The metaverse — a virtual world where people replicate their real-life identities, or are free to live as someone completely different — is coming. For retailers, it can be a revenue center where virtual merchandise can help metaverse dwellers realize their visions of themselves.
But as Meta showed in its recent financials, it also carries financial risk. Its metaverse division, Reality Labs, posted billions in losses over the last two years.
Most prospective metaverse users, retailers and marketers have many questions about how this all works. We asked Justin Hochberg, founder and CEO of Virtual Brand Group, to explain how this emerging technology will work. His agency built Forever 21 Shop City, a virtual retailing setup in Roblox, which itself is a social gaming environment — not technically the metaverse, but a prototype that will give retailers an idea of things to come.
In Shop City, customers buy virtual clothing for their avatars, and set up their own Forever 21 stores. In the Roblox environment, customers receive coupons toward the purchase of the same physical item — for those who want to twin with their Roblox avatar in real life.
Describe the metaverse for retailers and marketers who haven’t yet wrapped their head around the concept.
Justin Hochberg: Let me describe it to you on a visceral level. The No. 1 thing about “metaverse” is not whether it’s Roblox, Fortnite, Meta, Layer2, crypto or NFTs.
Marc Andreessen invented the Mosaic browser 25 or 26 years ago. Then you started seeing URLs on billboards.
People were like, “What is that?” and they would say to me, “Can you explain the internet? What is it?”
I’d say, “It’s anything you want it to be.”
“Well, who owns it?”
“What can you do with it?”
None of those answers were at all helpful in the least. Now 26 years later, insert the word metaverse and we’re in the same spot. Three years from now, you’re not going to wonder what the metaverse is, just like you don’t wonder what the internet is. The internet, who cares? What you care about is Facebook, Amazon, Netflix, whatever. That is what people understand. People don’t understand it because they haven’t used it yet. It’s just this idea, and it’s not, “Hey, I could get a book cheaper, faster?” That’s the Internet.
Let’s rewind a bit. What, then, is a Roblox experience for customer experience leaders who might be wondering whether to go in that direction.
Hochberg: Any type of brand — whether it’s fashion, TV, film — if you sell to consumers, you want to be wherever your consumers are. For many people, that means you have some form of store, whatever that looks like. You have some form of e-commerce, you do some form of social media, maybe do a bunch of other things — omnichannel — to meet your customer wherever they are. Metaverse is a very complicated thing, but all it is is another place where many consumers already exist. But it’s — and here’s the trick — better than your store, your e-comm and your social media. It is the most effective sales channel since the advent of selling things that you will ever find.
Hochberg: Let’s tackle it three ways: The first thing is, it’s a frictionless consumer experience. Going to a store is somewhat of a flawed business model. I’ve got to go there — that’s time. I gotta park. I gotta find the store. I gotta walk in the store. I gotta find the item. I gotta wait in line. I gotta reverse the whole thing. The average time that people spend in a Home Depot store is 5.9 minutes — which is the time they’re actually spending getting out of the store. You want to get out as quickly as possible. E-commerce removes a lot of that friction, because I don’t have to do half of that. If I’m searching Amazon, they have it or don’t have it, I buy it or not, and that’s great. So in terms of efficiency of transaction, it’s great but not sticky. A transaction is in and out. I have no affinity for the transaction.
Roblox Forever 21 is time-consuming — in a good way. It’s wildly sticky. It’s got zero marginal cost. So it’s the most profitable thing that you can sell out. We emulated the No. 1 retailing store in the world: Disneyland, which is just a very sophisticated retail store. You are actually on a ride only about 18% of the time. The majority of the time it is extracting money — when you buy a pass, the mug, the T-shirt, lunch. Not only do want to spend time there, I will spend all day there giving you my money. I’ll spend all week on a cruise giving you my money. It’s sticky. Stores have been chasing experiential retail for decades. Barnes & Noble started with getting comfy couches so you can read. Starbucks gave you free Wi-Fi. Chanel gives you champagne and Evian water. This is all experiential marketing. It’s still not that sticky. Disneyland is sticky.
We took the model of Disney and the experience that you want to stick around with. We turn a retail brand into an entertainment experience. People come to Roblox because it’s social.
Why does Gen Z want to buy pixels, as opposed to physical stuff?
Hochberg: Why do you want to buy anything? Let’s take the average person. They buy a lot of stuff. They buy T-shirts, sneakers and sweatshirts. Maybe buy suits and ties or whatever they buy for their daily lives. Why doesn’t everybody just dress like Mark Zuckerberg, wearing the same hoodie every day? Most people don’t do that. They have an outfit for going out on Saturday, and an outfit for cleaning the yard. They could wear the same outfit, but they don’t. Why is that? Because as human beings, we want to present ourselves in a certain way in certain circumstances.
The No. 1 attribute that Gen Z has is self-expression. How do I feel? How do I want to express myself? In the real world, we’re constrained. … In the virtual world. You can be whoever you want to be, and it’s expected that you will express yourself any way you want. I can wear a dress, I can be a French fry, I can share. I can be cyberpunk. I can do that differently every day, or with different sets of friends.
Here’s the other piece: The real world is hard. Most people can’t visit the Grand Canyon, much less buy a pair of Nikes or even Gucci. In the virtual world, we can re-create the Grand Canyon, Eiffel Tower, Taj Mahal or an NFL game. You can own Nike sneakers, a Forever 21 wardrobe, a Gucci wallet. So the reason the metaverse is so powerful is that it’s got massive scale, it taps into the aspirational, and it’s got a world where you are socializing, instead of transacting. That’s why people spend time there and buy things there — they want to present themselves in their own vision of how they want to be perceived.
Let’s say Roblox went offline, either by choice or by necessity. Is there any way that that the people who bought stuff on it can take it to another platform, or does the virtual clothing go down with the ship?
Hochberg: People think of Roblox as the metaverse. It isn’t. It’s a social gaming platform. Facebook is a platform, and you go on it, you build your profile. I can’t do anything with that, except put it on Instagram and WhatsApp. It’s closed off.
Roblox is a 3-D version of that, where there’s games and houses and toys. It is technically not part of what we refer to as Web 3.0. Web 3.0 is about the ability for the consumer to own the item, not the platform. That why, when you buy something in Decentraland or Sandbox, when you go to other platforms, you own it and no matter what happens to those worlds, you always own it. Just like when you go buy Nike sneakers, if Nike goes out of business, you still own the sneakers. That’s Web 3.0. Infrastructure is allows you to just bring it everywhere, it’s on some generally transferable blockchain technical protocol that allows you to own the asset.
How do NFTs figure into this?
Hochberg: This is just a digital asset on the blockchain. That’s all it is, whether that’s a piece of art, a sneaker, a clip of a movie, a highlight of LeBron James, whatever. A lot of people think of it now as art or digital images or Bored Ape Yacht Club. A lot of it is very speculative, and that’s why a lot of people are losing money. Sometimes what they see is the headline such as “Snoop Dogg sells NFTs for $44 million,” but most NFTs don’t sell.
For marketers and technology leaders, what’s the real metaverse opportunity? To earn revenue? To increase brand awareness? Both? And how do you get started without blowing through so much capital that you get fired?
Hochberg: Using the metaverse as a sales channel opens up completely new revenue with zero marginal cost. I sell millions of dollars of Forever 21 fashion that costs me $10,000 to create a line, then every item is zero marginal cost. That item can live forever with no defects and no supply chain issues. No refunds. It can live on Roblox as long as Roblox exists, without any degradation.
You cannot leave a white T-shirt in the store. You don’t have the shelf space. It’s going to deteriorate, it’s gonna get dirty. Virtual items are inexpensive to create, with zero marginal cost. You want to be where your consumers are — 200 million people play Roblox every month. People spend millions of hours a month in Forever 21 Shop City, which outpaces social media.
Whatever you build in your metaverse, it could cost you a couple of thousand dollars to build an NF T or a virtual fashion line, or it could cost you a half a million dollars. Those are not expensive things compared to what people pay for TV advertising, activations at South by Southwest, or whatever. The key is, if you get in now, it’s relatively inexpensive. You can not only generate new revenue, but you can create new connections to consumers.
This Q&A was edited for clarity and brevity.
Don Fluckinger covers enterprise content management, CRM, marketing automation, e-commerce, customer service and enabling technologies for TechTarget.