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% 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 $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 $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.”
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 $450 million investment from venture capital firm Andreessen Horowitz, valuing Yuga at $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 $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 $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.
“The workforce is distributed throughout the planet, so why do we expect it to all move to our neighborhood?” Raveendhran agreed with her colleague. “It does seem there will be a big push for the corporate metaverse,” she said. “Companies have already been using VR for sensitivity training, as well as diversity and inclusion and customer service training. The metaverse will make this an even more visceral experience.”
On top of that, she pointed out that swaths of the labor force have grown tired of two-dimensional videoconferencing during the pandemic. “Before COVID, how many of us used Zoom or Teams? Now it’s the go-to method of business communication. The same thing could happen with the metaverse.”
Toward an Internet-like Open Metaverse
As Microsoft, other tech titans and upstarts race to build their own immersive worlds, there is a risk that multiple metaverses could exist in competition, forcing digital citizens to pick where they spend their time. Think about the unwelcome experience of opening and closing streaming apps just to tune in to a different show.
For this reason, Touve called for open standards to be developed, like there were for the founding of the internet, so that people can move freely between virtual worlds as they do from website to website on a single browser.
“The open philosophy is in conflict with the desire for predominant platforms and their ability to monetize a user base,” he said. “But that is what made the web work so well, as it enabled open competition – a rising tide that lifted all boats.”
There are formidable privacy and security problems, too. Meta, in particular, has faced persistent criticism over its ability to moderate harassment and abuse, alongside numerous privacy scandals.
“People are already unhappy with the boundaries of consumer privacy,” Touve said. “The same sorts of challenges will exist in these virtual worlds.”
Online networks can be toxic environments, especially for women and minorities. Touve said the content moderation challenge is “probably the next domain of real cost to emerge.”
Raveendhran warned internet companies not to ignore the psychological barriers to adoption in their race to create and capture economic value from their metaverses. “The big thing is to figure out which interpersonal experiences are right for the metaverse.”
But she predicted these kinks will eventually be ironed out. “The metaverse is not something that is science fiction anymore. It’s here.”
This feature was originally published in the summer 2022 edition of The Darden Report magazine.