Edit No. 22: Breaking down the Metaverse

If you’re like me, you may have had a problem with the term “Metaverse” when it began to make the rounds. I thought it was an attempt to repackage “virtual reality” and gaming for a new wave of hype in the tech industry — something to justify fresh headlines and more funding from investors. After all, I was writing about similar topics and themes way back in 2016!

I’ve since learned that the Metaverse is far more encompassing than just virtual reality. There are articles that have been written to explain the difference between these terms. You can also check out some interesting responses on Quora related to the topic. 

The best piece of writing that I’ve come across — with respect to clearly defining the Metaverse — is authored by Coinbase’s CEO Brian Armstrong. You can read it here. It pulls a lot of inspiration from the thoughts and ideas of venture capitalist and writer Matthew Ball.

https://twitter.com/ballmatthew/status/1471607062111133700

As Armstrong notes in his post: 

“The earliest version of the internet, Web1, was about accessing static web pages. Web2 is about interactive, social experiences within closed ecosystems. And Web3 will be about digital ownership within an open, decentralized environment. The Metaverse is the distant evolution of Web3. In its most complete form, it will be a series of decentralized, interconnected virtual worlds with a fully functioning economy where people can do just about anything they can do in the physical world.” 

Per the description above and according to Armstrong, there should be an interoperability to the Metaverse that may not necessarily exist via simple virtual reality experiences. This interoperability is ostensibly powered by the core tenets of Web3 technology, which effectively allow the Metaverse to mimic the dynamics of real life in an online setting — where people can oscillate between contexts and scenarios seamlessly as they engage in behaviours related to socializing, working, transacting, playing, and/or creating. 

Armstrong emphasizes this Web3 powered interoperability of the Metaverse by stating that:

“…the Metaverse will rely on blockchain to transfer identity and ownership across virtual worlds, attestation to verify them, and payment rails that allow people buy, sell, and earn income within a decentralized economy.”

So it turns out that I was wrong for conflating the Metaverse with just virtual reality in its most rudimentary form. What we are encouraged to take away from Armstrong’s words is that the promise of the Metaverse is about far more than just virtual avatars and/or gaming. And only now are we beginning to see glimpses of other meaningful use cases, examples of which include the following (as noted in this Coinbase blog post):

• Blockchain-powered virtual-world platforms such as The Sandbox and Decentraland, which are aiming for an open metaverse where NFTs, digital real estate, and virtual identities flow seamlessly across virtual worlds and markets without the need for intermediaries. This is in contrast to a game such as Roblox, which lacks interoperability — meaning players can’t use their characters or items in other virtual worlds. Decentraland also recently sold a plot of virtual land for a record $2.4 million, alluding to the potential appeal and emergence of digital real estate ownership in the Metaverse. 
• Nvidia, a leading gaming chip maker, just unveiled Omniverse — a.k.a the “metaverse for engineers” — which is a collaboration platform that allows engineers and designers to work together on projects in virtual worlds. 

Bloomberg suggests that the Metaverse represents a roughly $600B market opportunity today, and is expected to grow to nearly $800B by 2024. A lot of that growth is expected to come from ads and live entertainment experiences, even though the bulk of the current market consists of gaming and virtual reality offerings. 

It’s worth noting that Bloomberg’s definition of the Metaverse is liberally applied to extremely popular games such as Roblox, which would barely pass Armstrong’s definition as articulated in his post. When considering truly interoperable Metaverse experiences and the ecosystem of companies supporting them, it’s safe to say that the market is still very nascent. 

I do suspect the momentum in this space will only accelerate from here, considering how the discourse around the Metaverse is now largely being shaped by the actions and investments of extremely well capitalized Big Tech companies. As reported by Cade Metz in The New York Times:

“…tech companies are lining up to sell the devices that let consumers into this virtual world and control their experiences once they are inside it. Suddenly, building new things for the [M]etaverse is offering the kind of fresh appeal that comes along only every so often in any industry.”

The likes of Apple, Microsoft, and Google are all working on devices that will allow people to operate in a digital or virtually augmented reality. Facebook went as far as to change its company name to Meta in a bit to align itself more closely with the promise of this new technology. 

Whether the momentum accelerates only to subside in a year or two is the big question though. Some experts are calling for Metaverse related technology to take a full decade to be ready for “prime-time”. I heard similar timelines related to the mass adoption of virtual reality back in 2015. And here we are… seven years later in 2022. We still aren’t living in a Ready Player One world — not that I would want that anyways (that’s a topic for another day). 

I suspect that the staying power of the momentum behind the Metaverse will rely on the believability of how businesses are going to apply this technology outside of gaming. With any hype cycle, people and companies rush to jump on the bandwagon, and attempt to present scenarios of what’s possible with a new technology in a bid to demonstrate cultural relevance. But not all experiments are created equal! Anything that feels like it’s being done for the sake of being done is only going to eventually contribute to consumer skepticism.

I’ve compiled a list of articles below that allude to some of the new initiatives brands and retailers are undertaking in the Metaverse. I like the spirit of some of these ideas more than others. But it’s the very last article that I’ve linked to which gives me pause, and makes me appreciate the need to tread cautiously when making sweeping predictions about emerging trends. 

🗞️ News

1. Vogue Business — Gucci plans virtual world for Gen Z on The Sandbox [9/2/22]

• Gucci will launch its own virtual world on digital real estate platform The Sandbox, as it expands its presence in the Metaverse for its Gen Z-focused platform Gucci Vault. Gucci Vault is the umbrella of Gucci’s Metaverse-related projects, including NFTs and its Discord server.
• Select Metaverse fashion items created by Gucci designers will be available for people to buy, own and use in their own Sandbox experience.
• Gucci has been ramping up its Metaverse strategy over the past year, and is a notable early adopter of digital fashion, virtual worlds and NFTs.

My commentary:

It’s fascinating to see luxury brands jump on the Metaverse bandwagon, considering their historical emphasis on prestige and exclusivity. But perhaps the intention behind this initiative in The Sandbox is for a younger consumer base to familiarize itself with the Gucci name, and own a piece of it at a price point that fits with their smaller budgets — even if this awareness is coming at the cost of a bit of exclusivity. But Gen Z is known for being more pragmatic and less brand conscious than millennials, after all. They are also more idealistic and seek alignment on values. As such, brands — no matter how “lux” they are — have no choice but to meet these younger consumers exactly where they are and on their terms. 

2. CNBC — Walmart is quietly preparing to enter the Metaverse [16/1/22]

• Walmart appears to be venturing into the Metaverse with plans to create its own cryptocurrency and collection of NFTs.
• The big-box retailer filed several new trademarks late last month that indicate its intent to make and sell virtual goods.
• In a separate filing, Walmart said it would offer users a virtual currency, as well as non-fungible tokens, or NFTs.

My commentary:

In case you missed it, there’s a video that was making the rounds on Twitter recently — it depicted a virtual shopping experience inside a simulated Walmart store. It felt like something I would’ve seen in 2014. And unsurprisingly the video is not new. It’s actually from 2017, and demonstrates how dated the discourse around the Metaverse already is — especially if you ascribe a broad-based definition to the term to include rudimentary virtual reality experiences (such as the one depicted in the video). Regardless of the age of the video, I hope Walmart has more interesting tricks up its sleeve than just selling virtual goods in a virtual store. That idea feels a little overplayed at this point. 

3. Highsnobiety — Nike is not here for StockX’s sneaker NFTs [4/2/22]

• Nike isn’t pleased to see their sneakers in the form of non-fungible tokens, or NFTs, citing trademark infringement as one of many complaints.
• In January, StockX made the bold move into the NFT universe where buyers could purchase the company’s NFTs and then redeem them for actual sneakers in the future.
• According to Reuters, Nike’s concerns include “inflated prices and murky terms of purchase and ownership” as well as buyers’ confusion on StockX’s business model.

My commentary:

I want to emphasize that this is the first big example of a brand being upset about the unauthorized use of their IP in the Metaverse. This move alludes to the fact that most brands will likely want to repatriate a lot of these asset production and resale capabilities into their own platforms, thus allowing them to maintain full control of their brand narrative and business model. The “Wild Wild West days” in this space will slowly come to an end once there is more regulation in place and territorialism from brands takes over. 

4. Hypebeast — Bernard Arnault says LVMH is not in a rush to enter the Metaverse [28/1/22]

• In an annual presentation to investors, Arnault made it very clear that the company is in absolutely no rush to sell virtual fashion.
• Arnault said, “At present we’re in the real world selling real products. Surely it’s captivating, it’s interesting, it’s fun. But we have to see what the application of the [M]etaverse and these NFTs will be.” He continued to add that while it is very possible that entering into the Metaverse could have a “positive impact on our brands” he understands that if it is not “well done” it could lead to catastrophic outcomes for the business.
• In an apparent slight jab to its Kering competitor, Gucci who launched its NFT sneakers last March, which ultimately sold for approximately $12 USD online, Arnault said, “It’s not our objective to sell virtual sneakers for 10 euros. We’re not into that. But there may be more relevant applications.”

My commentary:

Arnault’s words gives me pause. He’s been around the block and is currently the third richest man on the planet. He has seen his fair share of bubbles and hype cycles. And throughout the ebbs and flows of the markets, he has still managed to build a holdings company that owns some of the most iconic brands on the planet. So when he says he’s skeptical about something, it’s hard not to pay attention. But it’s interesting to note that his son and heir apparent — Alexandre Arnault, who leads Tiffany & Co. — is reported to have recently joined the NFT cryptopunks community with a new profile picture NFT for both his Twitter and Instagram accounts. If his son’s actions are any indication of the future ambitions of LVMH, then perhaps there is a role for crypto and the Metaverse in the company’s ranks sooner rather than later. 

💰 Funding

See below for a list of commerce related startups that announced a funding round in the past six weeks:

• Checkout.com | Online payments platform | $1B | Multiple leads
• Flexport | Digital freight forwarder | $935M Series E | Multiple leads
• Bolt | E-commerce checkouts | $355M Series E | BlackRock
• Exotec | Warehouse robotics | $335M Series D | Goldman Sachs
• Ankorstore | B2B marketplace | €250M Series C | Multiple leads
• Cart | E-comm-as-a-service | $240M | Legacy Knight Capital Partners
• Skims | Shapewear | $240M | Lone Pine Capital
• Zapp | Instant deliveries | $200M Series B | Multiple leads
• Savage X Fenty | Lingerie | $125M Series C | Neuberger Berman
• Vecna Robotics | Autonomous forklifts | $65M Series C | Tiger
• Metaversal | NFT production | $50M Series A | Multiple leads
• Twig | Cash-out app | $35M Series A | Fasanara Capital
• Seel | Product returns | $17M Series A | Lightspeed Venture Partners
• Ecommerce Brands | Brand aggregator | $10M | Bearing Ventures
• CryptoSlam | NFT data aggregator | $9M Seed | Animoca Brands
• Heat | Streetwear mystery boxes | $5M | Multiple leads
• Leverage | Supply chain visibility | $5M | Multiple leads
• Purple Dot | E-commerce waitlists | $4M | Unusual Ventures