Monetising the Metaverse: Web3 business models and the economy of the future
We were at a bar in Trafalgar square, sipping decent champagne and munching on truffle fries. Burberry just announced their Minecraft collection.
“Why would you want a digital Burberry coat?” Ben said, shaking his head. Ben ran a pharmaceutical debt fund in London, a darling among institutional investors who craved yield at low risk.
He was old money.
I frowned, “For the same reason you’d want one in real life.”
“But you don’t need a coat in the metaverse,” he pushed. I was a bit surprised. Given his attire he was well placed to understand the value of apparel beyond utility, and that’s ultimately what the virtual goods debate is about.
“Why did you buy that watch Ben?” I asked. He glanced at his Omega timepiece collectible. Suddenly self concious.
“I don’t know, everyone at work has these ludacris things.” He shrugged.
“Exactly. You didn’t buy it because you needed to tell the time. You bought it to communicate your status, the fact you’ve seen success in your life and likely will again, to signal belonging to a certain type of group.”
“I guess.” He looked away.
No one buys a Burberry coat IRL because they need a coat. They buy a Burberry coat because they want to communicate their taste, demonstrate their affluence, or pledge belonging to a particular group of people.
And that desire holds just as true for virtual goods as it does for physical ones.
In fact a virtual Burberry coat may offer more value than a real one. A heavily used Burberry coat purchased IRL may get 45 min of wear 5x per week for 3 months of the year. Perhaps to/from a night out on the weekend. Or to/from the office a couple days a week in the 3 months of the year where it’s weather appropriate. That’s a heavily used Burberry coat. But I’ve yet to see one be heavily used IRL. Most of the time they sit in the clsoet.
In the Metaverse, we may well use that coat 3–4 hours per day, 7 days a week, year round. Ownership of that coat may get us invites to special events or allow us to access special brand experiences or enable us to find other users who have that very same item. Talk about value.
Which got me thinking.
Making money in the metaverse
Each technology cycle brings with it the evolution of business models. Fundamentally, there’s B2B and D2C, but the mechanics and implementation adapts with the technology that delivers it. After all TV ad sales, digital ad sales, and metaverse ad sales are still, in effect, ad sales. But the manner in which the model is executed and the value it provides evolves.
Metaverse is the evolution of the platform, taking us further on the journey from traditional media to social media to immersive media. And so our business models too are on the same journey, evolving to reflect the increasingly immersive worlds we execute them in.
We will try many things along the way, some of which will prove revolutionary, other which will be valuable and others still which will fall apart. But we have a healthy ecosystem to build upon. Three sided markets — users, creators, brands — present value creation opportunities in infinitely evolving ways and we’re still scratching to surface.
For now, there’s 5 major monetisation models in play that will continue to evolve over the coming decade:
1. Avatar marketplaces
As the hours we spend in metaverse experiences increases, so will our appetite for digital goods that allow us to build our digital identities. This creates opportunities for community creators to create digital assets for both personal use and marketplace sale. It also creates a model for brands to sell or gift virtual goods that allow community members to showcase their tastes and identify brand affiliation. This allows users and brands to monetize their contributions to the ecosystem. The platform would take a small percentage fee to facilitate the exchange and transaction, much like traditional payments networks currently do.
The creator captures the transaction value, the platform may take a transaction fee, and the user benefits from the digital good.
Platforms such as Roblox, The Sandbox, Minecraft, Decentraland and Reddit facilitate these transactions already. And it’s not a pipedream — quite the opposite, it’s proving to be both a monetisation vehicle as well as an engagement driver:
“Millions of people come to the [Roblox] Marketplace every day to experiment with new looks and try on different personas — sometimes even multiple times a day. With the launch of Layered Clothing in April, we took self-expression to the next level, giving people even more ways to show off their style. One hundred fifteen million people have tried out Layered Clothing so far.” — Daniel Sturman, Roblox Chief Technology Officer & Manuel Bronstein, Roblox Chief Product Officer, Roblox Developer Confrence statement
2. Brand experiences
The younger demographics associated with metaverse platforms are attractive to advertisers. After all, we carry brand relationships developed early in life into adulthood. Remember choosing between Pepsi or Coke as a teen? Chances are you choose the same way today.
The advantage of brand activations in the Metaverse is the opt-in nature of engagement and the immersive experience. Being shown a Vans ad in the middle of a South Park episode or while you scroll through Instagram reels is interruption based (push) and garners seconds of engagement. Choosing to enter Vans World on Roblox to have a skate park experience builds a destination (pull) and delivers 15–20 minutes of engagement.
Roblox has over 100+ brand activations on the platform already, including virtual goods, digital experiences, limited time events and permanent spaces. The Sandbox has been dubbed one of Ad Age magazine’s hottest brands thanks to the innovative work it’s doing with brand partners.
One of the biggest pushbacks of these activations is that platforms have limited DAUs, and while this may be true there is also strategic value in experimenting with evolving formats.
“It’s a fertile palette for creative exploration even though its relative scale [today] is likely to be limited,” said Andrew Frank, vice president and analyst at Gartner, in emailed comments around the Roblox news.
If you want more on brand activations, this roundup is a good place to start.
3. NFT marketplaces
Facilitating exchange of digital goods that go beyond the avatar is an extension of the marketplace model. Both user/community created artefacts as well as branded NFT drops pose opportunities. The Sandbox has focused on enabling artists and creators to go beyond avatar assets and create exhibitions, showcases and performances in the Metaverse curated by NFTs. It’s also created infrastructure to allow NFT owners to display their collections and share with their friends. An NFT marketplace can curate new artists, facilitate listings, enable secondary market transactions, and act as storage and display facilities.
4. Land Sales
Despite the dramatic evolution of the internet and it’s impact on business models, the simple laws of supply and demand still govern most economic opportunities. Digital land, theoretically, can be infinite. But value from digital land doesn’t come from the parcel itself, but rather from it’s location and surroundings. This creates two opportunities: proximity and memorability.
On proximity. We want to be where others are and a booming land market will be driven by securing quality land owners which increase the value of the surrounding land. Much like when a Chanel drops in a shop on the high street and the surrounding real estate value goes up, so digital land values swell when celebrities such as Snoop Dogg snag a spot. Digital immersive experiences change the nature of browsing and exploring. The idling common in high street shopping experiences or department stores like Selfridges will move online and proximity to other high value real estate will matter for discoverability. Sure if you’re Gucci on a platform with 100 brands, it’s easy to get found. But fast forward to a world where every brand, retailer, musician, DIY store, toilet paper brand, and charity has a digital immersive presence — the fight for attention will be more intense than it is today and wandering down the Metaverse high street becomes the equivalent of the social media scroll.
On memorability. While it’s true that in a digital world you can instantly go from point A to point B, to do that first you need to know where to go. The best analog for thinking about digital land plots is domain names. In the digital world you want your destination to be visible and memorable. Perhaps it’s not surprising that plots with coordinates like (10,10) or (50,50) have attracted large values.
“In the metaverse, you want to be the first thing that people see, the first thing that people will go to,” — Mitchell Goldberg, a PhD candidate studying decentralized finance at the University of Basel.
5. Ticketed events and experiences
The true test of the Metaverse is whether we’ll be able to deliver truly synchronised virtual experiences. The economic opportunity in facilitating sporting events, concerts, theatre performances, conferences, and festivals in the metaverse is among the most meaningful. Both from a revenue and user perspective, these are the use cases that matter most. The coming together and mass interaction of thousands, hundreds of thousands, millions of people in a shared experience.
Decentraland’s Music Festival was last weekend.
Warner brothers is building a music themed world to host concerts in The Sandbox.
Fortnite’s infamous Marshmellow concert in 2019 was enjoyed by 11M users.
While this signals momentum, the infrastructure to deliver shared and synchrnous experiences in high fidelity is still in development. Both connectivity and architecture have a long way to go. The ability to develop these experiences beyond concept tests and into realisable revenue streams is far on the horizon.
“Consider Fortnite’s 2019 Marshmello concert. An astounding 11M people experienced the event in real time. However, they did not do so together. In truth, there were more than 100,000 instances of the Marshmello concert, all of which were slightly out of sync and capped at 100 players per instance. Epic can probably do more than this today, but not into several hundred, let alone millions.” — Matthew Ball, The Metaverse: What It Is, Where to Find it, and Who Will Build It
That said, the opportunity here is both material and exciting, and the time to be experimenting with models, building out the real estate and investing in infrastructure and capabilities is now.
6. Subscription
While platforms such as Roblox, Decentraland and The Sandbox have been built on the premise of free access, as these platforms struggle with the cold start problem of growing user bases and capabilities from virtually 0. But that’s not the only available model.
Minecraft, an early metaverse experience build around mass collaboration, is priced at $5.59/month. Fortnite and World of Warcraft, two leading massive multiplayer online experiences, will set you back $11.99 and $9.99 respectively on a rolling monthly basis. While you may argue these are gaming experiences, the worlds they have built are indeed the closest thing we have to a functioning Metaverse.
Take World of Warcraft, a game that shifted from classic human vs computer format to MMPORG in 2004, is home to a self governing economy, profession system for generating value and utility in-game, whole cities and transportation networks, collaboration tools used to organise groups of strangers to achieve complex goals, and social features such as fishing tournaments and fairground games. These platforms also boast fully functioning full body avatars, emotes, and collectible apparel sets that can be purchased or earned through in game activities. Not to mention three dimensional sound. It’s no surprise Microsoft swooped up Blizzard Activision, owners of WOW, for $68 billion in early 2022.
Extending the Warcraft or Fornite universes into premium social, professional or branded experiences is the most likely destiny of these worlds. This will introduce a new level of rigour and competition as we chart deeper into unfamiliar waters.
I’m Jo. I’ve spent 15 years working in entertainment, and write about the evolution of tech and media. Follow me for more on Web3, growth strategy, and future business models.
