses have been caught napping by peppy start-ups ready to steal their lunch and put them out of business. The reality is quite different.
Much of the Metaverse ecosystem is being built by established businesses. There are new market entrants in the payments, ownership, and ID layers, but this is largely driven by decentralization, crypto for payments, and the emergence of non-fungible tokens (NFTs) as portable assets across different environments.
Roblox and Fortnite create interactive massive multiplayer online gaming experiences. They are anchored in the current technological and economic paradigm, owned by corporations, with traditional payment systems and in-platform virtual currencies. The studios develop their content and players essentially lease the assets in the platform or app with no ability to move into other platforms.
Decentraland and The Sandbox are examples of the next generation and are growing fast. They're based on decentralized data models and are community governed. Payment happens via cryptocurrency, and the assets are in the form of non-fungible tokens (NFTs), owned by the players and can be ported to other platforms. Developers can earn revenues, and players can earn experiences. In Web3, creators own their content and connect directly with their audience.
The $180bn video game market is also highly instructive in demonstrating how people can experience the Metaverse. Currently typified by virtual reality and limited haptic devices, the future offers less intrusive interfaces which enable a more seamless blending between the physical and digital world:
WHAT ARE THE OPPORTUNITIES... AND CHALLENGES?
It's still evolving, but there are tremendous potential opportunities for the next wave of digital disruption in:
- Customer experience
- Sales and marketing channels
- Product innovation
- Community building
- Employee engagement
- Virtual gatherings
- "Phygital" 1 wearables
- Simulation training
There are also opportunities throughout the Metaverse value chain for investors and for companies looking to benefit by being part of the infrastructure and not just a user of the Metaverse.
With so much potential comes a lot of questions and among the most frequently asked are:
In addition, there are a number of significant challenges. Risk is a factor everywhere but the complexity of the Metaverse and the presence of large numbers of people creates a sizeable risk profile for any business. Even a cursory look at some of the risks presents a challenging picture for business, society, regulators, and law enforcement, to name but a few:
As this plays out over the next decade, a well-balanced, open approach to ethics, morals, and economics must be adopted by those building, and actively participating in, the next generation of the internet. This is easier said than done—how is it possible to regulate a global virtual world?
WHAT REALLY MATTERS IN THE METAVERSE?
These are still the Metaverse's early days, with most of the innovation and progress still to come. There's a chance it could all amount to very little. After all, the question some are asking is, "What problem is this technology trying to solve?"
For businesses looking to embrace the potential of the Metaverse there is much to unpack. A focus on pragmatic questions and an objective assessment of business impact and value are advisable.
Key points to consider are:
Are our consumers or target audiences in the Metaverse?
Can we measure the impact of our investment within our existing business KPIs?
Do our established risk protocols adequately cover the Metaverse? What additional factors do we need to consider? Is our compliance model fit-for-purpose?
Are we able to operate commercially in a decentralized set of environments?
What is our reputational exposure? Are we sufficiently comfortable with how these environments regulate themselves to use them?
Can we manage data sufficiently?
MOVING FORWARD IN THE METAVERSE
Businesses will need to wrestle with these questions and others. A test-and-learn approach is likely to generate the best early outcomes for many organizations. Some may learn that there’s no place for them currently; others may thrive.
The Metaverse is the latest in a long line of technological disruptions facing business. It’s been widely hyped, and many of our clients have asked for our guidance on how best to approach the opportunities and challenges presented by Web3 and the Metaverse.
The truth is there’s no silver bullet. Like many innovations, it has enormous potential if used effectively. But, "effectively" is entirely situational and dependent on other factors within an organisation’s business and operational model.
At AlixPartners, we have a bias towards pace and pragmatism and have developed tried and tested approaches to understand and navigate technological and other disruptors quickly.
If you’re one of the many leading brands that have made early-stage investments in the Metaverse, we can help you assess the impact and advise on how to develop your operating model to support the scaling-up of your efforts.
If you’ve yet to explore how the Metaverse might impact your organization, we can help you to make a rapid assessment of the potential opportunities or challenges, and help shape your best response.
If you would like to know more or wish to discuss how the Metaverse matters for your business, please contact us.