The Metaverse is a concept unfathomable to those who lived just 50 years ago. Coined by Neal Stephenson in his 1992 science fiction novel “Snow Crash”, the metaverse has transcended its fictional origins to become the future of communication and digital markets.
The metaverse is defined as a non-physical virtual world wherein users interact; experiences made possible through sensory- and 3D-technology. In this context, we define experiences as the virtual environment and events that users interact with in a metaverse server. The metaverse exists in many forms, such as the games Minecraft, Fortnite, or Second Life. A big player in the metaverse field is Meta, formerly known as Facebook and founded by Mark Zuckerberg. Through bold strategic moves, Meta announced the creation of its metaverse, “Horizon Worlds”, operating in a fully VR environment. Furthermore, Meta had also penetrated the hardware market for metaverse apps to be run by acquiring Oculus and launching the Meta Quest VR headsets. The introduction of Meta’s metaverse plans led to an initial stock plummet of 70% in 2022 due to uncertainty surrounding the metaverse’s viability and substantial investment expenses. Zuckerberg has since reimagined the metaverse as “the next evolution in social connection and the successor to the mobile internet” with growing success in mainstream digital services and communications markets. As of 2023, Meta Quest has a rising user base of over 400 million, along with a 300% rebound in its stocks. The Meta Quest is in the growth stage of its product life cycle. Another prominent player in the metaverse industry is Roblox, with over 40 million experiences, 70 million daily active users, and a net worth of $23 billion. Roblox is available on all platforms and is also accessible through the Meta Quest VR environment. The Metaverse is coming to fruition, bringing new markets such as NFTs, digital real estate, and cryptocurrencies.
Background Information
Many different metaverses can be joined from any device. Smartphones, tablets, and computers were the standard method of accessing virtual environments; however, Meta has popularized VR and their association with the metaverse. Horizon Worlds is accessible through a Meta Quest headset, a hardware device designed for VR interactions. Originally owned by Oculus, the VR headset developer was acquired by Meta in 2014 for $2 billion. The user wearing the headset is able to interact with a digital environment due to sound and sensory technology. Movement in VR is made possible with two handheld controllers and a digital avatar. The VR headset allows the user to access many different metaverse applications. The most prominent activities include gaming, experiencing and exploring environments, watching movies, purchasing products or NFTs, exercising, social media, art, and work activities. The most popular apps in the Meta Quest platform consist of social media and games, or a combination of both.
The top eight Meta Quest applications, as of 2024.
Many other business sectors such as the Healthcare, Education, and Construction industries are investing in Meta, reflecting the potential of the technology tool to improve society. The common reason is that VR allows for realistic simulations, which can be used for a broad range of activities such as planning projects, training employees, providing stress relief therapy, and creating immersive educational environments to increase the effectiveness of learning. The primary demographics include 47% of users aged 18-34, 47% being 35-54 and 6% being 55-64 years of age. Approximately 60% are male and 40% female. 49% of VR headset users own one at home, while others visit family’s houses or VR parks to use VR.
Currencies in the Metaverse
Metaverse Digital Currencies
Metaverse currencies consist largely of digital and cryptocurrencies. Digital currencies are a currency type that lacks a physical form and are controlled centrally by specific organizations. For example, Robux from the game Roblox is in the top 10 most-played games in the Metaverse. Users can exchange Robux for non-physical cosmetic items, games, land, and experiences. Many video games utilize digital currencies for real currency to digital currency conversions, to receive purchases from customers.
Roblox converts dollar prices into the digital currency of “Robux”.
Metaverse Cryptocurrencies
Cryptocurrencies are defined as decentralized, virtual currencies that operate on a blockchain. The leading cryptocurrencies include Internet Computer (ICP), Stacks (STX), Axie Infinity (AXS), The Sandbox (SAND), etc. Cryptocurrencies help exchange NFTs. NFTs allow for ownership of digital items, such as art, games, and songs. Cryptocurrency and blockchains allow for recorded transactions to be more accurate.
Metaverse Markets
Consumer Culture and Digital Products
Why do consumers spend money on virtual products that serve no physical function? How can they be valuable or useful? The answer lies in Consumer Culture Theory (CCT) and the popularization of video games and avatar customization. The Metaverse offers endless experiences that are impossible in the physical world, from using magic powers to slaying dragons. Within these interesting and growing numbers of experiences, individuals aim to express themselves by crafting avatars that mirror their style. According to Consumer Culture Theory, emotional factors such as gratification derived from purchases lead customers to purchase non-physical, functionally “useless” products. Prestige perception and a desire to be unique also play a role in the consumption of digital products. Furthermore, the network effect is prevalent, defined as the value of products increasing as more users use compatible products. As more users are on the metaverse, metaverse products and one’s avatar customization becomes more valuable.
Businesses Selling Products
The metaverse has become a method for businesses to sell digital products, as a primary or secondary purpose, and utilize digital currencies or cryptocurrencies. Many corporations can also leverage metaverse platforms to advertise, increase brand awareness, and reach new customer segments. Monetizing metaverses is done in many ways, for example, limiting access to a metaverse with a one-off payment, or making the metaverse free with in-app purchases and subscriptions. NFT products may also be exchanged with big success, for example, in the case of Nike. Nike launched its NFT shoes after acquiring NFT manufacturers such as RTFKT. It had released 20,000 NFT shoes for the Metaverse. As of May 2024, RTFKT has stopped sales for Nike shoes, increasing their rarity and value. On Opensea, the Nike shoes can be exchanged for the cryptocurrency, Ether, at sales prices ranging from the highest sale performed by Nike at 45 ETH ($134,000) to as low as 0.00097 ETH ($28.56) depending on the time of sale and style of NFT shoe. The advantage of using NFTs is the authentication system combating counterfeit products. This is done through the use of an NFC tag, which is a tag or chip attached to a smartphone that verifies the virtual shoes are authentic and not counterfeit 3d products replicated by another brand. Markets are not limited to NFTs or 3d products; experiences are also a prominent market in the form of the intangible value of memories. NIKELAND was launched on Roblox, a video game on the metaverse. This is an effective business strategy, as the demographics of VR games consist largely of the youth. NIKELAND can create positive brand associations through enjoyable experiences, creating nostalgic value that will likely influence customer purchasing behavior as they mature. Other brands such as Forever 21, Gucci, and Hyundai have employed similar strategies, building metaverses to reach the global demographic and create unique experiences to market their brands.
The Metaverse Real Estate Industry
The virtual world is technically limitless; however, several large corporations have created virtual environments. These specific virtual environments have limited spaces and are distinct in their branding. The companies operate their cryptocurrency, which can then be used to buy and sell the limited land spaces. With blockchain technologies, they track land owned by specific users. On the land space, 3d models can render realistic or cartoon-like environments and buildings. The largest transaction of digital real estate was performed by Republic Realm, who invested $4.3 million into Sandbox (SAND) beating the earlier record of $2.43 million invested by Metaverse Group into Decentraland (MANA). By limiting the land to be purchased, the metaverses increase the property value of their virtual environments.
Sandbox (SAND) permanently limits the amount of land in their metaverse to 166,464 LANDS.
Similarly to the real world, the more user traffic in certain areas in the metaverse, the greater the property value price. Furthermore, more users increase the value of products due to the network effect. Investors predict that capital appreciation will occur as the metaverse gains a growing number of users, and thus the real estate can later be sold for a much higher price. Furthermore, many buildings can be built on the virtual land, such as a mall in which businesses can showcase and sell their NFTs, concert areas for virtual events, offices for online meetings, etc. Investors may aim to “rent” these virtual environments to companies for commercial purposes to recover losses. Although the real estate market in the metaverse remains largely speculative, it has significant potential.
Implications of Intangible Products
The line between tangible and intangible products has been blurred due to the metaverse. Goods are traditionally viewed as physical manufactured objects, while services are intangible skills that are purchased. However, technology has altered this definition. Digital products such as virtual shoes cannot be classified as services; they are goods, but they are non-physical.
A better definition would be that goods are commercial units in the form of a digital or physical object, with transferable ownership. Services encompass skills, labor, and value-adding processes, which can manifest as digital or physical experiences, and are produced and consumed simultaneously. To classify a distinction between the two, we label intangible goods as digital cosmetics, NFTs, and virtual real estate, whereas intangible services are metaverse experiences.
The value of intangible products is generally difficult to predict. However, the value of digital products can be controlled. In the metaverse, experiences are usually quantified with a rigid one-off access price or have in-app purchases. Intangible goods such as NFTs, digital cosmetics, or real estate are technically unlimited, however, as shown in the case of Sandbox (SAND), companies must limit quantities to increase value. Luxurious goods consist of the most rare and popular NFT products or land spaces or in the context of experiences, the ones of greatest quality and with the highest access price. Digital products can be easily altered in quantity and can be customized and produced at low costs. Products are instantly delivered, and there are few pollution concerns for digital products. Services form the basis of value in the metaverse, as customers’ primary purpose is to experience virtual worlds, and cosmetics or real estate are purchased as a supplement.
All things considered, the metaverse is massively risky but has the potential to reap great rewards. Paradoxically, despite the conceptual limitlessness of the metaverse, the commercial aspect demands limitations to be placed on land or NFT quantities to create value. Other factors increasing the value include the network effects and “hype” marketing strategies. To ensure success in conducting business in the metaverse, corporations must develop captivating and immersive experiences that users perceive as worthy of investment. Initial skepticism for crypto investing is giving way to acceptance as cryptocurrencies are further substantiated within the metaverse.
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