Metaverse Article II:
It’s the holiday season. So as investors we naturally think of the American consumer. The holiday season is home to a large chunk of consumer spending and is an excellent barometer of the overall health of the American consumer. In other words, we think about what people spent money on and how they went about shopping.
On that note, holiday sales increased dramatically in 2021. Retail data has exceeded expectations: The American consumer is healthy, spending money, and enjoying giving gifts this time of year. the year. They are also increasingly buying these gifts on digital media and buying digital gifts. We expect this trend to continue, especially with the expansion of the metaverse and digitization more widely. Younger generations are also much more comfortable with digital spending; Digital spending is expected to increase as millennials’ earning power increases and wealth transfers to millennials begin to accelerate.
History of digitization:
Over the past two decades, we’ve shifted from shopping in-store to shopping online and shopping on our phones on the go. Logistics networks have evolved to deliver packages to the warehouse doors in a few days, or even a few hours. The mall experience has become a home experience, and the home experience is increasingly becoming an online or digital experience. Not only are we buying physical goods online, but we’re also now starting to spend more of our wallet on digital goods – or even forget about digital goods – just digital leases or subscriptions.
For example, watch the change in video and audio. Twenty years ago, we spent time in Blockbuster choosing movies. We bought DVDs for the house, and when a new album came out, we had to go buy the record or the CD. Then the disruption started. You can buy books on Amazon instead of going to the store and you can buy songs for your iPod on iTunes, a digital download.
Today things have changed again. In fact, you don’t buy movies or songs anymore – you don’t even own them anymore. Instead, you have a digital subscription to listen to as many songs as you want in the world of music using Spotify or Apple Music.
The same patterns repeated themselves across different categories of consumers – physical purchases became digital downloads, and in some cases digital downloads became streaming access or membership access. It happened through music, entertainment, games, etc. The same theme is apparent in the sharing economy with AirBNB
The future of consumption:
Going forward, we expect continued sharing, more home shopping, and increased spending in digital environments. The first two are pretty straightforward – sharing savings make sense for limited-use items like cars – you would normally drive your car an hour or two a day and leave it idle more than 90% of the time – why own that when you could share this. The same goes for home shopping – the convenience factor pretty much trumps anything the physical experience has to offer.
But spending in digital environments, a shift in consumption from physical goods to digital goods, we believe there are incredible opportunities in this space. The power of the American consumer will shift from buying physical items to purchasing goods in the metaverse and other digital spaces – this is an investment opportunity that we want to be a part of.
In order to invest, we need to understand certain things. First, why are they spending money in the Metaverse. Second, what will people be spending their money on. Third and finally, how will technological changes change shopping experiences on all platforms.
Consumption in the metaverse is a matter of expression and network effects. Unlike the individually oriented fads of the past, the Tamagotchi or the Webkinz, the new era of meta-expression is based on the posture of your peers (look at the success of Instragram or Tik Tok influencers!)
People can use the Metaverse to find like-minded people or explore a different lifestyle than they would explore in the real world. They can meet and explore digital spaces, participate in events and express their creativity.
As the digital world takes an increasingly important place in our lives, the amount spent on expression in these digital spaces is expected to increase accordingly. The companies that excel in the metaverse are the ones that understand how people want to express themselves and what they’re willing to pay for it.
There are many types of digital spending that people can engage in. Digital expression can take many forms and the intersection between digital and physical expression will fade a lot over the next few years. This can happen in several ways.
One way is the dual-sale / hybrid version of consumption. Physical sales will increasingly be tied to a corresponding digital product. A new pair of Nike sneakers, for example, can not only be a shoe in your closet, but can also come with a non-fungible token (NFT) for a single pair of Nike in select digital metavers. If this is a particularly collectable pair of Nikes, the digital token could also serve as a guarantor of authenticity and make the ownership rights of the collectible much more transparent. This type of dual platform not only makes it easier to collect items, but also makes it easier to transport self-expression from the physical world to the metaverse.
Another avenue of self-expression within the metaverse is to purchase purely digital assets. Right now, these take various forms – NFT, access to events, or rights to different goods within environments – but all of these methods go to the same place – more time in the metaverse.
Art collections that are sold digitally essentially recognize that in the future the way art will be perceived will be digital rather than in person. Visiting an art museum physically can be cool, but why not visit an art museum in the Metaverse and see a wide variety of different art forms from all over the world? A decade ago this wouldn’t have been practical – the load times would have been too long, your screen resolution wouldn’t have been high enough to view it, but in the future you will be able to don VR glasses. and immerse yourself in art collections with sumptuous details. New artistic creations can be sold, traded and displayed in the metaverse and a physical copy of the work may not even exist.
You can use the same experience just described for art and museum visit and apply it to sporting events, performances, and shows of all kinds. You can also take the collector / owner template from the virtual art gallery and apply it to any number of collectibles, from fine art and trading cards to sports reels, status objects or add-ons for specific platforms.
Additionally, platform-specific digital goods will become increasingly valuable as people spend more time expressing themselves on these platforms. Ownership of different items represents certain tastes or claims a certain status.
Luxury goods manufacturers like LMVH are well aware of the potential new market. Just as people buy high end handbags and famous brands in the physical world to claim status, people will slowly define status items in the digital world. Luxury brands are jumping onto new virtual platforms in an attempt to establish themselves. Just as there are particular items or decorative skins that generate value in particular video games, there will also be indicators of particular value in the various multiverses.
Video game makers like Activision have been used to these habits for a long time – new skins, new items, new maps, or new terrains, have all generated extra revenue for a while. Expand the circumstances from a specific gaming environment to an open world environment where the status is broader and the variety of items people buy will increase.
The changes technology brings to the consumer experience are not limited to the metaverse itself. Improvements to the way we shop for physical goods online will also be a big part of the changes we’ll see over the next decade. Instead of scrolling through product page after page, consumers will be able to experience 3D virtualizations and interact with products in a different way. Virtualized shopping means stores on platforms like Shopify or Etsy can add more personalization and flare, and then the products themselves become more personalized or specialized. Digitalization and personalization go hand in hand.
Beyond shopping, virtualization extends to many other uses that we will discuss in more detail in future articles. Think about finding an apartment, buying a house, and designing work. Thinking about a new addition to your home or doing some landscaping? See what it will look like, browse it, see it from all angles before you sign the contract. The opportunities are endless!