What does the metaverse mean for you?

Michael G Jacobides explores the concept of the latest evolution of the digital world.

  • The term ‘metaverse’ is not new and dates back to the 1992 sci-fi novel Snow Crash by US writer Neal Stephenson
  • In a sense, metaverses have always existed and are in constant evolution 
  • The concept can be used to analyse any digital platform on which we can attain by virtual means all or some of the purposes that mimic what can be achieved in the physical world
  • Metaverses are dynamic in nature and embodied in a set of specific properties; the degree of a particular metaverse’s sophistication is determined by the digital technologies that drive it

As an expert on the emergence and development of digital platforms and ecosystems, Michael G Jacobides believes the advent of the metaverse could indeed be very consequential, but is often misunderstood. Here, he explains why.

Some think the metaverse will be the next digital revolution. But what exactly is it?

The metaverse – or metaverses – is not a new topic; many of us have been citing the origin of the term in the science fiction novel Snow Crash by the American writer Neal Stephenson back in 1992. In a sense, metaverses (or proto versions of them) have always existed and are in constant evolution.

With my colleagues at the BCG Henderson Institute (BHI; Boston Consulting Group’s think tank), we have been researching the topic, trying to look beyond buzzwords and headlines.

We prefer not to focus on what metaverses are, but how we can create frameworks and reasoning tools to better understand them and track their continuing evolution.

The concept of ‘metaverse’ can be used to analyse any digital platform on which we can attain by virtual means all or some of the purposes that mimic what can be achieved in the physical world. Just like the real world, a metaverse is dynamic in nature and embodied thanks to a set of specific properties; the degree of its sophistication being a function of the digital technologies that drive it.

First, let’s look at the purpose. Every metaverse allows users to pursue multiple goals. Metaverses are designed to offer virtual experiences and services that reflect the myriad possibilities of human lives and our infinite needs – from leisure to work and consumption. We call this the metaverse’s purpose layer.

Second, properties. Metaverses rely on digital technologies to deliver virtual experiences and services, but businesses should focus on each metaverse’s capabilities. For instance, instead of focusing on the tech solution (eg, I want to use VR), focus on the capabilities of your metaverse (eg, I want an immersive experience). We define these capabilities as a metaverse’s emergent properties.

Third, technology. Metaverses’ characteristics and objectives continuously change as digital technologies develop and users engage with virtual worlds. From Second Life’s simplistic avatars to Meta’s virtual-reality world, metaverses have always offered immersive experiences.

Thus, a metaverse’s foundations consist of the constantly evolving tech combinations that determine the continuum of possibilities in the purpose layer as well as the emerging properties. This is what we call the dynamic technology layer.

‘When companies that have defined our digital lives want to redefine them, we need to listen’

So why are we talking about them now?

As I’ve said, the idea of the metaverse has been around for a long time, but three main factors are accelerating its development. First, we are experiencing a convergence and maturation of key technologies, such as VR and AR, that will allow its continuing evolution. (For example, BCG estimates that by 2025 we will have almost 100 million VR devices installed.) 

Second, platforms driving the construction of metaverses have been growing and are starting to reach a critical mass in terms of usage. (For example, Roblox has ~50 million daily active users.)

Third, investments in the metaverse have been rising. (For example, venture capital investments in crypto-related projects (yes, they are all metaverses) totalled $25 billion in 2021 alone.)

Finally, but no less important, both traditional tech companies and non-tech incumbents have been making big, bold moves into the metaverse field. These include Facebook rebranding to Meta; Microsoft acquiring Activision (a major gaming player) for $70 billion; Disney announcing that it is working on a metaverse and appointing a dedicated executive to lead its strategy; and Nike stepping into the arena in various ways, including teaming up with Roblox to create Nikeland virtual world. 

Why does this matter? Because, when companies that have defined our digital lives want to redefine them, we (individuals and companies) need to listen. 

Where do blockchain, NFT and Web3 fit into the picture?

People tend to think of Web3 and metaverse as the same thing. We view it differently. Many see Web3 as the next iteration of the internet; one that will be more decentralised and finally wrest control from Big Tech monopolies and give it to users. In this idealistic vision, digital assets would play a key part: individuals will be able to own digital objects, such as non-fungible tokens (NFTs) and smart contracts, and identities in an environment that permits portability, transactions and decentralised, peer-to-peer ecommerce. 

But VR/AR and digital assets are neither logically nor technologically related to Web3. The graphic capabilities of VR platforms have nothing to do with digital assets, and the use of cryptocurrencies has nothing to do with VR. In fact, whereas VR pushes the limits of computing power, blockchains deliberately sacrifice this for the sake of decentralisation and security. While blockchain (and digital assets) focus on decentralisation, the tech capabilities needed to build VR solutions are so immense that scale and natural oligopolies tend to be formed. 

What we are seeing now is a clash of visions. On one side, players such as Meta and Microsoft are pushing a vision of metaverses where VR will be the technological base and immersion will be key. On the other side, players such as The Sandbox and Axie Infinity (both NFT-based online video games) are pushing visions of Web3 and blockchain, where users will be key stakeholders and won’t rely on the monopoly of Big Techs and their associated business models.

This seems very futuristic. What opportunities are there for companies now?

Building virtual worlds is a capital-intensive process and huge resources are needed. To compete, metaverse platforms have to develop profitable and sustainable business models. This means that, like other B2C companies, metaverse platforms (such as Decentraland, Fortnite and Roblox) increasingly have to rely on brands, and the network effects they trigger, to grow revenues. We believe traditional companies can develop metaverse strategies by experimenting on four fronts: 

  • Co-create and test products. Companies can use metaverses to share ideas and advanced product concepts, co-design virtual prototypes, and get feedback from would-be consumers. (In October 2021, for example, Hyundai Motors launched Hyundai Mobility Adventure, a shared virtual space on Roblox in which avatars can test-drive new vehicles, operate robotic vehicles and participate in social activities.)
  • Redefine loyalty. Companies can develop new customer-loyalty models because of the greater engagement that metaverses afford. Designing immersive experiences inspired by gamification, fostering community through new kinds of interactions and reinventing exclusivity by offering NFTs as access passes will become popular. 
  • Monetise metaverse offerings. NFT technology allows companies to monetise digital products that are infinitely replicable. For companies with high brand awareness, selling digital goods such as collectibles and wearables could not only become revenue streams in their own right, but also create brand awareness early in the funnel – especially among younger customers. Fashion brands are leading the way by selling or launching limited-edition NFT collections and creating branded worlds. 
  • Collect new kinds of data. If VR headsets become key components of metaverses, as Meta envisions, they will enable businesses to collect novel and invaluable data (such as how users move, when eyes contract and expand, how human minds react) from users. Once privacy concerns are addressed, such data will help companies better understand how people use products, how they interact with employees’ avatars and what catches their attention.

What does the future for metaverses look like?

Before trying to predict the future, let’s cast our minds back to the dawn of personal computing in the 1980s and ’90s. Multiple players are fighting for market domination: Apple is betting on high-end computers with its own operating system; Microsoft is creating an operating system for IBM (the then-dominant hardware manufacturer); and the Linux open-source operating system is being born at a Finnish university. This battle to determine where and how value would be created – and by whom it would be captured – raged in the PC industry for decades to come; not only for a few constructors, but for the entire ecosystems around them, from software developers to other hardware manufacturers, regulators, and B2B and B2C users. Just as no one could have predicted the future for personal computing then, it is impossible to foresee how the metaverse will evolve today. The fight is extensive and players are creating multiple opposing visions and strategies that each offer a different future. 

Why should incumbents and new entrants care about these opposing visions?

As in the dawn of the PC industry, the future of the metaverse is being shaped and decided now, with the various players trying to impose their model and thus define the nascent industry. 

We believe corporations should not wait on the sidelines for the future to arrive. They need to understand the multiple promises and futures being designed by different players, consider how they might capture value, and decide what strategies they should adopt for each of these possible futures. 

Metaverses may be in their infancy, but what is at stake today is the architecture of the future – and how non-tech firms might benefit from it. 

4 things that metaverses can learn from metropolises

At BHI we did a very interesting piece of research into what the metaverses of the virtual world can learn from the metropolises of the real world. Both are spaces in which people can work, play and interact with each other and with the environment. Cities can inspire metaverses in four ways:

  • Go beyond economic opportunity. Cities provide economic opportunities, which attracts talent. But, while cities need fresh talent, they often fail to address existing residents’ needs and can’t retain them for long. Metaverses must learn, as cities have, that fulfilling a single need may attract users, but it won’t retain them. That’s why pioneers such as Meta are creating multi-purpose metaverses that fulfil many needs, from work to social connectivity to entertainment. 
  • Accelerate positive change. Research from BHI has shown that innovative cities such as Shanghai have been able to increase the quality of life and economic opportunities for residents by being catalysts for change. Speed and momentum in the digital world is even more important than the physical, so metaverses must evolve quickly to fulfil growing user expectations. 
  • Tackle societal concerns. Many cities have paid a big price for failing to care for the physical safety and mental wellbeing of residents. In Chicago, for example, homicides cost the city almost $8 billion in direct and indirect costs in 2021 alone. If metaverses don’t prioritise user safety, they will quickly come to be seen as a disreputable part of the Net. 
  • Build trust in authorities. Trust not only builds social capital in cities; it also lowers transaction costs and uncertainty. Metaverses should understand how trust works in communities and mimic strategies adopted by cities, such as participatory budgeting, which 11,000-plus municipalities globally have implemented. Given their digital nature, metaverse platforms are inherently better equipped than cities to collect inputs from participants more efficiently and at a lower cost.

Michael G Jacobides is the Sir Donald Gordon Professor of Entrepreneurship & Innovation and Professor of Strategy and Entrepreneurship at London Business School