By now, everyone has heard about the metaverse — emergent virtual reality experiences where industries as diverse as fashion, finance and advertising are scrambling to invest.

Money pouring into the space is difficult to ignore: Meta pledged $10 billion over the next decade, Epic Games raised more than $3 billion, and crypto real estate sales generated half a billion dollars last year. Even brands like Gucci, Spotify and CVS are rushing to plant their flags in new (and untested) online worlds like The Sandbox and Decentraland

For businesses that haven’t embraced the metaverse, the current offering of VR shopping centers and virtual land grabs might seem confusing, especially as tech stocks continue to crater and a popular metaverse index has fallen 88% from its November 2021 peak.

The rush of activity may even feel reminiscent of the very early years of the internet, says Justin Banon, co-founder of Boson Protocol, a firm which helps brands shift to the metaverse. That was a time when “Amazon launched an e-commerce company in one single category—books— even Jeff Bezos accepted that the internet wasn’t capable of supporting e-commerce,” he says. “The time to get market leadership in new domains is now.”

But how can businesses separate the wheat from the virtual chaff, and work out when, if ever, to enter the metaverse? When Amazon was starting, so were thousands of other e-commerce players. So how do you find the ones that will last?

The Metaverse Explained

A clear explanation of the metaverse would be a good place to start. The term metaverse comes from Snow Crash, Neal Stephenson’s 1992 dystopian cyberpunk novel. In that story, people strapped on VR headsets and sought refuge from a hyper-capitalistic reality they found unbearable. This world was so convincing that some chose to spend their entire lives there — but that world soon began to mirror the downsides of reality as well.

The proponents of the modern-day metaverse have adopted Snow Crash’s language — but they may not be heeding its warnings. In the hands of metaverse enthusiasts, the term has become the frontispiece of a multibillion-dollar campaign to build the next Internet. 

Early prototypes of metaverse-like worlds proved popular long before the current craze. Second Life has sold virtual land and creator-owned goods since 2007; its creators said the game still had a GDP of $500 million nine years later. Many more have plugged themselves into massively multiplayer online role playing games like World of Warcraft, whose parent company, Activision Blizzard, sold to Microsoft for $68.7 billion earlier this year.

Today’s techno-utopians shaping this next iteration of the metaverse sometimes defer to an essay on the subject by venture capitalist Matthew Ball (which in November 2021 he fittingly converted into an NFT and sold for close to half a million dollars worth of crypto currency). 

Ball defined the metaverse as a truly immersive, persistent online virtual reality capable of supporting the entire world. An early builder of such worlds is Epic Games, a consumer gaming leader, which defines the metaverse as any digitally-enhanced experience. That could include gaming, of course, but also online chat, live selling, and even more workaday experiences like Slack or Google Docs. A unique element of the metaverse, however, is that in theory, inhabitants can control their own destiny — their data, the economics governing their experiences, and more. 

There are also assets built around these spaces, such as avatars, decentralized domain names and NFTs, which are separate from the platforms, so early investments could simply be redeployed elsewhere. “The key with Web3 technologies is that they’re open source, composable, and open — [you can] plug them in as like Lego bricks,” says Banon.

That’s quite a shift from the walled gardens that Facebook, Google and Apple have so carefully curated over the past two decades. And that  in turn leads to the potential for a digital economy that transcends any one website or company. While you can’t take a Fortnite character skin outside of Fortnite, and Epic Games can shut down your account if you break its rules, an NFT that represents identity, ownership, and other rights could be transferred between virtual worlds, and access can’t be revoked. That’s an opportunity for brands. 

“Second Life was a closed universe with limited property rights,” says Michael Anderson, co-founder of Framework Ventures, a U.S. venture capital firm that profited immensely from the decentralized finance craze of 2020 and 2021 and expects to make even more from the metaverse. But a thriving market of user-owned crypto assets could support a variety of new virtual professions. “It’s entirely possible that many people will substitute their local, real-world jobs, for interesting, better-paying jobs in these virtual universes,” he predicts.

Business Opportunities In the Metaverse

A handful of projects and companies are already racing to build the first successful metaverse. The best known is Facebook, which rebranded as Meta toward the end of 2021 and is building a metaverse powered by its line of virtual reality headsets. In a presentation in October 2021, ambitions were as lofty as a basketball game played on real courts — only the opposition was thousands of miles away, rendered as holograms. But with creator fees of up to 47.5%, it’s unclear how much control the company will cede to its inhabitants, and how much Meta will lean on methods of value exchange – whether they be currency, data, or virtual goods – that it doesn’t centrally control.  

Crypto-native worlds closer to Ball and Stephenson’s metaverses include games like The Sandbox and Decentraland — sprawling open worlds split into parcels of lands, on which owners can create whatever they like. Brands like The South China Morning Post and The Smurfs have snapped up parcels of scarce virtual lands, and Adidas and Nike are among brands building in-game merchandise. 

Anderson thinks gaming will onboard the masses to virtual worlds fueled by crypto property rights — even though today’s metaverse games “aren’t particularly fun, they nonetheless onboarded millions of players in a very short span of time,” he says. In the first quarter of 2022, DappRadar reported that crypto games raised $2.5 billion from venture capitalists. NFTs from a single game, Axie Infinity, generated more than $4 billion, mostly in the past year before the entire sector crashed. But these kinds of cycles are very standard in new technology waves – as anyone who lived through the dot com crash of 2000-2002 well remembers.

Banon says fashion houses are eyeing digital twins of actual items of clothing that are sold alongside the genuine article. In what is perhaps the logical conclusion of all this, Nike bought  RTFKT, a platform that sells NFTs of its sneakers worth tens of thousands, not bothering with the physical product at all.

Azelie Marketing founder  Dani Kimble is using NFTs to grow the family restaurant – Menches Brothers, a burger joint in Ohio whose original proprietors, Charles and Frank, claimed to have invented the first hamburger in 1885, and where Kimble is also chief marketing officer. The restaurant will ship a seasoning blend to NFT holders that lets them taste the ‘original’ hamburger recipe. 

More importantly, Kimble says the metaverse’s focus on community and digital access could extend her family’s brand. Virtual communities resolve an obvious problem for local businesses: that they cater to those that live nearby, capping their reach. “I started to think about how a small can business leverage [the metaverse],” she said, “and build not just a local community, but a global community.” 

Kyle Ellicott, a partner at Web3 VC firm Stacks Ventures, thinks advertising could also be given a boost by the metaverse. “In a virtual world, you can see where someone was standing at what time, and see what happened on a particular pixel,” he says. “How many people walked over that pixel? Who? What do they do? How long do they stand for? How do they interact? Data and analytics is a huge opportunity and an area we’re looking pretty aggressively at.”

P&G turned to the metaverse to showcase some of its products during the pandemic in a Consumer Electronics Show-like experience. Nike built a virtual store in Roblox, where users create their own games, which the fashion company claimed attracted almost seven million visitors in its first five months.  And PwC is using virtual worlds to hold workshops and recruit students, says Jeremy Dalton, the company’s head of metaverse. Far from the gallery of faces in Zoom, virtual meetings, where each character is rendered in virtual reality, are “far more immersive, more engaging, and allows you to have greater focus in the meetings.” 

While not as good as face-to-face, virtual reality means PwC no longer has to hurtle its workforce around the globe to meet clients – or future employees. Dalton says that 20,000 students in the UK have visited the company’s virtual recruitment park so far. 

Teething Problems

The current metaverse worlds are far less immersive than Call of Duty or Fortnite rivals. Even the ancient graphics of Second Life are more impressive than those of crypto-powered market leaders like The Sandbox and Decentraland, and the low player counts of both, in the thousands rather than the billions, suggest that few gamers are convinced. What’s more, most of these games run in browsers, not advanced virtual reality headsets. 

So why do these projects have outsized market capitalizations? And how come a single auction for an upcoming metaverse game called Otherside raised $300 million in April 2022, even though its investors weren’t told what it would look like? 

Ultimately, metaverse investments are another bet that this nascent technology will one day live up to its ideals, and eventually become places where businesses can find paying customers. “We’ve now got this generation of people that have been brought up, not on passive consumption, but on games,” says Banon. “This is about remaining relevant — being part of this future and meeting customers where they’re interacting.” 

But while crypto made a lot of people rich — or poor, depending on when they bought in — the technology hasn’t become a mainstay of most consumers’ lives outside of speculative activities. And recent dives of cryptocurrency prove that if anything, these bets are not foolproof. Even if the metaverse should ever take off, there are going to be failed projects along the way. 

So, while every CEO doesn’t need to bet the company, nor should, on the metaverse, Anderson says that executives should at least “be actively exploring and networking with Web3 companies and influencers so they can be in a good position if an important trend takes off.”

And PwC’s Dalton ultimately says that company’s looking to plant a flag should avoid the hype, start small, and build out an approach unique to them — one virtual step at a time. ”You can get learnings that are very specific to your organization,” he says. “And you can use those learnings to build out a much better solution in the second and third iteration.”