These three trends are shaping the future of the metaverse

Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This Tuesday, we have an interview with Newzoo metaverse expert Mihai Vicol on the state of virtual worlds in 2022, as well as all the news over the weekend about how the game industry is responding to the overturning of Roe v. Wade.


The state of the metaverse is up in the airThe metaverse remains a fluid concept. Many of the biggest names in gaming and tech agree that the metaverse will likely be composed of one or many 3D virtual worlds with functional economies, persistent identity and some level of interoperability. But it’s still early days, and many fundamental questions remain unanswered: How important will AR and VR be, what role should concepts like the blockchain and NFTs play and how might we avoid the pitfalls of Web 2.0?
For clarity on these topics and many more, market research firm Newzoo set out to take stock of where the metaverse is today and where it might be going in its second metaverse report, and I caught up with the company’s metaverse lead, Mihai Vicol, to discuss the key findings.
Blockchain gaming is still untested. Some Web3 and metaverse proponents are convinced that blockchain-based video games sit at the forefront of the metaverse by pioneering approaches like pay-to-earn, NFT aftermarkets and decentralization. Vicol isn’t so convinced.

• “There isn’t really a market for blockchain games that goes beyond the financial speculation that takes place in these games,” he told me. “90%, not all of them, are played purely for financial gain. They feature mostly rudimentary gameplay.”
• Vicol said these games are not only badly designed, but they’re also doomed to crash. “These games are unsustainable in that they mostly rely on continuous influx of players into the game,” he said. “Once that influx stops, as had happened in the past few months, the economies of these games can essentially collapse.” Axie Infinity is the industry’s biggest cautionary tale, Vicol added.
• Vicol noted in his report that the market for these games is mainly in developing countries like the Philippines and Vietnam, and the biggest question going forward will be what business models end up proving most successful in pushing blockchain-based games into the mainstream and helping balance financial incentive with fun.

Brands are arriving early. The metaverse as we know it today exists mostly as a collection of existing social multiplayer games like Fortnite and Roblox; a growing industry of crypto-focused startups; and social network-like platforms, such as The Sandbox and Decentraland. Vicol says it’s savvy marketing that brands are spreading themselves across as much of it as possible.

• Pouring resources into the metaverse today has relatively low costs and low risks for mainstream brands, but there is a big opportunity for a major return on investment. “I think it makes sense for brands to try and do this because the upside is so big,” Vicol said.
• Any of the proto-metaverse platforms like The Sandbox may one day grow as large as a major mainstream video game, or gaming companies like Epic and Roblox might be able to beat Big Tech to the metaverse and grow their platforms to the size of something as large and influential as Facebook.
• If a brand owns digital land or sets up a functional ecommerce operation, it may become immensely valuable over time. “That virtual land is essentially ad space,” he said, though it’s now interactive.
• In that context, mainstream companies see the metaverse as a “win-win,” Vicol said, especially for luxury brands, like Prada and Balenciaga, that are trying to reach new consumers without diluting their high profit margins on real-world apparel.
• “As virtual worlds will be populated by 3D avatars wearing branded digital garments, we expect a shift from D2C to direct-to-avatar (D2A). Brands will serve not only consumers but also their digital representations,” Vicol writes in his report.
• “While many consumers are usually priced out when it comes to physical luxury garments, digital clothing is poised to change the status quo, allowing brands to extend their reach while decreasing their ecological footprint.”

NFTs have a promising future. Vicol said that while 2021 was largely a breakout year for NFTs as static pieces of art (or “profile picture NTFs,” as he put it), the concept of verifiable digital ownership is nowhere close to being fully explored.

• “I think we’ve only seen the tip of the iceberg. Most of the headlines were stolen by profile picture NFTs, but I think they have way more use cases,” Vicol said,
• Vicol said that over time, the role of NFTs in the metaverse will depend on how they evolve beyond vehicles for financial speculation. That could include implementation into popular gaming platforms, genuine use cases in other industries like music and sports, and turning art-focused NFT projects into global brands.
• “I think the concept of an NFT if you strip it down is a very powerful concept. The idea of owning a digital item that is verifiably scarce and verifiably yours — it cannot be faked and it exists as an original,” Vicol said. “I think game companies need to do more work and figure out how to best implement these NFTs in games.”
  

The metaverse as we know it right now is in its infancy. That means there are substantial issues that need to be worked out around everything from content moderation and IP rights to data privacy and the scope of potential government regulation, Vicol said.
“Today’s gaming and tech ecosystems are largely split along regional and cultural lines, and the same is likely to hold true for the early metaverse,” he writes in his report. “The potential for abuse of power in a centralized metaverse is also non-trivial, which is why several organizations are working to create open standards. We also need to keep in mind that, as with any new technology, the transition to the metaverse will happen gradually, and it is up to the individuals building it to do so in a responsible manner.”
Full Story here.