Metaverse

Perspectives

Retail in the metaverse: Understanding opportunities

How the metaverse may reshape the industry

There’s clear excitement about new business opportunities in the metaverse for retail organizations (including traditional retailers, wholesale, and consumer product manufacturers). As the metaverse and its underlying Web3 infrastructure continue to develop, we explore potential paths for retail organizations by considering where we are today, consumers’ evolving engagement, and historical parallels.

The metaverse and retail: Where we are today

In a brief period of time, the metaverse and Web3 have assumed a prominent role in many executives’ strategic thinking. It seems likely that the space will grow in a meaningful way, with Goldman Sachs citing this technology as an $8 trillion opportunity1 and commensurate investment pouring into the space.2 There’s also rising enthusiasm among many retail organizations around the potential business possibilities. The challenge underlying all of the skunk works, planning teams, and late-night virtual meetings is no one has a clear picture of what the metaverse and Web3 will ultimately become. We can, however, inform a potential path forward for retail organizations by considering where the metaverse and Web3 are today, consumers’ evolving engagement, and some historical parallels.

To start, lets unpack what we know. The idea of the metaverse has been around for some time and has steadily gained popularity, with gaming environments as a key growth driver. At a basic level, the metaverse is a collective shared space that includes a growing number of virtual engagement models. It encompasses both fully digital environments and digital enhancements to our physical world. These multiple “worlds” are evolving quickly to allow people—in some cases, in the form of avatars—to have experiences resembling ones they know and entirely new experiences. To enable these experiences, the metaverse harnesses edge technologies including augmented reality/virtual reality (AR/VR), 5G, artificial intelligence (AI), and the cloud.

If we think of the metaverse as a house where all these experiences take place, Web3—the future of the internet—is the underlying infrastructure that makes the house livable. Web3 enables key systems for the metaverse, like governance models, economies, and even societal norms. The underlying model for these systems is a more decentralized internet, where no single entity or person controls (or potentially abuses) power. Web3 uses concepts like blockchain, cryptocurrency, and non-fungible tokens (NFT) to allow individuals and businesses to engage with each other and exchange value.

For simplicity, we’ll refer to the combination of metaverse and Web3 technologies as “the metaverse,” but it’s their union that has sparked truly imaginative ideas.

Consumers’ evolving metaverse engagement

Despite the metaverse’s incredible potential, one could look to the Decentraland rave—a virtual celebration of a new NFT launch—to understand that the metaverse is still very much under development. This nascency suggests that it’s largely unknown what the metaverse will become and how consumers’ evolving engagement will shape its future.

We suggest that organizations consider three potential futures for retail in the metaverse:

  • Full immersion: The dream of many metaverse evangelists is mass adoption, with a large portion of the population spending days and nights immersed in metaverse-enabled interactions. Imagine waking up in the morning to a hologram relaying a curated news feed and prioritized tasks for the day. From there, take a stationary bike ride with an immersive virtual experience (breeze included). Next, put in a full day at work as a digital avatar without ever changing from your sweats. Finally, enjoy a second-row seat at a virtual concert.
  • Isolated generation: There’s already a contingent of early adopters who seek to spend as much time in the metaverse as technology will allow. Not only is their time dedicated to the metaverse, but also their share of mind and wallet. In this future, metaverse adoption will be limited primarily to this user group, with the mass population engaging only occasionally. This small group has enough buying power to warrant interest from RCP businesses. It also displays unique characteristics that can be targeted—mostly linked by a preference for the metaverse environment—that can enable retail organizations in the metaverse to effectively reach customers with new offers.
  • Augmented life: In this future, the metaverse evolves to focus on augmenting the physical world with more advanced technologies to facilitate and complement the general population’s current day-to-day activities. In some instances, these augmentations will be communal (e.g., a voice assistant on every commuter train). In other cases, it will be private (e.g., advances in telehealth).

While all three futures are feasible, the most likely outcome is a hybrid where aspects of each become dominant. But before any future emerges, we’ll need to surmount a number of challenges that stand in the way of scaled metaverse use, including:

  • Interoperability: The metaverse is comprised composed of multiple worlds, and it’s unclear if individuals will be able to easily “travel” and bring expensive digital goods among them.
  • Broadband enablement: Most consumers lack full access to the more advanced technology and services needed to run a metaverse environment.
  • Trust: Attempts to illegally profit from NFTs and lawsuits between companies trying to stake claims in the metaverse may hinder public trust in this new technology.
  • User experience: Aspects of the metaverse today feel clunky and cartoonish, potentially causing many consumers to lose interest after the initial novelty wears off.
  • Human cost: The negative impacts of technology on physical and mental health, combined with the high carbon footprint associated with crypto and blockchain activities, may impede forward progress of metaverse technologies.

Metaverse for retail companies: Key considerations

In our view, while some of the metaverse hype is likely to subside, the investment flowing into the sector should continue to propel it forward, with a likely weighting toward the “augmented life” and “isolated generation” scenarios. The barriers that exist may limit the extensive metaverse immersion that some hope for, but enough progress will be evident to make this an important component of any forward-looking strategy for retail organizations. In fact, many have already started trying to extract value from a range of use cases around the metaverse for retail.

In some instances, these forays are consumer-facing, such as NIKE selling branded NFTs or Forever21 opening a virtual storefront in the metaverse. We’ve also seen new business models emerge. For example, the Flyfish Club is among a handful of new restaurants that only serve diners who own specific access-oriented NFTs. There are also several examples of immersive marketing, which incorporates AR for hyper-personalized experiences. However, metaverse use cases are not limited to consumer interactions. This technology is also being used to drive efficiencies and strengthen talent experiences. For example, Unilever is using digital twins to create an interpretation of its manufacturing facilities. Volvo developed a digital driving simulation that enables the company to conduct ethnographic research in a simulated environment. In addition, we’ve seen many applications of talent engagement—accelerated by the pandemic—through advanced virtual training, onboarding, and mentoring.

With so many options, retail organizations should expand their focus from simply whether to sell in the metaverse to how to do so in a differentiated manner. Unlike many previous technological advances, an exciting aspect of the metaverse is companies aren’t forced to conform their strategy to the technology. When television became popular in the 1950s, companies had to shift marketing strategies to target consumers that who altered their lifestyle around programming. In the 1980s when the Bloomberg terminal became an indispensable tool in financial circles, banks and wealth managers rebuilt strategies to focus on speed of insights not previously available. When mobile devices became more common in the early 2010s, companies augmented their strategies with a mobile-specific plan to reach consumers who were no longer tethered to a single location. In contrast, the metaverse is designed as an extension of all aspects of our lives. As a result, companies may not need to shift their core strategic differentiators, but rather push the boundaries of how that strategy will manifest.

The metaverse use cases a retail organization chooses to pursue will largely depend on the core differentiators it’s using to win in the market. Based on our experience, we’ve compiled several metaverse use cases that retail organizations can use to employ the metaverse to their advantage. We anticipate that there will likely be some use cases that are more commonly seen as priorities due to potential impact, ease of execution, and speed to market.

Priority metaverse use cases in retail

Click table to enlarge

To make any of these use cases a reality, companies need to be prepared to leverage the foundational technologies underpinning the metaverse while nimbly adapting to its rapid rate of change. For example, an effort to enter new markets through NFTs is unlikely to succeed if a company can’t access the required design and technology skills to produce the NFTs.

Attempting to build a virtual storefront without a cloud-based infrastructure may prove nearly impossible. Selling branded digital products to a new metaverse consumer segment may miss the mark without strong data that builds an understanding of consumer preferences. While clean data, cloud-enabled capabilities, and mechanisms to manage digital partnerships aren’t new concepts, they’re fundamental to driving a metaverse-based strategy.

No one knows where the metaverse may take us. However, one thing we can say with certainty is the genie is out of the bottle and momentum is unlikely to slow or reverse. In some form, the metaverse is here and the opportunities that it presents for well-prepared retail organizations should make for a very exciting future.

Endnotes

1 Eric Sheridan, interview on Exchanges at Goldman Sachs podcast, January 7, 2022.
2 Rahul Rai, “An overview of Web3 venture capital activity in 2021,” Forbes, January 2, 2022.

 

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