Written By: Srinivas Pingali and Shankar Prakash Professors of Practice at IIM Udaipur.
Microsoft recently announced the $68.7 billion acquisition of games company Activision Blizzard. Gucci is building its brand among a younger audience by hosting the Gucci Garden on the gaming platform Roblox. Samsung launches Samsung 837X, a metaverse version of its flagship NYC store in Decentraland. These are just some examples of retail brands and technology companies that have forayed into the metaverse in the last year.
Retail and Metaverse
Retail has evolved globally over the last decade – from single-channel physical stores to multi-channel that incorporated online and eCommerce options. The last few years saw the rise of omnichannel retail, which provided consumers with a seamless experience across channels. Are metaverse based metamarts the next phase of this evolution?
So, what is metaverse? Is it something new? Simply put, the metaverse is a three-dimensional version of the internet. Virtual representations of people referred to as avatars can interact with other avatars and digital objects. In this virtual world, individuals can work, shop, travel, play, and interact, replicating all the physical world activities.
A combination of digital technologies, including augmented reality (AR), virtual reality (VR), blockchain, and artificial intelligence (AI), are powering the growth of the metaverse.
Metaverse is undoubtedly not new. Virtual worlds have existed in gaming for over three decades. The word “Metaverse” itself finds its roots in science-fictionist Neal Stephenson’s novel, “Snow Crash” published in 1992. Since then, there have been several manifestations of the metaverse, mainly in the gaming industry. Epic Game’s most popular game, Fortnite, has a virtual world with 350M+ users globally. Another gaming company, Roblox, runs a mini economy inside its platform for its 40M+ active daily users.
Our discussions with large retailers and metaverse technology providers have indicated that the evolution of retail from omnichannel to meta-channel is inevitable for several reasons.
Change in customer profile and needs: Gen Z and the generation after will have grown up in three-dimensional virtual worlds. A two-dimensional retail experience, as in a standard eCommerce website or mobile app, will be archaic and unsatisfying for them.
Filling the gaps of an omni-channel experience: While omnichannel makes the retail experience seamless, the various channels are still disconnected. A meta-channel can simulate a brick-and-mortar shopping experience in an online environment. Shoppers can be provided with the same experiences of picking products off the shelf, examining their contents, and even virtually evaluating the products without the hassles of scheduling a trip to a retail store and dealing with long check-out counters, traffic, and parking.
Interconnected worlds: What the eventual metaverse will look like is still open to debate. However, like the current version of the internet, it will most certainly be interconnected. This will provide companies opportunities to offer their products and solutions across meta-worlds. As an illustration, a fashion retailer can, seamlessly and at a very low cost, link their metamart with a metaconcert to sell their products to a very targeted audience. The recent metaconcert of Ariana Grande with over 250+ million participants is one such example.
Enhanced customer engagement: The metaverse will enable brands to interact with end customers directly and more engagingly. For example, in a metamart, technologies such as conversational-AI can serve up social influencers with tailored messages, and customers can also interact with these influencers. They can also seek shopping assistance or talk to experts in real-time through avatars. For example, a customer can interact with their favourite football star while deciding on which football shoe to buy or with a well-known chef on which brand of rice to purchase.
Universal and seamless payments: Blockchain-based cryptocurrencies are expected to form the primary basis of transactions in the metaverse. These provide for versatile, fail-safe, and seamless payments. The metamarts of the future may allow for both crypto-based and traditional payment methods, giving customers a choice. Biometric authentication using retina scanning technology may become the standard, replacing traditional cumbersome and less secure password-based methods.
Metaverse technologies are still at the initial stages of investment and development. While the gaming world has adopted these technologies, it is yet to become mainstream. Several challenges have impeded its growth, including hardware issues around virtual reality headsets – ergonomics, availability, quality, and cost. Then there are issues around Intellectual Property Rights, privacy, regulations, and online abuse. Connectivity is another major issue that the global roll-out of 5G is expected to address.
The mainstreaming of metaverse will require significant investments. Mark Zuckerberg announced ambitious plans for the metaverse and even renamed the parent company of Facebook as Meta. One of the primary reasons for Microsoft’s Activision Blizzard acquisition was strengthening its metaverse capabilities.
These are clear indications that large companies are placing their bets on the metaverse. On the customer side, it is only four to five years before the meta-native generation will become the primary target segment for most companies.
The retail industry is ripe for disruption. The current pandemic has already accelerated the adoption of digital technologies in this industry, with Amazon Go and Alibaba’s Hema at the forefront. Metamarts may be as ubiquitous as the local kirana store in less than a decade.
Finally, while this article focuses on the retail industry, other industries, including entertainment, healthcare, and financial services, are also expected to be at the forefront of the metaverse world.