The Metaverse Mall: From Science Fiction to Retail Reality
Senior Vice President, Venture Investing, Citi Ventures
HIGHLIGHTS
- Hailed by many as the “immersive Internet of the future,” the metaverse is a three-dimensional, virtual world where avatars of real people can interact with each other and their digital environment.
- E-commerce is among the early drivers of the metaverse, with virtual retail stores and performance venues paving the way for the emergence of “metaverse malls.”
- Currently powered largely by cryptocurrencies and decentralized finance (DeFi) solutions, the metaverse offers banks such as Citi myriad opportunities to deliver digital products and services and better understand changing consumer needs.
Three decades ago, the metaverse was a work of fiction: a three-dimensional, virtual world where avatars of real people interacted with each other and their digital environment. Today, it’s a red-hot topic in the headlines of every major news outlet, from Vanity Fair to the Wall Street Journal. Tomorrow, it may be where you shop, are entertained, and hang out with friends.
Coined by sci-fi author Neal Stephenson and popularized through online games such as Fortnite, Roblox, and Second Life, the metaverse is being hailed by many in the tech industry as the immersive Internet of the future.
Though the metaverse presents opportunities for a wide range of digital social interactions, one of its first major use cases may well be in the realm of e-commerce. Many leading retailers are betting that it will soon become an e-commerce hub, and high-end apparel and cosmetic brands such as Balenciaga and Gucci are already designing virtual outfits and accessories for avatars of Fortnite players and Roblox denizens. Many of these digital assets cost real money, and some are even displayed in virtual stores modeled after the brands’ brick-and-mortar boutiques.
This merger of the physical and virtual retail experience is leading many in the tech, social media, and retail worlds to envision the next frontier of e-commerce: the metaverse mall.
The Metaverse Mall
As the metaverse evolves from a set of discrete virtual environments into a limitless, borderless digital world, the stage is being set for seamless, immersive online shopping experiences that blend the immediacy of in-store retail with the convenience of e-commerce.
In a metaverse mall, for example, your avatar might wander into a virtual sporting goods store, try on a pair of skis, and be transported to Mont Blanc to take them out on the slopes. From there, it might catch a monorail to a theater and take a front-row seat for a concert or movie: ViacomCBS is exploring how to “take its entire canon…into mixed reality to be consumed on next-gen immersive displays,” and popular recording artists including Lil Nas X and Ariana Grande have performed in front of massive audiences in the metaverse, earning millions of dollars in revenue.
Blockchain and cryptocurrencies are the building blocks of the metaverse mall. Non-fungible tokens (NFTs) make it easier to buy and sell digital products, because they can certify that these items—from digital art to virtual real estate—are one-of-a-kind. That has enabled the emergence of metaverse mall landlords: decentralized commerce company Boson Protocol recently paid $704,000 for a plot on the blockchain platform Decentraland where people can buy digital assets that are exchangeable for physical goods and services. Sotheby’s Auction House, an early tenant, has established a digital duplicate of its London galleries for artists to sell their unique digital works.
The Metaverse Mall and the Evolution of E-Commerce
The metaverse mall can be thought of as the evolution of the Direct-to-Consumer (D2C) e-commerce model from selling physical products digitally to selling digital products and curating virtual experiences. In the so-called “Direct-to-Avatar (D2A)” economy, brands across industries are selling digital fashion, art, collectibles, and other products to avatars inside and outside the gaming environment. The social networking app Zepeto allows users to dress their avatars in Gucci and Ralph Lauren, and avatar creator Genies is working on a universal avatar system that can be used across an open metaverse.
In a sign of how fast things move in the metaverse, the D2A economy may soon evolve to a “Direct-to-Metahuman (D2M)” model. Here, consumers will see a digital twin of themselves try on clothes to check the fit and the look. They can then purchase the physical item for themselves as well as a virtual version for their metahuman twin to wear. A potential precursor to this, DressX, sells digital-only clothes that users can “wear” in photos and videos they share across various digital platforms.
Like social media before it, the metaverse will have a massive impact on marketing as it enables ever-more immersive, engaging brand experiences. “Younger generations live in a fluid digital world in which the boundaries between their physical and online lives have converged,” says Michaela Larosse of The Fabricant, the world's first digital fashion house. “Dressing up their digital self to hang out on digital platforms is real life for them.”
Source: Citi Ventures
Banking the Metaverse
As metaverse expert Matthew Ball writes, “The success of [the metaverse] depends on whether [it] has…a thriving economy: competition and a constant cycle of disruption and displacement, a large number of profitable enterprises…capital mobility, [and] strong consumer spending.” Driving an economy expected to reach $800 billion in a few years, the metaverse will need massive technological infrastructure—including finance and commerce systems. The traditional banking sector is currently absent from the metaverse, however, leaving decentralized finance (DeFi) solutions to fill the vacuum.
This creates a tremendous opportunity for large banks such as Citi to “bank the metaverse” by:
- Supporting corporate builders of the metaverse with financing options
- Embedding fintech solutions into the metaverse experience
- Participating in payments and lending flows
- Opening virtual bank branches
While all these possibilities are ripe for exploration, the most immediate opportunity the metaverse presents may be the chance to better understand changes in:
- Customer behavior and interaction: According to a recent consumer insights report, “Roughly 69% of Gen Z and 70% of Millennial consumers reported spending money on games, [and] half of Gen Z gamers claim to use games to hang out without playing the main game.” Establishing a presence in the metaverse could be key to meeting these people—and the companies that serve them—where they are.
- Digital currencies: The metaverse is enabling the use of blockchain-based digital currencies. For example, Decentraland leverages an Ethereum-based cryptocurrency called MANA for its virtual real estate transactions. As the ecosystem of digital currencies continues to develop, there will be many opportunities for payments providers to help it grow and to play various roles within it.
- Virtual Collaboration: As noted in a recent Fintech Futures article, South Korea’s Kookmin Bank has created a metaverse space called KB Financial Town where its remote and onsite employees can communicate. With workplaces shifting toward permanent hybrid-work models, the metaverse could provide a new gathering place for colleagues.
Both economically and socially, the metaverse is poised to have an enormous impact on businesses and consumers in the years to come. And it all may start with e-commerce down at the metaverse mall.
Read Jelena’s full Metaverse Mall article in the Citi GPS Disruptive Innovations VIII report, and stay tuned for more on the metaverse from Citi Ventures in 2022.
For more on DLT, digital assets, and the metaverse, click here.