Time to apply the virtual brakes on metaverse marketing?
The promise of Web3, built upon a foundation of blockchain technology, would seem to offer a fairer, decentralised and more transparent version of the internet.
Unlike the current Web2, which is ruled by a small number of superpower platforms who control and monetise our personal data, Web3 promises an equitable ecosystem where value is created and distributed more evenly across the online population.
This promise of digital utopia has attracted a range of companies and brands seeking to take advantage of this new medium and be the first to monetise all possible opportunities. From a marketing point of view, many of these opportunities have manifested themselves in the form of NFTs and/or a branded presence in the metaverse.
A recent report by McKinsey highlights that companies have already invested more than $120 billion in the metaverse in the first half of 2022, and that it has the potential to generate up to $5 trillion in value by 2030. As they put it: “The metaverse is too big for companies to ignore.”
Similarly, the NFT industry was worth more than $40 billion in 2021, although this has now decreased significantly during 2022.
The Emperor of Marketing, as we know, likes shiny new clothes and the topic continues to dominate marketing conversation. But should marketers really be plunging head-first into this world at such pace?
Much of the excitement is be based on the perceived potential of what this future-facing version of marketing could become. In the afore mentioned report from McKinsey, they state that the metaverse “may have… a $144 billion to $206 billion impact on the advertising market” by 2030.
Those are numbers designed to garner the attention of any CMO and perhaps goes some way to explaining why a UK survey of marketers found that 55% have already set budget aside for metaverse activity. It should be noted that these budgets are being diverted away from other channels and are not incremental.
A look at the current reality paints a different picture, however. As of April 2022, two of the metaverse’s biggest players, The Sandbox and Decentraland, have just 1,180 and fewer than 1,000 daily active users respectively. Both are falling way short of market expectations. Brands may be active but consumers have yet to feel the pull of the metaverse in any numbers.
Similarly, in May 2022, the Wall Street Journal reported that NFT sales had dropped 92% since their peak in 2021, calling it a market collapse and outrightly asking “Is this the beginning of the end of NFTs?”. The NFT bubble appears to have burst. According to the Financial Times, of the 360,000 NFT owners, 9% of them control 80% of the total value.
These are not exactly encouraging numbers or signs that would typically coerce brands to invest. It is hard to imagine a video platform with only 1,000 active users or a magazine with a circulation of 1,000 attracting so much interest as the next big opportunity.
Beyond the small scale and a seeming lack of consumer adoption, there are deeper concerns about Web3 technology that need to be considered carefully before allocating marketing investment.
Cryptocurrencies, the digital or virtual currency that underpins transactions on the blockchain, come with plenty of risk and risk management concerns for companies. Foremost is the volatility of its value. Bitcoin, the most popular cryptocurrency, has seen its valuation drop repeatedly across a series of recent crashes. In May, Terra’s ‘stablecoin’ cryptocurrency collapsed, wiping out $40 billion of value despite it being connected to the US dollar for added security and stability.
In recent weeks, we have also seen cryptocurrency platform Celsius Network halt customer withdrawals and transfers, and then file for bankruptcy, while cryptocurrency exchange Coinbase has let go almost one-fifth of its employees. The International Monetary Fund has issued warnings about using cryptocurrencies as legal tender.
This should be enough to give any CFO nightmares. A lack of consistent, established cryptocurrency regulation means that scams and fraud are rife.
It isn’t just the financial side of Web3 that comes with significant risks. NFTs – the digital assets/virtual products that many brands are looking to promote – bring plenty of their own complications and problems as the concept of digital ownership also floats on murky waters.
The actor Seth Green recently paid almost $300k dollars in ransom for the return of a Bored Ape NFT that was stolen from him. In January 2022, Lavinia Osborne, Founder of Women in Blockchain Talks and creator of the Crypto Kweens NFT Marketplace, had two digital artwork NFTs stolen from her crypto wallet.
If brands are being encouraged to invest in, create and promote NFTs, the security that underpins the process needs to be raised, and there needs to be clear legal protections. Osborne was able to secure a UK High Court ruling that recognised NFTs as legal property but in many countries the law hasn’t been updated effectively to protect those involved.
Companies are not exempt from these risks and as interest in NFTs, the metaverse and Web3 increases, there is a need for specific digital legal and financial skillsets to ensure risks are minimised. Without those roles in place, the risks remain high.
With cryptocurrency crashing, NFT sales plummeting, tiny user numbers and risks aplenty, why then is there such a rush to invest and who is promoting it? Ordinarily marketing priorities are driven by consumer needs and behaviours, but in this case it feels like the cart is trying to lead the horse.
There has been a lot of financial investment in this space, primarily from venture capitalists and a small number of the world’s biggest brands, and so suggestions of over-valuation would certainly create a motivation for those who have a vested interest in seeing the metaverse flourish. Mark Zuckerberg, in changing Facebook into Meta, has bet the literal house on this future version of the internet coming to fruition and he cannot afford it to fail. It is inevitable that all users of what was once Facebook will soon be ‘coerced’ into behaviours that suit Meta’s agenda. Microsoft’s $69 billion acquisition of Activision is another big bet in this space.
The problem is that the metaverse doesn’t actually exist yet – and may never do so. What we have are a number of independent virtual worlds where some consumers and, increasingly, some brands, are playing. The majority of these are gaming based.
From a marketing perspective, FOMO means brands fear losing share to their competitors. As a result, there is a worrying volume of client requests to ‘do something in the metaverse’, which is the 2022 equivalent of “we want to do a viral video” – welcome back 2010!
These requests are rarely strategically-led nor based on the brand’s business objectives but rather from a need to be seen to be doing…. something based on the (over)-perceived risk of being a late adopter.
With most clients lacking Web3 knowledge or capabilities, they turn to agency partners for help, who in turn have their own agenda because they don’t want to appear to lack the necessary skillsets and innovative mindset that will keep a client happy.
Unequal playing field
Most industry presentations, articles and talks that are promoting the metaverse and NFTs seem to consistently contain two points:
- That brands should be dipping their toes in the water and experimenting in these areas; and
- That they should not expect any financial return for these experiments.
With a predicted global recession, rising energy prices and soaring inflation, marketing budgets are already under scrutiny as we move into the budgeting process for 2023. Who can afford to invest in speculative marketing projects that are guaranteed to deliver no financial return?
Some Web3/metaverse events that I have attended recently have featured really interesting work from the likes of Unilever, Coca-Cola and McLaren, none of whom are short of cash.
The majority of brands have much tighter purse strings. The people with the skillsets to make and shape this technology are not in-house, nor are there many yet within agencies, and they certainly don’t come cheap. Not all brands can afford to follow Nike’s lead and purchase an NFT company to make virtual trainers.
I don’t dislike NFTs or the virtual worlds that are forging the path for what the metaverse could become. Indeed, there have been some excellent brand involvements and activations – everything from the fun (Lil Nas X concert in Roblox) to the business -problem solving (H&M virtual showroom) to driving purposeful change (Hellman’s food waste).
What I do object to is brands being strongarmed or scared into involvement by those who have a vested interest in the growth of this technology and the need for mainstream consumers to adopt it.
Marketers need to overcome their FOMO and remain focused on achieving business objectives via a strategically led marketing vision. If the right solution happens to involve making an NFT of an ape wearing your brand or consuming your product, then so be it.