Major video games are gradually turning into Metaverse destinations offering to their vast user base a wide range of activities well beyond gaming and including notably social interactions, entertainment and shopping in a 3D world. Roblox, our second largest portfolio company, clearly stands ahead of the pack when it comes to building a Metaverse, as illustrated by Nike’s reveal last week of NIKELAND, a virtual space in Roblox modeled after its real-life headquarters (see picture).
NIKELAND includes buildings, fields and arenas where visitors can enjoy various mini-games and also a digital showroom where they can get Nike products for their avatar (digital sneakers, T-shirts…). This is probably only the start of what the brand is planning for its virtual space and it’s likely that its showroom will one day tease and/or sell physical products (in addition to its current virtual goods). We would also expect NIKELAND to hold marketing events, potentially tied to global sporting events in the real world.
Nike is not the only consumer brand to make the transition to the Metaverse. Adidas, probably in response to its rival’s initiative, is teasing a potential collaboration with Sandbox, a blockchain-powered virtual world à la Roblox.
US sportwear apparel and shoe maker Vans also built within the Roblox platform Vans World, featuring playable skateparks and stores that let players view, customize and purchase digital shoes, skateboards and apparel. Users may also socialize with avatars, such as the one of Vans’ CEO Steve Van Doren, who can be found running a waffle stand.
Luxury brands have also taken notice of the Metaverse’s marketing capabilities, with Balenciaga presenting in September a collection of virtual clothes in collaboration with Fortnite while Gucci launched earlier this year a branded space in Roblox and drew attention by selling a virtual handbag through the platform for $4,115, higher than the price tag for the physical handbag.
For brands, the shift from the current 2D Internet to the Metaverse brings two major positives. First, it allows them to develop much more immersive and engaging ways to connect with their customers through mini-games, special events or 3D world discovery, compared to the usual posts/pictures on Instagram or Snapchat.
Second, it offers them the opportunity to reach millennials and Gen Zers where they’re spending their time. The two generations account for 140 million consumers in the US alone (43% of the population) and even closer to 50% in regions like Asia Pacific and regularly visit major video game destinations such as Roblox, which now boasts a traffic as high as 42 million users a day.
For the Metaverse pioneers like Roblox, at least two new sources of highly profitable revenue should emerge over coming years, giving a massive lift to margins and EPS.
Obviously, advertising will become a pillar of business models as brands will seek to drive traffic to their virtual space in Roblox or in rival platforms (through ads on virtual billboards for instance) and as entertainment companies will promote their artists or movies in engaging ways such as live virtual performances.
Then, as you can expect most virtual spaces such as NIKELAND to sell both digital and physical products at some point, Metaverse platforms will likely take a percentage on each transaction and could well transform into e-commerce powerhouses in the future thanks to more engaging shopping experiences.
Overall, advertising and e-commerce could radically transform the economics of Roblox and peers. At the same time, the risk of disruption is material for online advertising and shopping giants, explaining why Meta is suddenly playing catch-up with its announced billions of Metaverse-related spending. As we said in previous reports, we are convinced that M&A will be the way to go for Tech giants to build their own virtual world.
