The summer vacations are on and Mike, our gen Z video game enthusiast, wants to go bowling with his friend in the Metaverse. Mike promptly dresses his avatar in a cool sweatshirt, smart looking pants, a nice funky cap, and some lovely neon shoes. Each of these fashion accessories (or “skin” as they call them in the metaverse) was bought by Mike using the crypto coins he had earned while winning the many levels in his favorite videogame. So, while he purchases the cool sweatshirt from Tommy Hilfiger virtual store, the fashionable pants were bought from Louis Vuitton while the sporty-looking caps and sneakers were from Nike.
The world has already stepped into the “experience economy” and innovators such as Mike and friends from his generation are taking this to the level of a new parallel economy. Hence “direct to avatar” is fast becoming a genuine, credible, and real avenue for enterprises to earn revenue.
After bowling for some time, another friend from Mike’s circle sends him invites and passes to a virtual concert, and a fashion-conscious Mike, gets back into his metaverse wardrobe to suitably dress his avatar for this concert. Each of these avenues becomes an opportunity for new business and by buying a band’s merchandise during the concert, Mike shows how deep these avenues can run.
Welcome to the world of “direct to avatar” which is a fast-emerging business model that engages in selling products and experiences directly to avatars (D2A) or digital identities without any reliance on supply chain management that normally happens in a physical shipment of a product.
Is direct to avatar (D2A) the future of direct-to-consumer (D2C)?
When direct-to-consumer gained traction, the real benefit it provided was to allow brands to enter the market directly — instead of relying on any middlemen. However, in reality, the D2C ecosystem still relies on scores of third parties for shipping, handling, and distributing. D2A will remove this “middle” layer of the friction that still exists for brands and rather allow brands to focus on creativity and product digitization to cater to this new economy.
Gartner predicts that by 2026, 25% of people will spend at least one hour per day in the Metaverse. As of today, already close to 3 billion people (mostly dominated by gen Z and Millennials) are spending a significant amount of time and money playing games. Almost all these games have their own currencies such as the Robux in Roblox, Fortnite Coins by Fortnite, etc., and they encourage players such as Mike to play, win, engage and buy these coins to unlock new avatar-centric experiences.
Therefore, gone are those days when some kids would save up every dollar by doing various chores or by working a summer job to buy those coveted sneakers or a jersey. In today’s day and age, children are asking their parents to get them Robux instead of physical money, so they can buy their favorite gamer’s skin in Roblox.
This is only set to go bigger from here.
Free games generated $20.6 billion in 2019. One of the biggest ones, League of Legends earned $1.5 billion in revenue from these skins in 2019. The other big name, Fortnite generated $1 billion of its total $2.4 billion from in-game skins on the avatar marketplace. Gamers want avatars, skins, and collectible content. This is all expected to reach $50 billion by the end of 2022 .
“Avatars are a direct reflection of a player’s identity, especially if they are created as digital twins,” opines Samantha G. Wolfe, NYU Adjunct Professor and Founder of PitchFWD. Therefore, the more invested users feel in their digital avatar, the more they would like to spend on dressing the avatar better. It is only virtual merchandise that the avatar is adorning but the digital purchase allows the user to live vicariously in his/her favorite fashion designer’s clothes andit is this experience that constitutes the foundation of the Avatar Economy.
How can brands succeed in the direct-to-avatar economy?
Direct to avatar marketing will need creative approaches to succeed. Marketing approaches used in physical and traditional marketing will not cut the ice here. How well the brands gamify the consumption experience, invite users to engage, and create native tokens and currencies to keep the experience specific to the ecosystem will determine the brands’ success in this new world. The table below outlines the key building blocks and the technology enablers ranging from game development as a stepping-stone to allowing users to engage and create customized avatars. Also hosting ‘big ticket’ events around the brand to provide vicarious experiences and powerful word of mouth.
Figure: Building blocks and technology enablers for D2A success
Let’s evaluate each of the building blocks:
- Gamified experiences: It is very important to gamify the product offering, bring in creativity, and add fun elements to the product or virtual store to drive engagement. A gamified experience plays with a user’s innate competitive spirit, acts as a motivation and triggers positive emotions. More and more brands are leveraging gamification as a lever to succeed in the metaverse. For example, Hyundai Motor Company debuted Hyundai Mobility Adventure, a metaverse gaming platform Roblox. Likewise, Louis Vuitton celebrated its 2nd centenary with “Louis the Game” where the phone app follows the protagonist, Vivienne, through six different worlds, where she needs to collect 200 candles to commemorate the birthday of Louis Vuitton. Gamification is a powerful success recipe in the metaverse. The gamification market was estimated to be worth $5.5 billion in 2018. By 2025, the global gamification sales revenue is estimated to reach $32 billion
- Avatar customization: According to a Statista survey, more than 74% of American adults are considering, building lives in the virtual world. Therefore, each one of them would have a virtual avatar as an identity. Providing the flexibility to create and customize avatars and just simply make it interactive enough for users to play around with their avatars and create something by being invested in it, improves “user affinity” with the avatar. This in turn triggers investment during the game toward dressing up the avatar, buying merchandise, etc., that engenders new business. So, avatar is a very important element of the direct-to-avatar success. Fashion brands like Gucci and Balenciaga are selling virtual fashion for avatars. The global metaverse market size is $47.48 Bn in 2022 and is poised to grow to $678.80 Bn by 2030, with a CAGR of 39.44%. Such growth of the ecosystem would mean a quantum leap of the avatars too, which are identities in the ecosystem and hence are a big part of customer engagement and growth
- Native commerce tokens to facilitate “in experience” transactions:Either leverage the blockchain to create your own branded cryptocurrency or create a cryptocurrency in an existing blockchain. Either way, it is important to have a branded currency with which users can transact on the metaverse. The first option of creating native cryptocurrencies is a costlier option. But once established, the coin can gain traction like the Robux (from Roblox) or The Sand (from the Sandbox) or the Mana (from the Decentraland). Then even crypto traders who aren’t necessarily interested in the core metaverse service being offered can still trade and dabble in the currency. This approach, therefore, allows the total customer base for the company. The Altcoin market has exploded like never before and having a branded currency native to the brand’s metaverse improves visibility and affinity of the brand loyalists. The cryptocurrency market industry size is expected to reach $2.2 billion by 2026 from $1.6 billion in 2021, at a CAGR of 7.1%. Though many Altcoins will come and go but for an established brand in the physical world, it will only help to have a native cryptocurrency as the brand’s physical visibility will rub off on the crypto coin, at least in the metaverse.
- Partnerships and associations are very important to succeed in the “direct to avatar” economy. This is because a lot of the innovators in the gaming industry such as Epic Games, Roblox, etc. already have an entrenched presence in the meta-universe which can be leveraged by brands looking to enter the ecosystem. For instance, the luxury fashion house, Balenciaga, entered the metaverse in late 2021 through a partnership with the video game makers Epic Games. The collaboration provided for “in game” skins and outfits for avatars in the Fortnite game, which boasts a staggering 350 million users worldwide. Likewise, Nike acquired the NFT studio RTFKT in 2021 as a tool to access the Metaverse. Gucci too partnered with Roblox in 2021. The result was Gucci Garden, a unique and interactive virtual exhibit. Thus, partnerships allow for instant exposure to the entrenched market on the metaverse.
- Leverage non-fungible tokens (NFT): NFTs are tokens used to represent ownership of unique items. Several celebrities like Reese Witherspoon, Eva Longoria, Serena Williams, etc., have used NFT profile pictures on Twitter. NFTs allow creators to tokenize things like art, collectibles, and even real estate. “Non-fungible” means it’s unique and can’t be replaced with something else. For example, currency is fungible — can exchange one $100 note for another. But NFTs are one of a kind and can be bought by users directly from the creators, hence having the special aura of something prized and unique. For every such NFT sold, creators can earn without depending on any intermediary. Therefore, NFTs can foster tradability, shareability, and scalability for a brand by enabling possessions and transactions. Many brands are leveraging NFTs well. For example, on the recent World Friendship Day, Coca-Cola released a “Loot Box” NFT which reimagines some of the brand’s iconic assets for the metaverse—with dynamic motion, movement and multisensorial elements—inspired by shared moments of friendship. The global NFT market size reached USD 340.0 Million in 2020 and is expected to register a rapid revenue CAGR in the forthcoming years.
- Host “big ticket” events for better visibility and word of mouth: Be it Travis Scott making waves with his Fortnite collaboration, using the entire open world as a stage to debut a new single to around 30 million people. Or Tomorrowland using the Unreal Engine to re-create their massive music festival with DJs streaming live from their homes to around 1 million people who bought tickets to the event. Again in the Gucci Open players can play with each other wearing Gucci dresses bought on the metaverse. Or Nike’s Nikeland inviting LeBron James during the NBA All-Star Week to inspire its community towards physical movement in play, big-ticket shows, and events makes the Gen Z customer base stick to the brand. They are an experience-seeking generation and do not shy away from spreading positive word of mouth. Hence, brands should surely engage in creating larger-than-life experiences within their metaverses for improved engagement and growth.
Direct to avatar economy has use cases beyond the gaming and fashion industry too
While the “open metaverse” that promotes D2A economy is born majorly from the gaming industry and is finding wide-spread applicability in the retail and fashion industry, its future extends to many more industries too. Enterprises need to add metaverse as a new channel as a part of their omni-channel strategy.
According to Ryan Gill, co-founder, and CEO of Crucible, “With D2A, things change. A good way to think of this is to imagine replacing an enterprise’s supply chain with design sprints and pre-visualization. Designing and prototyping everything in 3D allows the enterprise to share and review internally with stakeholders — then ship, market and sell without ever creating a product and distributing physically. The cost, scale, and speed at which the company can work would give the business a new life.”
Beyond gaming and fashion, the direct-to-avatar market can extend to real-time film production and distribution. Epic Games is undertaking some serious steps with their Unreal Engine. As a part of the recently announced “Unreal Fellowship”, they are offering a 30-day intensive blended learning experience, structured to support experienced movie industry professionals in film, animation, and VFX. They can get hands-on training on the Unreal Engine to foster the generation of teams in the field of real-time production. It wouldn’t be improbable to visualize a day when people will buy tickets to watch films produced and distributed completely in Unreal Engine, at an in-world theater, through the eyes of their avatar.How cool will that be!
Likewise, the education industry is set to see some remarkable improvements through these game engines. A world that’s pressured by expensive overheads and limited classrooms with overworked and underpaid teachers can clearly be motivated by the virtual campus that Axon Park has created with an expanded VR course catalog of over 20 different categories. Leveraging VR, learners can teleport into the digital campus where they can then explore many categories of courses to learn. This is an exciting example of how direct to avatar can influence the education sector.
Further, avatars are not only consumers who buy merchandise or fashion accessories, they can also become conduits to new metaverse solutions. Of course, the solutions are being built by real users, but it is the avatars who are the face of any virtual solution. Hence, the D2A economy is not only consuming, but it can also be a producing economy. Production in the form of new creatives, new NFTs, new development, and new content generated using a metaverse’s native tools. Roblox, for instance is willing to pay out about $250 million to their mostly teen developers making things with their tools.
Security on metaverse will be key to the D2A economy
Metaverse is still at its genesis and already concerns are being raised about potential security loopholes that could drain away its usefulness. One concern being raised is that of “avatar impersonation”- a kind of potential identity theft on metaverse, where an unwanted element can hack into the metaverse and manipulate the avatars for shady gains. To combat this, experts are mulling building biometrics into the hardware so that the VR headset can recognize and record the iris of the person and associate it with his/her avatar to prevent such social engineering.
Invisible avatar eavesdropping is another potential security breach that’s coming to the fore where disruptive elements may invisibly join meetings and listen to the conversations. Most recently Facebook identified a few users complain of sexual harassment on the metaverse. So they brought about the “personal boundary” tool to make users feel like they have nearly four feet between their virtual avatar and others when they access the immersive Horizon Worlds and Horizon Venues apps through VR headsets.
As the ecosystem expands, it is equally important for cyber security experts to conceptualize potential security threats and create mitigation measures for each to make the metaverse as safe and secure as possible.
Most of the Gen Z population is in their mid-20s. They are a digitally native generation and identify more with the virtual world than with the physical world. As the world ages and web3.0 takes over, the human identities would become split and enhanced by digital media. On the metaverse, users can switch into the kind of person they want to be. It's an escape, a place of intrigue, and an opportunity for brands to expand their reach and visibility. Simply limiting the physical market is no more a wise thing to do, especially when there’s a parallel economy brewing. Being at a nascent stage, this is the right time to enter this parallel market. This is the direct-to-avatar economy. The future of digital goods has arrived. The time of digital models has arrived.
It is game on from here. Moving ahead, brands and enterprises will need to see physical and digital markets equally and would need to up their phygital game to service the consumer of tomorrow where they are today!