How to take a strategic approach to investing in metaverses

Although the metaverse is in its infancy, tech giants such as Microsoft and Meta have spent billions on metaverse components and startups such as Roblox have also raised significant funds. These and other 'constructor' companies are vying to shape the architecture of the nascent metaverse industry by creating conditions that favour their success. What’s more, they are defining sources of value, establishing the balance of power among players and shaping how traditional companies hoping to monetise metaverses will benefit. The stakes are high for leaders of traditional companies.

To make the right investment decisions, they’ll need to understand the competing visions being constructed and how each model aligns with their company’s strategy.

In this vision, a few specialised metaverses serve specific purposes, such as gaming and working. High-end hardware and proprietary applications are used as differentiating factors. Microsoft, for example, designed office-productivity AR tools for its Mesh platform and AR/VR hardware and software startup Magic Leap created an application that allows surgeons to plan procedures in immersive 3D environments.

Constructors are betting that quality and tailored experiences will be key to driving metaverse adoption and the high level of investment required will enable them to dictate pricing across all metaverse layers, with business models resembling those already used today, such as Microsoft’s SaaS offer of Office.

In this vision, a few all-in-one metaverses serve multiple purposes. Hardware is a proprietary entry point, but content creation is outsourced to an open ecosystem of providers. Meta, for example, is counting on users and companies to be key contributors to content production and it's offering the infrastructure needed to develop immersive content. In Meta’s vision, the investment needed to create state-of-the-art VR hardware (its proprietary glasses) and network effects (provided by its large content producer base) will ensure a natural monopoly.

These constructors will want to tap into attention economy business models, such as ad-based models, and capture transaction revenues made on their platforms. Meta announced it is planning to take a cut on all transactions made on its metaverse platform, as well as potential patents that show its intention to monetise metaverse advertisement.

In this vision, constructors control the platform and content but rely on providers for hardware. Less than creating a new industry or platform, this vision is like a monetised expansion of the gaming industry, with selected content and experience providers and new business models based on blockchain. Several metaverses would coexist if this vision scales and constructors would need to become competitive content providers.

Players such as Axie Infinity, Epic Games, Sorare and The Sandbox, for example, are creating metaverses based on innovative experiences or virtual entertainment. These players do not rely on high-end technology, such as VR, to differentiate themselves or on creating a large ecosystem of content contributors. They are directly constructing (sometimes through partnerships) the experiences that users can access in their metaverses, adapting the underlying technologies to reach a broader audience.

In this vision, several metaverses coexist and are interconnected. Software is the only proprietary entry point, with constructors needing to foster a sense of community and create soft barriers to retain users. Constructors are expected to capture value through a multitude of business models, such as transaction fees, ad-based models or digital assets valorisation.

Players, such as virtual platforms Decentraland and Roblox, rely mostly on generic or open-source technology – screen-based hardware or blockchain. They have limited monitoring of or input into content creation, acting largely as platform managers.

Traditional companies also need to understand how each vision aligns with their strengths and positioning. B2B companies that lead their sector and have the tech talent needed to co-construct premium offerings will benefit from specialised and high-end metaverses working in a closed ecosystem (the complete control model). John Deere, for instance, which enables its clients to interact with its products through its AR app, could partner with a constructor such as Magic Leap or Microsoft to scale its current offering and co-develop use cases for the industrial equipment market.

B2C companies with a strong brand and positioning in their sector will be able to negotiate with constructors of more accessible metaverses that rely partially on external providers. Some will benefit from access to high-end immersive tools to create their own experiences (infrastructure control model). French department store Printemps, for example, created a mini-metaverse featuring a 3D replica of its flagship store, where customers can make purchases and browse an NFT art collection. The brand could potentially fine-tune and scale this experience in metaverses such as Meta Horizon.

Other B2C companies with a strong brand and positioning could benefit from off-the-shelf experiences created through a partnership (content control model). For instance, Marvel promotes its films through a multiyear partnership with Fortnite. It develops characters, skins, digital locations and complete experiences in its game based on Marvel’s universe.

Companies that cannot rely on well-known brands or strong market positioning, but are able to quickly pivot and adapt to new customers’ needs or companies that want to keep a strong grip on their content could partner with platforms such as Roblox (platform control model). These platforms have minimal entry barriers, with a limited content selection, screen-based display or a decentralised economy.

It remains unknown which vision of the metaverse will prevail or if several might coexist. Leaders need to closely monitor the key triggers — technology maturation, regulation and adoption rates — that will determine whether a particular vision has enough momentum to become a reality. The time to prepare is now. Leading companies are already creating value in the metaverse.

To learn about the metaverse strategies that business leaders can choose among, see the full version of this article: Four Visions of the Metaverse.