The Metaverse: how do brands fit into this new ecosystem?

In today’s post-social media world, the growing role of the Metaverse is changing the way brands develop their digital strategies. A flash in the pan or a true online revolution? We spoke to ESCP Professors Michael Haenlein and Andreas Kaplan for their thoughts on this emerging space.

Hello Michael, Andreas! In the past three years, traditional forms of digital communication, particularly social media, have been superseded by the Metaverse in the global conversation. The stats are significant: over half of influencers are already involved, with experts predicting up to 2 billion active users by 2024.

Against this backdrop, can you give some context on the importance of the Metaverse for brands specifically?

Michael Haenlein: First, it’s probably important to highlight that the Metaverse as a concept is not new. A decade ago, Second Life was a first step in that direction and companies tried to find ways to use it. At the time, Andreas and I wrote several articles about brand flagship stores within this Metaverse.

Andreas Kaplan: Indeed, the Metaverse as a concept isn’t new. Virtual worlds have been around for more than a decade. Since then, technology, however, has significantly improved. While navigating used to be rather difficult and, at times, very slow, today’s virtual worlds no longer have this kind of flaw.

Moreover, today’s users are often entirely immersed through the wearing of headsets, whereas before, they merely stared at their screens. In the not-so-distant future, users might be transported into the Metaverse as fully-fledged holograms of one’s actual appearance.

This would come very close to “beaming” à la Star Trek. What seemed utopian not so long ago might become real in the future, at least from a digital point of view.

Would you say, then, that the Metaverse is now fully part of the global digital consciousness?

Michael: I’m not sure about that. Today, I think there’s little agreement on what the Metaverse actually means. There’s clearly a difference between the Metaverse and, say, traditional social media, but it’s not clear what the actual factors are that drive this difference.

So when people say that they are “in the Metaverse”, different people probably mean different things – which makes the numbers a bit unreliable. Saying “I’m active in the Metaverse” is a very different statement than saying, for example, “I’m active on Instagram”.

Andreas: In a sense, one could consider the Metaverse, or the virtual world, as a form of social media. When Michael and I defined and coined the term social media in our 2010 article “Users of the World, Unite! The Challenges and Opportunities of Social Media,” we also classified them into six distinct groups, two of them being virtual worlds, i.e., virtual game worlds, such as World of Warcraft, and virtual social worlds such as Second Life.

When it comes to gaming and the Metaverse, advertising needs to integrate into the stream experience and add value to the game itself – meaning that it needs to be matched to the specific moment in the game (e.g., the emotions experienced by players) and generally be more creative overall.

Michael Haenlein

Let’s take a closer look at ‘game worlds’. What lessons can we draw from video games and the relationship with brands when it comes to the Metaverse?

Michael: At this point, the closest representation of the Metaverse we have is probably the video game ecosystem and the related world of eSports. Indeed, a lot of what we know about the video game ecosystem can directly be applied to the Metaverse.

There is little difference between the world of video games, which are highly realistic these days (many techniques used by movie studios today have their origins in video game development) and the Metaverse.

Looking at the video game ecosystem, companies need to see how different this world is. For a start, video game companies, streamers, and streaming platforms don’t depend on advertising revenue to make money.

For example, Twitch relies on a whole system of gifting and subscription revenue. This means that in the Metaverse, companies can’t book an advertising banner like on the Internet or on social media.

In the Metaverse, advertising needs to integrate into the stream experience and add value to the game itself – meaning that it needs to be matched to the specific moment in the game (e.g., the emotions experienced by players) and generally be more creative overall.

Andreas: I’d be even more explicit. To clarify, the Metaverse is not just a game or virtual world in the leisure sense. Facebook CEO Mark Zuckerberg recently pointed out that the Metaverse will not only serve entertainment purposes.

Our own analyses and research conducted as early as 2009, within the scope of Second Life, showed that many of its users considered their second life to be an extension of their first, i.e., real lives.

Some of them even preferred their virtual over their real lives. Our research identified four key motivations for using Second Life: the desire to build personal relationships, the need to learn, the search for diversion, and the wish and possibility to earn money.

If predictions hold, the Metaverse will soon be an integral part of our lives: we will work and socialise there, all in the form of incredibly realistic avatars.

Andreas Kaplan

Very interesting – and the stats back it up. A recent article featured on Squarespace notes that over 60% of Gen Z say online presence and presentation is more important than in the real world.

With brands like Gucci, Armani and others now creating virtual clothes, where is the Metaverse next likely to stake a claim?

Michael: The Metaverse is likely to significantly change the way brands approach e-commerce, thanks in part to the “try on” aspect. In this logic, the Metaverse is an online tool that can be used to sell products offline.

This can be relevant, especially for fashion companies, where product returns are considerable and very expensive to handle. For some firms with low margins (e.g., fast fashion) product returns are so costly that it’s often cheaper to dispose of the item.

A second aspect is the virtual good as a means in itself. Somebody who likes a brand in real life likely wants his/her avatar to wear the same brand. This requires the creation and sale of digital fashion – which, as we can see, is now often combined with NFTs to avoid counterfeiting.

Andreas: An additional, interesting field of application would be education. As mentioned before, our research showed that one of the four key motivations for entering a virtual world is the desire to learn.

Virtual campus tours are increasingly moving into the Metaverse, enabling candidates to experience a virtual form of student life. Enrolled students will enter the Metaverse to attend lectures, work together on group projects, or participate in student societies.

Very few companies have figured out what the Metaverse means for them and how to use it. Also, there are many different versions of the Metaverse; right now there is not yet a single place or platform where one ‘has to be’.

Michael Haenlein

Continuing with the case of the fashion industry, Gucci has successfully managed to combine luxury exclusivity with innovation for its latest NFT – users had to fulfill a list of requirements or display an affinity with the brand to be eligible to participate.

What are some other ways brands can leverage the Metaverse to help reinforce their brand identity?

Andreas: Other than improving the customer experience from an e-commerce point of view, another area where the Metaverse can come into play is sustainability.

The apparel industry is one of the world’s biggest polluters, responsible for 20% of the world’s wastewater and 10% of global carbon emissions. The Metaverse potentially improves sustainability even further: if predictions hold, the Metaverse will soon be an integral part of our lives: we will work and socialise there, all in the form of incredibly realistic avatars.

They will, as mentioned above, wear digital clothes, which are a more sustainable alternative to real garments.

To sum up, the Metaverse has seen everything from more ‘classic’ setups leveraging social media (Twitch, Discord) to other types of digital space, from Travis Scott’s collaboration with video game Fornite to fashion shows and immersive experiences.

What are and will be some of the most impactful ways of approaching the Metaverse for brands, both now and in the future?

Michael: To return to my earlier comments, at this point I think the most promising space to be in is the video game ecosystem. Very few companies have figured out what the Metaverse means for them and how to use it.

Also, there are many different versions of the Metaverse; right now there is not yet a single place or platform where one “has to be”.

In contrast, the video game ecosystem is much more established with video game companies, video games, streaming platforms, streamers and companies linking them together, meaning that within this ecosystem brands have multiple ways to interact, from classical advertising (e.g., within the game interstitial) to sponsorship and influence, to integrating digital versions of their goods into the game experience.

Andreas: I agree with Michael that there is not yet a place where one “has to be”. When reading about the Metaverse, one could wrongly get the impression that there’s a single virtual world and environment, i.e., the Metaverse.

The reality is that there are several, disconnected, virtual worlds at the moment. These might, at some point, merge into one single platform. Only the future will tell if and when this might happen.