Fancy going for a run with an old friend along the banks of the Seine on a balmy summer’s day? It may be winter, and neither of you live in Paris, but that should not stop you. Welcome to the world of the metaverse – the hot new phenomenon in the digital world. The metaverse is where the physical and digital worlds coalesce across virtual and augmented reality (VR and AR). It is a place that provides a sense of immediacy and immersion – a shared virtual environment that, we believe, will be the successor to Internet 3.0 over the next five to 10 years.
So, while the last decade was all about digitalisation, the next one could be about the metaverse. The concept is gaining particularly strong traction among GenZ – the generation born from late 1990s to early 2010s, which now represents a third of the global population. True digital natives, they are already at home with virtual environments through digital streaming and social media platforms including Instagram and Snapchat, as well as through video games, like Fortnite and Roblox, where they can imagine and create their own avatars.
The global metaverse market could grow to around USD800 billion by the mid-2020s, according to Bloomberg research (Fig. 1). That represents a big opportunity for the digital industry – and for those who invest in it. So big, in fact, that Facebook’s parent company has seen fit to rename itself ‘Meta’. Its vision of the metaverse of the future features digital avatars, VR glasses and immersive experiences across social networks, gaming and fitness, with additional monetisation opportunities via e-commerce.
However, the metaverse is definitely not a “one winner takes all” model and no one can build it on their own. Many other large enterprises, including Google, Microsoft and Apple, are also exploring how to enhance their product offering. The National Football League (NFL) has opened a virtual store within the Roblox universe, while Adobe is working on new design tool to enable the creation of customised 3D objects in the virtual world.
Broadly, we see four key areas which are needed to enable us to access the metaverse, and which have strong potential for further growth and development:
Globally, spending on VR and AR headsets rose by around a quarter in 2020, to some USD12 billion.1 That is only the beginning. According to industry estimates, the compound annual growth rate (CAGR) for this technology should climb to the 40-50 per cent range 2020 and 2025, according to Citi Research.
That, in turn, should prove a big boost to e-commerce. The retail industry already spends over USD1 billion annually on VR and AR solutions, and spending has grown by 240 percent per year, according to the VR/AR Association.
VR and AR tech’s appeal to the retail industry stems from the fact that it can make products on a screen more real with images that can be rotated, enlarged, and experienced interactively. Traditional retailers, such as Macy’s and Adidas, are among a growing number exploring the potential of virtual changing rooms. Other options include virtual test drives of cars and previews of holiday accommodation.
At the other end of the scale, the metaverse is giving rise to new types of non-tangible products that only have value in the digital world. The most popular are non-fungible tokens (NFTs) – digital assets that can include photos, videos and audio.
For all this to really take off, improved digital infrastructure is crucial. The technology demands higher bandwidth (the amount of data that can be transmitted over a unit of time), low latency and high reliability. Growing demands from metaverse-related devices could encourage innovation and investment in this area.
The biggest challenge will be interoperability. To be able to jump seamlessly from one world to another and keep the same virtual identity no matter which world we’re in. Cross-platform play between consoles and PCs already works and exists as proof of concept.
We believe that all adds up to a wide range of digital investment opportunities. Sectors such as e-commerce, gaming, social media, e-health and fitness, online education, online entertainment, and work platforms should benefit from the expansion of the metaverse and improve the monetisation via better retention rates, user experience and customer loyalty.
The digitalisation of our world, it seems, is only just beginning. By investing in the metaverse, we can become part of the transformation.
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