For metaverse enthusiasts, the past few days have not exactly been celebratory. As an ardent believer that much of the future will be influenced by the metaverse – the collaboration of the virtual and the physical – recent news on several metaverse companies may seem devastating. Last week, Meta’s value declined by $700 billion or 20% in a single day, and The Wall Street Journal reported Decentraland only had 38 visitors at any time.
How can we reconcile the prediction by leading firms such as McKinsey that the Metaverse will represent a $5 trillion market by 2030 with those negative developments in the news? This discrepancy captures the need to differentiate between the failing strategies of Meta and Decentraland and the resilience of the metaverse sector as a whole. While Meta does represent an example of how not to embrace virtual reality, to blame the company’s failure on the metaverse itself is both premature and inaccurate. If anything, firms like Meta offer case studies for companies searching for better ways to embrace the internet of tomorrow.
Meta and Decentraland are building business models upon mistaken assumptions. In particular, these two companies are not:
- Focusing enough on content. Both platforms provide tools to users but fail to create the kind of content-driven momentum needed to get people onto the platform. Here, the faulty assumption is that people will create content on their own in an environment that is fundamentally foreign to them.
- Focusing enough on the basics of the user experience. Until recently, these platforms allowed users to build complex structures but did not even allow avatars to have legs. This approach to UX is backward.
Meanwhile, successful metaverse players do not make either of these mistakes. They create content to attract users and ensure that the basics of the user experience are top-notch right from the start. A prime example is Fortnite’s 2019 concert. The virtual event brought more than 10 million individuals to the platform, an attendance record that rivals the greatest real-live concerts in history. To host a crowd that size, Fortnite had to create more than 1,000 virtual spaces and improve the mobility of avatars. In other words, the company first built a first-class user experience and then focused on content to secure widespread buy-in.
In his book on the metaverse, Matthew Ball argues that gaming companies will continue to operate at the frontier of the sector precisely because they have to put content and UX first. At the end of the day, Ball writes, what matters is “the ability to create a space someone would actually want to spend time in.” If a college student had an hour to spare, would they rather spend it on Netflix, playing a game, or visiting Meta’s Horizons or Decentraland? This is the only question on which metaverse platforms should focus.
Companies that are doing well let this simple framework drive their strategy. With its ability to add new content every 15 minutes, Roblox has already proven its dominance as a metaverse platform. For Roblox, this approach extends way beyond gaming. Partnering with dozens of brands in luxury fashion, entertainment, and real estate, Roblox acts as a trusted partner for large companies looking for a Metaverse-as-a-Service platform. With new agreements being inked almost every week, Roblox generates new revenue streams and expands its content.
And Roblox isn’t the only enterprise providing value to its customers by turning a more traditional business model on its head. Nike, Gucci, Adidas, Tiffany, D&G, Louis Vuitton, Lacoste, Estée Lauder, IWC, and Balenciaga are all making headway in the metaverse by, for example, selling $250 million in NFTs, creating breathtaking customer experiences, and accepting cryptocurrency in stores and online.
Daniel Elk, the co-founder of Spotify, once argued that the dominant business model of the internet era entailed breaking down things made of atoms into bits – what was once a physical clock is now a smartphone app. In the metaverse era, successful companies will fuse the bits and atoms into virtual atoms. Those who succeed will bring the best of the real and virtual worlds together, offering unmatched experiences.
As we step back from the metaverse news cycle, we see that the successes and failures of companies depend on the perennial question of content. What do I provide? Who is my customer, and what is the value I bring to her? Although Meta made some bold and brilliant moves (e.g. Quest) and Decentraland helped define the space, it appears that their leadership hasn’t stepped back recently to answer these simple but fundamental questions.