When ChatGPT suddenly made headlines around the world with great fanfare, the metaverse seemed to be out of the past, and the future was dim. In the "metaverse guide" to global CEOs in January this year, McKinsey's four partners emphasized that "the metaverse is too big to ignore". "Metaverse Daily Explosion" compiled this guide for the reference of business managers:
Suddenly, for better or worse, the metaverse entered the wave of the times. Investment in related metaverses more than doubled in 2022, driven by a combination of big moves (such as Microsoft's $69 billion acquisition of Activision Blizzard) and small moves (about $12 billion to $14 billion in venture capital and private equity).
Everyone has heard about the success of some of the big gaming companies: Roblox, a gaming and creation platform, has more than 58 million daily active users in 2022; Fortnite had more than 20 million daily active users in 2020 and generated more than $9 billion in sales between 2018 and 2020. Meta continues to spend at least $10 billion a year on the development of the metaverse. However, the question investors are asking metaverse companies is when they will get tangible, short-term returns from their investments in these companies.
How should CEOs view the metaverse? Is this a huge opportunity or a huge risk? Our answer is: the opportunities are huge, and the risks are not as great as you think.
Companies that are building the metaverse see it as "the next iteration of the internet," and like any vast and all-encompassing technology, the potential is enormous. We estimate that the metaverse could create between $4 trillion and $5 trillion in value by 2030. On the other hand, there are also obvious risks in the metaverse. Don't be distracted by the collapse of crypto and non-fungible token NFTs, these Web3 technologies are related to the metaverse, but not identically. Instead, the biggest risk is missing out on the wave of change that breakthrough technologies such as the original internet, artificial intelligence, and the metaverse can unleash.
We counted in our April 2022 survey that about 95% of business leaders expect the metaverse to have a positive impact on their industry within 5 to 10 years; 61% expect it to change the way their industry operates.
Why optimism about the metaverse?
We estimated the market cap of the Metaverse activity in June 2022 and calculated it to be between $200 billion and $300 billion. Today, it's even bigger, and in the next eight years or so, it could reach $4 trillion to $5 trillion (chart below), roughly the size of the economy of Japan, the world's third-largest economy.
Market capitalization expectations and use cases of the metaverse to 2030
Exponential growth is possible thanks to the combination of multiple forces: the appeal of the metaverse spans gender, geography, and demographic generations; Consumers have shown that they are ready to buy metaverse assets and they are open to using new technologies; The company is investing heavily in the required infrastructure; Brands experimenting in the metaverse found that customers were delighted.
The sheer scale caught the attention of CEOs. As the saying goes, "1 billion here, 1 billion there," and soon you're talking about real money — $5 trillion is a lot of money. For comparison, we estimate that annual spending to achieve net-zero greenhouse gas emissions is $3.5 trillion, while the cloud transformation of enterprises offers a $3 trillion market opportunity.
We dare to give such a big estimate of the potential of the metaverse because it is a combination of technology: it combines many of the top elements that the McKinsey Technology Council considered most promising this year, including artificial intelligence, immersive reality, advanced connectivity (5G/6G), and Web3.
This is the main reason for the interest of CEOs; Another reason is that the metaverse touches many aspects of a business, and the CEO is a natural integrator who can integrate the company's resources to deliver a consistent, value-driven response. With the support of the CEO, the metaverse is less likely to fall into a "pilot purgatory".
The metaverse is useful for both the consumer market and B2B
We construct valuations by thinking and analyzing emerging uses of the metaverse for consumers and businesses. Soon, the company may offer customers an unprecedented shopping experience in the metaverse, and it will become a 3D e-commerce channel. To understand the potential, we need to consider two largest and more advanced scenarios: consumer businesses and B2B companies.
Brand marketing and consumer engagement
Many companies have added the metaverse to their omnichannel marketing mix. The metaverse has carved out a niche in virtual worlds like Roblox, Fortnite, and The Sandbox, some of which have already been successful — Nike has welcomed more than 26 million visitors in Roblox's "Nikeland," sold more than $185 million in digital sneakers and similar products, and tripled revenue from its digital division to more than $10 billion, almost a quarter of the company's total revenue.
Now, many companies are facing the next wave of opportunities, including gamification, virtual reality (VR), and augmented reality (AR). Amazon has added AR features to its app, allowing customers to see how a product will look while sitting at home. IKEA did something similar, letting customers use AR tools to give their homes a 3D makeover.
Starbucks Odyssey, a metaverse upgrade to the company's robust loyalty program, shows the potential for "gamification." The company originally had a strong rewards program, and Odyssey added a new dimension: Members could visit coffee farms virtually, play a quiz game about the "Starbucks heritage," and play another game called "A Life of Starbucks"; Points unlock new experiences, like virtual instruction in making an espresso martini or even an "IRL" trip to a Costa Rican Alsacia coffee farm (if you dare, ask teens what IRL means, an online acronym for "In Real Life" that young people commonly use, meaning "in real life").
Digital twins
In the metaverse, every asset, process, or person within and related to an enterprise can be virtually replicated and connected to each other. As a result, almost all aspects of the work can be carried out digitally before physical implementation. By building digital twins (virtual copies of physical environments and objects in the metaverse and generating data in real time), richer analytics can be generated to improve decision-making.
Budweiser builds a digital twin of the supply chain and manufacturing industry, a tool that allows the brewing process of beer to be adjusted to the conditions of activity and helps avoid production bottlenecks; Siemens' plant in Nanjing did something similar, and before breaking ground, the company built a digital twin of the plant to avoid costly mistakes in the past, which the company said doubled production capacity and also helped stabilize operations, increasing productivity by 20 percent; BMW, Renault, Hyundai and many other automakers are also creating value through digital twins; Even professional athletes are using it, with Emirates New Zealand recently winning the America's Cup, in part through innovative digital twins.
As companies become more creative, more and more enterprise use cases are emerging. Corporate training is fertile ground, and Bank of America has launched a "immersive training" program that uses VR technology in every financial center in its network to teach bankers how to strengthen relationships with customers, handle difficult conversations, and practice empathy. Walmart found an unexpected use, and the company said its VR training helped one store save its business from a difficult situation.
What obstacles need to be broken through to the turning point of the metaverse?
Skeptics point out that technologies sometimes take a long time to reach their commercial potential, such as artificial intelligence, and even after a decades-long "AI winter", many analysts still believe that AI has not lived up to its potential, and more recently, advances in generative artificial intelligence have allowed skepticism to reappear, self-driving cars being another example.
Isn't there a similar risk of fate in the metaverse? In other words, where are we in the hype cycle? Is it now at the top of over-expectations, or is it in the trough of disillusionment?
In our view, the development of the metaverse is still a few years away from a real turning point (but that's not a reason not to prepare). Salesforce's Brian Solis recently told us that generational changes like Web 1.0, social media, and mobile "rarely happen overnight, they take years, and are the result of ever-advancing technology, changing consumer needs, and the accumulation of experimental cycles."
This also seems to be an apt description of the obstacles that the metaverse must overcome – technology is not ready to support the metaverse at scale: advances in 5G networks, edge computing, hardware and software must keep up (they are ongoing); Current users are mainly gamers and tech-savvy people, and businesses have to recruit other talent (our survey shows that they are very interested); Many transactions in the metaverse are conducted with cryptocurrencies, and we have also seen that encryption as a reliable and secure exchange system also has shortcomings; Finally, there is no connection between metaverse platforms such as Roblox, The Sandbox, etc., and an integrated, true metaverse still has a long way to go.
What can CEOs do now?
Both optimists and skeptics have solid evidence to support their views, but the "scales" of evidence may tilt slightly in favor of optimists. Of the 79% of the world's largest consumer goods companies, 71% already own shares in the metaverse, with the rest taking the risk of not having a plan; Companies in other industries are taking a closer look and making plans; A very small number of people will not be affected by the metaverse.
Investing even a little bit in the metaverse now seems to be in a strange economic cycle. But our research strongly suggests that adjusting balance sheets and investing in growth companies in a downturn will dominate the next cycle.
How a company plans the metaverse depends on the industry it is in. As shown in the previous chart, the metaverse is most likely to disrupt industries such as banking, manufacturing, media, professional services, retail, and telecommunications. CEOs in these industries can consider taking more decisive decisions than others.
There are three steps CEOs in other industries can take to ensure they have a seat on the "metaverse train" and prepare for the eventual takeoff of the metaverse.
Start with the "why."
The key question is not "What can we do in the metaverse?" And "Why is the metaverse a good fit for our growth and innovation agenda?" CEOs need to figure out how to incorporate metaverse factors into their current business models and what their customers are keen to do in the metaverse. As Rob Lowe of LEGO Branch Insurance told us, "Don't try to change your core goals to fit the metaverse."
Be practical: find the "what"
It's good to look for inspiration from the outside, but CEOs should also consider identifying practical use cases that fit into the company's strategy and prioritizing those use cases, then developing concepts, business cases, and roadmaps for those use cases. CEOs should take these efforts as seriously as anything else, and not dismiss them as gimmicks or publicity. Knowing that "this is a serious job" will help dispel skepticism within the organization.
Defending the cause: "How to do it"
The CEO can perform two functions: first, to set the vision; Second, select leaders for each use case and initiative; Testing and learning, and asking the right questions along the way, is critical to bridging the gap between expectations and outcomes.
Functional leaders can take the lead in undertaking these efforts to ensure that these initiatives are closely aligned with the functional agenda; It makes sense to pick someone to do the job on behalf of the "metaverse" function – several companies, including L'Oréal, have appointed a "chief metaverse officer," who usually reports to the CEO.
Senior leadership may also consider the required operating model and team setup, as many companies look to work with specialized vendors of hardware, software, and metaverse-related development services, such as VR design and development or game engines.
Conclusion: The real world is being plagued by war, COVID, inflation, and more, and the metaverse offers an "enhancement" that may be part of what drew millions of customers to the early metaverse. CEOs should make sure they meet with their customers at their location, whether they are virtual or physical.
About the author: This article is compiled by Homayoun Hatami, Managing Partner of Global Client Capabilities and Senior Partner of McKinsey's Paris office, where Eric Hazan is a Senior Partner. Hamza Khan is a partner in the London office. Kim Rants is an associate partner in the Copenhagen office. The authors thank Nikita Pillai and Adam Ridemar for their contributions to this article.
Interactive time: Do you think the metaverse is cold?