E-commerce will be largest economic force for the metaverse
Everyone talks about the metaverse today. From product launches to remote working locations, most enterprises are also showing a huge interest in the metaverse. In fact, for some businesses, the metaverse is just too big for them to ignore.
Today, businesses that are not showing any interest in the metaverse could find themselves losing out to their competitors who are making big moves in it. While meta has been pushing the metaverse since last year, other tech companies are also highlighting their own versions of it and are investing heavily in them.
But how do businesses understand the value creation in the metaverse? Or rather, how can businesses make a profit from all their investments in it?
According to a new report by McKinsey & Company (McKinsey), the metaverse has the potential to grow up to a whopping US$5 trillion in value by 2030. It shows e-commerce as the largest economic force (US$2.6 trillion), ahead of sectors such as virtual learning (US$270 billion), advertising (US$206 billion), and gaming (US$125 billion).
As companies of all different shapes and sizes look to enter the metaverse, this extensive report provides a clear view of what the metaverse is and is not, what first movers are doing, what's fueling the investment, and the potential for consumer and B2B companies.
The report comes at an interesting time as well. Mark Zuckerberg has just announced that Meta is launching its Avatars Store on Facebook, Instagram, and Messenger. While these avatars will be available in Meta's metaverse as well, Avatars Store is basically a digital store that sells branded digital clothes for an avatar.
Simply put, you have a virtual avatar on these platforms. And you can now spend real money to buy virtual clothing from brands like Prada, Balenciaga, and such and dress them up. Just to highlight this point again, users will be buying virtual branded clothing from branded digital stores for their avatars with real funds.
This concept is already practiced in gaming, whereby users spend a hefty sum on upgrading their gaming avatars. However, when it comes to gaming, there are reasons for the upgrades. This includes improving the avatar's capability in a game and such.
For social media platforms, dressing up avatars with real clothing is simply highlighting the potential the industry has to offer. This is why it is not surprising why the McKinsey report states that e-commerce will be the largest economic force in the metaverse.
As Eric Hazan, senior partner at McKinsey puts it, the metaverse represents a strategic inflection point for companies, and it presents a significant opportunity to influence the way we live, connect, learn, innovate, and collaborate.
“Our ambition is to help leaders of both consumer and B2B companies better understand its power and potential, identify strategic imperatives, and act as a force for its evolution,” he added.
What's driving the hype?
McKinsey's report also highlighted that in 2022 alone, companies, venture capital, and private equity firms have invested more than US$120 billion in the metaverse. The amount is more than double the US$57 billion invested in all of last year.
According to the report, the multiple factors are driving this investor enthusiasm:
- ongoing technological advances across the infrastructure required to power the metaverse
- demographic tailwinds
- increasingly consumer-led brand marketing and engagement
- increasing marketplace readiness as users explore today's version of the metaverse, which is largely driven by gaming while applications emerge in socializing, fitness, commerce, virtual learning, and other uses
Already, more than three billion gamers worldwide have access to different versions of the metaverse.
Do note that Meta's metaverse business, Reality Labs announced earlier this year that it had made losses of up to US$2.96 billion. The company also went on a US$10 billion spending spree in their metaverse unit in 2021. What's interesting is that Meta can bounce back from these losses, but it may not be the same for all companies that have invested in it.
For Lareina Yee, another senior partner at McKinsey, while the idea of connecting virtually has been decades in the making, it is now increasingly real, meaning real people are using it and spending real money and companies are betting big. Yet, Yee feels that this booming interest has made it difficult to separate hype from reality.
“It's worth remembering that while the bust of the first dot-com boom resulted in the disappearance of scores of companies, the internet itself went from strength to strength, giving rise to new entrants,” commented Yee.
Are consumers already engaging in the metaverse?
For the e-commerce industry, the future is all about personalization and understanding their consumers. As such, it is not surprising that almost six in ten (59%) consumers prefer at least one metaverse experience over its physical alternative. But again, this would also depend on factors like age demographics, connectivity, markets, and products.
For now, these certain types of activities stand out for being most preferred in the immersive world. They are:
- shopping—purchasing physical or virtual goods (79%)
- attending virtual social events or playing social games (78%)
- exercising using virtual reality (76%)
The reality is though, if e-commerce drives the metaverse, other industries will eventually follow suit as well. It's not something that can happen over a few months. But business leaders are already seeing the metaverse's potential to drive impact and margin growth.
95% of leaders say they expect the metaverse to have a positive impact on their industry within five to ten years, with 31% saying the metaverse will fundamentally change the way their industry operates. More significantly, a quarter of leaders expect the metaverse technology to drive more than 15% of their organization's total margin growth in the next five years.
“The metaverse has put us at the cusp of the next wave of digital disruption. It's transformative. It will likely have a major impact on our commercial and personal lives, which is why businesses, policymakers, consumers, and citizens may want to explore and understand as much as they can about this phenomenon, the technology that will underpin it, and the ramifications it could have for our economies and wider society,” explained Tarek Elmasry, also a senior partner at McKinsey.