This is how the metaverse might be monetized

This article was originally published by World Economic Forum

If the metaverse is less of a product and more of a framework for human interaction, it is practical to look at metaverse monetization

Experts believe the metaverse will signify the next step in our digital evolution, bringing new risks and opportunities alongside new soft- and hardware.

Experiences instead of technology will play a huge role in how we understand the metaverse and what business models can be created within it. But doing business in the metaverse won't be simple – questions of how to regulate it are already arising today.

When Meta Platforms announced its rebranding and repositioning towards the metaverse, in October 2021, the reaction in the business community was confusing. Interest in ‘metaverse’ – a term limited to tech circles for the best part of the year – exploded, with executives at dating companies, cryptocurrency exchanges and a professional wrestling brand among the many claiming to be building the metaverse, have a strategy for engaging with it – or, in some cases, both.

Given that the metaverse is still mostly conceptual, this is forgivable, but the lack of clarity is also illuminating. First, because it tells us something about what metaverse evangelists think it represents. To this group, the belief that the metaverse will become a significant part of the world economy – transforming business and social life on a level comparable to the internet – is only strengthened by the diverse range of companies rushing to be part of the clamour.

At the same time, it highlights the influence that major technology companies have on the internet today, and how that influence could transpose itself to the metaverse. Critics of these companies argue that they are responsible for “walled gardens” distinct, closed ecosystems that shape the content and business models around online behaviour – which must avoid being replicated or reinforced in the metaverse.

The fact that so many companies felt it necessary to explain their relevance to Meta’s new corporate strategy suggests that, for better or worse, the influence is more than a subjective perception.

Regardless, contextualizing the opportunities and risks with reference to the internet is no coincidence. Experts believe that the metaverse will become the next major computing platform, causing an evolutionary stepchange in hardware, software and experiences.

XR will create the metaverse – but can’t sustain it

This is the incentive for so many companies to build the virtual environments that the metaverse will depend on. They are likely to be based in “extended reality” (XR) – the combination of augmented, virtual and mixed reality technologies. Universal access is essential if the metaverse is to bridge our physical and virtual lives to the same, or greater, extent that smartphones and the mobile web do today.

Unlike the web, however, which nobody owns and is paid for by everyone who uses it, the basic infrastructure for accessing the metaverse is largely being developed by private enterprise. As recently as 2019, more than 80% of the VR headset market was controlled by four companies, each of which used proprietary software.

Even if – as some argue – the route to the metaverse is via AR, it is unlikely to be financed by the free and open-source model that gave us the internet. Either way, without reasons to accelerate adoption, sceptics say the metaverse will never be anything more than a subset of gaming.

This may be why alternative framings, that imply that the metaverse is a point in time, are being popularized. Specifically, the metaverse represents the moment at which our digital lives – our online identities, social and professional relationships, and assets – become more important than their physical counterparts.

Experiences, not technology, will be the bedrock of the metaverse

If the metaverse is less of a product and more of a framework for human interaction, it is practical to look at metaverse monetization through the lens of experiences, rather than technology. This widens the range of business models that support individuals and companies in creating, marketing and selling new products, goods and services.

Some are already experimenting with the most obvious of these – advertising. Reports of brands using video games, AR features and digital replicas provide early use cases of how they could build recognition and engagement among consumers on metaverselike platforms. Patents filed by Meta indicate that advertising and sponsored content will form a significant part of its metaverse strategy.

Although advertising is anathema to many technologists, it funds the internet as we know it. It produces high margins and allows content creators to drive discovery and engagement with their work, making it attractive – and, importantly, feasible – to anyone exploring the metaverse as a business opportunity.

But advertising today is dominated by the private sector and tied to products that predominantly hold real-world value. This doesn’t really support the argument that the metaverse will create a new digital economy, different from the one we know today.

This is why non-fungible tokens (NFTs) are being watched with interest. Fashion houses, auctioneers and sports properties are among the businesses selling NFTs, which enable individuals to own digital assets. People have long built communities based on things they own, and the technology behind NFTs – blockchain – theoretically can create incentives for these communities to form and strengthen.

For example, a feature where the creator of an NFT is paid a percentage each time their NFT is traded could be used to support artists financially. The important role that the creative industries play in shaping culture and identities could normalise NFTs among a wider audience.

The two sides of the NFT coin

NFTs could also boost development of the metaverse by encouraging the development of digital marketplaces. Creators of metaverses could charge commission fees on transactions, like how app stores function today. This model provides developers with a global audience, and consumers with a common experience.

However, it is subject to intense debate across the technology ecosystem. App store “transaction taxes” are a contrast to the future envisaged by “web3” advocates, who see the metaverse as one of several counterweights against the power held by large technology companies, and an opportunity to decentralize the experience, control and monetization of the internet in favour of users, content creators and asset owners.

Perhaps paradoxically, the push toward decentralization may end up producing more gatekeepers. Critics argue that if the metaverse is to have real products with real users, it must favour uniform, centralized experiences. These can never be truly open, and there’s a certain irony in seeing large companies declare their intentions for defining and building the metaverse in this way, considering the history of how platforms, experiences and products have developed in the technology industry in recent decades. The power dynamics that aggregators exert on the internet today may be hard to avoid replicating.

Regulating the metaverse

Regulation will also play a role in the development of the metaverse. Many web3 start-ups are still flying under the regulatory radar, and the list of hacks, scams and simple errors they are subject to is growing.

Questions of how to prevent fraud, eliminate copyright infringement and guarantee the integrity of digital environments are yet to be answered in detail, just as there will be debates over how to make the metaverse a safe place that accounts for the human rights that have been developed and enforced, to varying extents, in the real world.

Given that all these issues that exist in the real world today, it only emphasises their complexity and the trade-offs required to resolve them. Doing business in the metaverse won’t be simple – but then again, what is?