In October 2022, my firm had the pleasure of hosting a private reception during Money 20/20 — a leading fintech conference held annually in Las Vegas. The conference brings the money ecosystem together under one roof, with professionals representing financial institutions, insurance companies, fintech VCs and startups, corporate law, and more. When we approached the topic of virtual worlds at the reception, those gathered agreed there are applications for virtual worlds that will scale, while many others will ultimately fall flat. Interestingly, the buzziest terms around the Metaverse, including NFTs and crypto, were mostly absent from the discussion. The group was instead most bullish on education for young people and gaming.
The conversation left us with more questions than answers, but one realization surfaced: we are at the beginning of what could become the “Great Activation” — when more people migrate online as virtual avatars employed in virtual jobs, getting paid in virtual currencies, and spending on virtual entertainment. While it’s still early on and no one can say for sure how the Metaverse and virtual worlds will materialize and further evolve, there are steps brands can take now to bridge today’s physical world with tomorrow’s immersive realm.
Understanding the Differences Between the Metaverse and Virtual Worlds
The terms Metaverse and virtual world (also called virtual spaces) are often used interchangeably, but there are differences. Although definitions vary, according to Pew Research, the Metaverse is used to describe the all-encompassing realm of computer-generated, networked extended reality, or XR, an acronym that embraces all aspects of augmented reality, mixed reality, and virtual reality (AR, MR, and VR). Richard Bartle, author of the book Designing Virtual Worlds and a leading authority on the subject matter, describes a virtual world as: (1) a computer-simulated environment which may be (2) populated by many users who can create a personal avatar, and (3) simultaneously and independently explore the virtual world, participate in its activities, and communicate with others. In summary, using these definitions, the Metaverse is not a single virtual world, it’s the realm in which many virtual worlds can exist.
Another major difference between the two is that virtual worlds are here today, while the Metaverse is still a work in progress. While existing virtual worlds are limited in size, the Metaverse will likely provide access to the entire internet. In the Metaverse, all experiences will be available, including those relating to work, recreation, social connections, education, and commerce. Virtual worlds, on the other hand, typically cater to one or two of those experiences. Further, there are those who believe there can be more than one Metaverse and that, at the very least, no one company will own the Metaverse.
The Past Meets the Present, Giving a Glimpse of the Future
Although terms like “virtual worlds” and “Metaverse” have more recently gained popularity, these virtual spaces have been around for decades — some of the more populated ones being Roblox, World of Warcraft, SecondLife, Minecraft, Decentraland, and The Sandbox. Notably, the value propositions of virtual worlds vary across the worlds themselves, from entertainment via games (e.g., World of Warcraft, Eve Online), connection via virtual social spaces (e.g., SecondLife, IMVU), productivity via virtual conference calls (e.g., Mytaverse), or combinations of the above (e.g., Roblox, Horizon Worlds).
Ever since Facebook rebranded itself as “Meta” in 2021, the Metaverse has flooded headlines, bringing renewed attention to activity in virtual worlds and necessitating a hard look in order to separate the signal from the noise. According to Gartner, by 2026, 25% of people will spend an hour or more in the Metaverse each day. Those bullish on the Metaverse view it as a tectonic platform shift much like the shift from desktop to mobile. Some of the tech giants, including Meta, Google, and Microsoft, are already referring to the Metaverse as “the future of the internet.”
Goldman Sachs and Morgan Stanley are among a number of analysts who believe the Metaverse could become an $8 to $13 trillion business opportunity in the future. Even with these optimistic projections, there’s no denying that we need more users before a robust environment develops in these virtual worlds. Today, virtual realms are dominated by the gaming and entertainment industries, which attract younger audiences. There are an estimated 400 million monthly active users in the Metaverse; however, over 50% of users are aged 13 and under and 78.7% of the total market is aged 16 and under. Likewise, users aged 12 to 13 are the most common “residents” of virtual worlds like Roblox and Minecraft.
Based on these demographics, the vast majority of existing users are unlikely to form the foundations necessary for flourishing economic activity and interconnected societal development within these virtual spaces. Time and investment dollars would be best spent towards developing compelling use cases to attract and retain adult users, and brands play a critical role in this transformation.
Entering the ‘Great Activation’
As more people learn about virtual worlds and the experiences within these spaces, they will likely migrate in larger numbers into the Metaverse — first to explore the possibilities and later to participate on some level in this immersive alter environment. There will be opportunities for people, using their avatars, to take on virtual roles and jobs and earn virtual money, communicate in social circles, and to spend within these virtual economies. It’s even possible, at some point, that people will become residents of virtual worlds, much like being a U.S. or Canadian citizen.
We are already on the cusp of this Great Activation. For example, there are now people employed in jobs that only exist in virtual worlds such as avatar stylists, digital architects, virtual tour guides, and even virtual baristas. Job opportunities in virtual worlds will continue to mimic the physical world. Customer service reps, community managers, and security personnel are just a few roles that will materialize inside these spaces. There’s also the potential for virtual world lenders and insurance agents since economic activity is tied to the purchase of property and goods. And, of course, there are the countless jobs “offline” that will play a part in the creation and functionality of virtual worlds.
Although a universal payment infrastructure that encompasses the breadth of the Metaverse is still nonexistent, commerce is taking place within these spaces. As noted, the bulk of current economic activity is connected to gaming. Virtual currency is exchanged for the purchase and sale of tools and weapons and insurance for in-game assets, like spaceships, and monetary wages are paid to avatar designers, digital item developers, and game guides.
In its first year, for example, Fortnite made over $1 billion from microtransactions (spending real money to buy virtual currency and then make digital purchases) alone. Fortnite continues to prove the viability of in-app virtual goods: its average revenue per user (ARPU) is more than the combined ARPU of Snapchat, Twitter, Facebook, and Google. Another great example is SecondLife. In 2021, SecondLife players earned and cashed out $86 million from goods and services sold — nearly a fifth more than the 2020 figure of $73 million. By 2026, with a continued shift toward virtual worlds, the gaming industry is expected to generate an estimated $321 billion in revenue.
Other industries thriving in the Metaverse include entertainment, retail and consumer product goods (CPG), and real estate, among others. People are slipping on their VR headsets and attending a variety of in-person events as avatars in the Metaverse. Artists like Justin Bieber, Ozzy Osbourne, and Marshmello, who held one of the first digital concerts in 2019, have made millions in virtual worlds.
Real estate agents have been regularly conducting virtual walkthroughs with remote buyers and sellers for years and companies like Decentraland now sell virtual plots of “land” that organizations can build virtual headquarters on or use to create online experiences for employees or customers. Last year, Decentralized teamed up with CPG giant Estee Lauder for the very first Metaverse Fashion and Art Week events. Estee Lauder made its foray into the virtual realm with the launch of its first NFT during Fashion Week, joining beauty brands L’Oréal Paris USA, Clinique, Givenchy Beauty, and Gucci who already had a strong virtual presence.
Challenges that Lie Ahead in Building Tomorrow’s Virtual Worlds
While the road ahead looks fruitful, there are still major hurdles to overcome. Some of the biggest challenges in building tomorrow’s virtual worlds involve information. When considering the general public, there is a lack of education and widespread amount of misinformation. For example, despite common misconceptions, hardware, such as VR headsets, AR glasses, and connected watches, is not always a prerequisite for entering the Metaverse or experiencing virtual reality. Even so, the current cost of hardware, along with accessibility and practicality, are huge barriers for most people.
According to the World Economic Forum, the hype surrounding the Metaverse has collided head-on with a global crisis of trust around the space. The path for establishing trust will be long and fraught with challenges, and much of the burden will be on corporations. Privacy and increasing regulations are concerns for brands already in the Metaverse or those considering a strategy for virtual worlds. By year-end 2024, Gartner predicts that 75% of the world’s population will have its personal data covered under modern privacy regulations. Businesses are now held accountable for consumer data privacy and safe handling under rules such as the EU’s General Data Protection Regulation (GDPR), the American Data Privacy and Protection Act (ADPPA), and the UAE’s Personal Data Protection Law. But there are no Metaverse-specific privacy regulations yet because the Metaverse cannot be limited to one or a few data privacy regimes since it has global reach.
Currently, users are confined to a single world in the Metaverse, meaning their experiences are siloed. This creates a host of issues around ownership rights and the transfer of ownership involving digital goods and property. How can you take a virtual shirt you purchased in one experience and sell it in another? Who owns the intellectual property? The owner/operator of a world or an individual user? Interoperability can create a seamless Metaverse experience and solve many of these challenges, “… by providing continuity and a sense of presence irrespective of where an individual may be – or may be going – in the physical or digital world. Interoperability enables all users, from consumers to enterprise organizations and industrial applications, and their individual or collective assets, to move across and between the physical and digital world with their relevant data.”
Identity and ethics also come into play. Are you your avatar? Should you be held accountable in the real world for the actions your avatar takes in the Metaverse? We also need to consider privacy versus pseudonymity. While many users may prefer to use pseudonyms within the Metaverse, this can also create privacy concerns if their real-world identities can be linked to their virtual ones.
Business Strategies for Virtual Economies
When it comes to designing a business strategy for virtual economies, two key approaches are emerging: (1) replicating what we have in the physical world, and (2) addressing new needs posed by the unique conditions found in virtual worlds. As companies craft their strategies for the Metaverse and build products for virtual worlds, they should consider the following sentiments we encountered at 20/20: 1) I play games to get away from real life, I don’t want to be in a virtual world that’s trying to emulate real life, and 2) In a space where you can be anyone and do anything, why would you choose to be your regular old self driving a regular old car?
Again, interoperability can help shape the future of a well-intentioned and functional Metaverse. Interoperability will require collaboration between corporates, startups, and governing bodies. It’s not too early to begin exploring some of these collaborative opportunities. In fact, some of the biggest tech giants have already begun working together on open standards around the Metaverse with the establishment of the Metaverse Standards Forum. Founding members include Meta, Epic Games, Adobe, Microsoft, and Sony, among others. They are uniting to drive open Metaverse interoperability.
In addition, education is vital for any business looking to enter the Metaverse and launch virtual worlds or products. Home Depot recently made its foray into the space via Roblox with the launch of its Virtual Kid Workshop in Redcliff City. It might seem like a strange move for the home improvement retailer whose primary target audience is not young people. But the move has given Home Depot an opportunity to gather insights into virtual worlds and understand the motivations behind their use in order to craft a more targeted Metaverse strategy and attract future customers.
Not so long ago, the thought of existing inside a virtual world was a futuristic concept. Well, the future is here. Our online social interaction is already shifting to multiverse virtual worlds where avatars mark our presence, we own digital goods, earn money from our contributions to the world, and gain a deeper sense of community than other types of online interactions. Where we go from here is anyone’s guess, but it’s likely deeper into these virtual realms.
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