Imagine you’re in the market for a new watch. Today you have two options: travelling to a shop to try one on in-store or browsing online and trying to picture how it would look on your wrist. In April 2022, Timex, a US watch manufacturer, in collaboration with Miami-based FIS (an online payment provider), demonstrated a third option to shoppers in London.

Representatives from the two companies asked people to scan a QR code with their smartphones, which took them to a virtual shop where they could browse various watches, select one, and see how it would look using augmented reality (AR). By holding their phone over their wrists, users could see each watch projected onto their arms and could look at it from different angles and distances to decide whether it would suit them. If they wished, they could purchase the watch (using crypto or fiat currency) to be delivered to their homes.

This is one early example of what the much-hyped ‘metaverse’ – an immersive internet using virtual reality (VR) headsets and AR experiences – could look like, and how it could be used for financial gain – says Himal Makwana, head of product strategy and new initiatives at FIS, who helped design the Timex concept.

Ariana Grande’s avatar performed inside an online multiplayer video game The metaverse is currently in its infancy and doesn’t really exist yet, although many companies, like FIS, are starting to build individual elements of it. In the opening keynote speech of the Connect 2021 conference, Mark Zuckerberg and other executives of Meta (the rebranded Facebook – and a big promoter of the concept), predict that it will take at least five to ten years for the metaverse to become fully realised. Huge amounts of computing power and technological advances are still required.

Today, most people engage with the internet through flat screens on their mobile devices and computer monitors. In the metaverse, however, people will be able to ‘see’ information layered over the real world, as well as delving into VR universes to play games, socialise or work.

Metaverse users will likely have an avatar that is unique to them, which can navigate the virtual environment and buy things using a digital wallet. In some cases, they can use their ‘real world’ debit or credit cards, but they might also choose to make purchases using a cryptocurrency. To establish who owns what in the metaverse, we could end up using non-fungible tokens (NFTs) – digital deeds which say who definitively owns certain data (so ownership can be established even if copies are made).

Analysts are making forecasts about its economic impact. For example, PwC, an accountancy firm, outlines in a 2019 report that VR and AR tech (both essential for the metaverse) will boost global GDP by US$1.5tn by 2030, up from US$207bn today. And 2021 research from Bloomberg finds that the metaverse industry could be worth US$800bn in 2025.

Clearly, there’s money to be made. But who will profit, how, and is there really the demand?

Metaverse money makers

While the metaverse is still nascent, there are already numerous examples of businesses, banks and investors finding ways to earn money there.  

Take live entertainment. In August 2021, US popstar Ariana Grande’s avatar performed inside an online multiplayer video game called Fortnite. The singer’s show was reportedly viewed by millions and was expected to generate at least US$20m worth of digital merchandise purchases.  

There are several other examples of brands selling both digital and real goods through the metaverse. Nike sells NFTs. Samsung has a digital store in the Decentraland virtual world. Burberry sells NFTs of its armbands in the Blankos Block Party VR game for US$25 each.

Beyond consumer goods, you can spend money on plenty of other things in the metaverse, not least real estate. The rapper Snoop Dogg acquired virtual land in the Sandbox metaverse in 2021. Then a buyer reportedly paid US$450,000 for a piece of adjacent ‘land’ so they could be neighbours. There has also been a lot of commentary in 2022 about people purchasing NFTs of digital art; with one NFT image of a ‘bored ape’ selling for over US$2.7m dollars.

Beyond speculative bubbles, some NFTs could be quite useful marketing tools If this all seems odd to you, you’re not alone. Speaking at a climate conference this year, Microsoft’s Bill Gates remarks: “Obviously, expensive digital images of monkeys are gonna improve the world immensely”.

Nevertheless, the market for NFTs is not really any different from many other purchases we make, says Theo Tzanidis, a senior lecturer in digital marketing at the University of West of Scotland (UWS). “Why buy a Ferrari rather than something cheap? You buy a Ferrari to make a statement; there are elements of any market that are based on emotion, and speculation, and fluff.” Spending money on NFTs is arguably no different.

Meanwhile, Himal Makwana notes there are several examples of NFTs being used by brands for more strategic purposes. Heineken, for instance, recently launched a 'virtual beer' to engage with customers, then rewarded them with real-world beer at events in Europe. Beyond speculative bubbles, therefore, some NFTs could be quite useful marketing tools.

Advertising has already started to appear in various metaverses, and digital marketers will surely spy opportunities to collect data about how people interact with brands in immersive spaces. Meanwhile, JPMorgan Chase has opened a lounge in the Decentraland virtual world, and HSBC has launched a Metaverse Discretionary Strategy portfolio for investors in Hong Kong and Singapore.

Conducting business in the metaverse

Turning to the world of work, there’s scope for AR and VR. An obvious use case is meetings. Rather than dialling in via Zoom, remote workers will don headsets and hopefully have more natural-feeling interactions. There are opportunities for training, running workshops or even company-wide conferences in this way.

In financial services, the metaverse is likely to improve customer experience, says Katharine Wooller, managing director for UK and Ireland at Dacxi, a crypto wealth platform. Customers will soon get used to engaging with their banks through a headset, she says, pointing out that “no one who uses an online chat function with a bank” thinks about the fact that they are “having a conversation in cyberspace”, instead they think of themselves as just doing banking. In future, they may not think twice about donning VR goggles to speak to their bank manager either.

Himal notes that banks in particular have an opportunity to improve the customer experience by using the metaverse. Banking today, with its heavy reliance on online self-service, has lost the “richness” of the customer experience, he says. The metaverse might allow financial providers to combine personalised customer care, with remote, always-on services.

Winner takes all?

The metaverse, along with cryptocurrencies and NFTs, often come under the umbrella of Web 3.0 technology, a decentralised and ‘smart’ version of the internet. It’s expected to supersede Web 2.0, which was characterised by social networks and video. So, who will win out in this new era?

One concern about Web 3.0 is that it’s being built by a small handful of powerful private companies, notes Theo Tzanidis of UWS. To use most metaverses, you need to buy a VR headset from a hardware provider and log into one platform or another to do anything of interest. Critics fear it will be much less free and democratic than the internet is today.

On the other hand, the metaverse cannot really be owned by any one person or business, Theo adds, since its use of blockchain and NFTs is supposed to guarantee ownership to individuals. For example, Snoop Dogg’s ‘land’ in the Sandbox metaverse belongs entirely to him – not to Sandbox or anyone else – and he’s free to build what he wants there. On today’s web, by contrast, to own a given website, you effectively rent the domain name from other companies. For this reason, there’s an argument that the metaverse will be highly democratic, with big tech companies holding less sway and more power to users and creators.

It's probably too soon to say whether platforms or decentralised makers will eventually come out on top in the metaverse, but “it’s going to be an interesting battle to watch play out”, says Himal.

Operating in the metaverse Wild West

In a world with no geographical allegiances, whose rules and laws are followed and who enforces them? Today, the metaverse is a Wild West, with no established body to regulate or police behaviour there. Whatever becomes of the metaverse, companies operating in this realm will have a long list of issues to address.

Take problems around decentralised finance. “All transactions in the metaverse are completed using digital currencies, which coupled with the lack of regulation, means every business in the metaverse runs the risk of inadvertently being involved with or facilitating financial crimes like money laundering,” says Julian Dixon, CEO of Napier, an anti-financial crime company in London. There are several related challenges around ‘know your customer’, theft of user identity, protecting people from financial bubbles and more. The potential for spreading misinformation is enormous too.

There have already been complaints of sexual harassment, racism and misogyny in early metaverses Aubrey Turner, an executive consultant at US-based software firm Ping Identity, picks up on the point about the lack of official regulatory oversight, saying that he doesn’t believe future security issues are being taken seriously enough yet, likening it to the early days of the internet. “Technological innovation is consistently ahead of laws and regulations so often there can be dramatic misalignment,” he says. He points to risks like account takeover, theft of personal information, ransomware, use of crypto to pay for illicit activities, and various scams.

Aubrey also raises concerns about the ability of authorities to police crimes and bad behaviour in this environment. “The right tools, techniques and data telemetry probably don't exist yet to identify and notify of potential trouble, especially given the unknown, yet to be determined uses for the metaverse”.

Besides the financial risks, there have already been complaints of sexual harassment, racism and misogyny in early metaverses. Aubrey acknowledges that these problems are all present on the internet today, “but will be exacerbated due to the nature of the metaverse”, with its highly immersive experience. He also wonders if parts of the metaverse could end up as a future ‘Silk Road’ (an online marketplace for drugs, weapons and other banned materials, which was shut down in 2013).

Testing the water

Beyond these issues, the very idea of people engaging in VR worlds has been met with significant scepticism among tech-watchers. Do people really want to spend hours wearing headsets? With the ongoing backlash against big tech, are consumers ready to immerse themselves in their worlds, handing over even more personal information? Will it just end up being a subset of gaming?

It’s notable that in a 2021 study with over 3,500 British internet users, only 1.7% say they own a high-end VR headset. Of course, there are plenty of examples of tech that was once niche going on to change the world. But there are plenty of examples of concepts that went nowhere too.

There is little doubt that the metaverse, and the technology it’s built on, will be widely adopted in future. But how long this may take, the extent of its uptake and who its users are likely to be, is still open to much debate. In the meantime, the phase of experimenting with what can be achieved in the metaverse will likely continue. As with the example of Timex at the start of this article, testing the water with something that could become the ‘next big thing’ remains a valuable exercise. As Himal Makwana of FIS says: “I would say experimenting and trying and testing and failing and learning and repeating is going to be the best way”.

Seen a blog, news story or discussion online that you think might interest CISI members? Email fred.heritage@wardour.co.uk.