Understanding The New Virtual To Physical And Physical To Virtual Commerce Models

Look at any Target or Walmart store on a Saturday and watch as customers perfectly dominate the essence of physical-to-physical commerce. In fact, just the experience of being in a physical location leads most customers to make purchases far beyond their shopping lists. That’s the reason why brands spend millions of dollars on physical retail locations because they feel confident they can elevate and capitalize on the on-site shopping experience and the “serendipity” that happens in the store. Whether it’s waiting in a queue to enter the Louis Vuitton Maison Vendôme store in Paris or going down an in-store slide during a Showfields shopping adventure in New York, the world of physical retail has become more experiential and glitzy. It is one of the drivers of BIG retail.

But when we start to think about a brand’s physical footprint in virtual economies, we seem to falter. Does this footprint have a “toe hold” in the virtual world? I say a resounding yes!

As I continue to advise and work with brands in this new space, it is evident from my perspective that new commerce models are evolving, but they have not been done at scale. Even while the Metaverse is in a nascent state, these models will have a significant impact on customers’ choices and purchasing decisions. My advice to you is to buckle up, because we’re about to head into the future of commerce!

As a IMPORTANT note, we can all acknowledge that the Metaverse has serious implications for society. For example, one of my previous articles from August 2020 explored ethics and privacy in the metaverse. The article you are reading right now is specifically written to explore and present new commerce models, and should not be interpreted as the only thing of importance as we build the Metaverse. The intention of this article is to shed light on these new commerce models to create awareness and explore the possibilities of how commerce will transcend eCommerce and physical retail and also give professionals the nomenclature they might need as they explore these new spaces. These new commerce models should be approached delicately and with community and value creation in mind, for many of us, the hope is that potentially a web3 ethos of openness will also be adopted.

Now let’s get started!

The Human Side Of Commerce

For centuries, the only viable marketplace (except for a “Sears” catalog back in my parents’ time) was physical-to-physical (P2P). Customers went to a physical location, selected a product and exchanged physical “fiat” money in person for the material goods they wanted.

The dawn of the internet introduced new marketplaces for exchanges starting with social media apps and eCommerce. In the dawn of the metaverse and the coming era of web3, commerce will evolve and with this evolution, new models will emerge.

The marketing strategies, and even the products that brands will sell, will be different as we head into the successor state to today’s mobile internet, the metaverse. Whether the products are physical or virtual, professionals will have to consider demographic and psychographic data, skill-building and gamification, user interaction, events/experiences, digital twin technologies, and creating a unified commerce front…all with the intent of encouraging engagement with a product or service. Then add a layer of complexity to the mix when you factor in the importance of community, fandom, and authenticity and their impact on a fan and/or customer’s choices in the physical and virtual realms.

Many professionals use the term in-person shopping to differentiate it from virtual. I would suggest that all shopping is in-person, even if it’s done on a virtual platform or for the benefit of an avatar or a virtual home. There is still a human behind the decision making and the final purchase! (at least for now)

Is the Market Ready? Are You?

According to a recent BigBusiness blog, “brands that do want to spend some of their marketing dollars on Metaverse tech should look for things that already work and then figure out how to make them even better with immersive tech.” Moreover, brands should start this process as soon as possible since the “new” costumer is already there.

A recent survey conducted by Zipline (one of the world’s largest delivery drone companies) suggests that 85% of Gen Z respondents, 75% of millennials and 69% of Gen Xers responded that they would be interested in hybrid shopping experiences, which include using mixed reality in retail stores and for online shopping. “The key is to engage consumers with entertaining and accessible digital content that lowers the barriers to entry and meets Metaverse users where they already exist,” said Zipline co-founder and CEO Melissa Wong. This might be in a popular game or in a physical store where people mingle in the flesh. Just don’t expect to get much out of spending millions on the next deserted island. Too many times we see brands build experiences that are brand driven instead of creating them with the player in mind, and then they wonder why no one came.

Of course, gamers are at the core of all this new activity. They are already in tune with this new reality and are this brave new market. A study from Newzoo found that gamers had higher-than-average positive attitudes toward brand names than non-gamers. They surveyed 75,000 respondents online from 36 markets worldwide and found that gamers hold a significantly more favorable attitude toward brands in sports, cars, drinks and fashion.

Making It A Reality

Current shopping models are Physical-to-Physical, Digital-to-Physical, and Virtual-to-Virtual. But what about going the next step and making the sale from Virtual-to-Physical and Physical-to-Virtual? When your customers are in the Metaverse, it’s virtual first. However, what happens when they want to purchase something physical in-game or in-world? Or when they are at a physical location, whether a store or a music festival and something they acquire at the location can unlock something else for them in the virtual world? We will dive deeper into these models later in this essay and in future ones.

In the Metaverse, there is an emerging business model focused on providing new products to digital twins of the customer, which would be the person’s unique avatar. This is called Direct-to-Avatar (D2A), a term that Ryan Gill, CEO of Crucible, and I first explored back in July 2020 in a highly cited article. D2A bypasses traditional marketing by focusing on in-game personas to sell virtual goods, physical items, or real-world experiences. D2A may sound counterintuitive, but it is becoming a fast-growing market segment with an increased sense of connection to purchase digital goods that may or may not come with real-world counterparts. D2A can be leveraged by brands to sell V2V, P2V, and V2P.

With D2A becoming a new model for D2C, this in itself signals a new frontier for B2B and B2C paradigms which will be impacted not only by gaming but also by AR and voice.

Discerning The Metaverse Through “Metaverse Moments”

While the Metaverse may not be fully understood by many business professionals marketers, and communicators, many believe and agree that it is part of the future. Some companies are advancing into Metaverse markets, while others are stumbling into them. Separating impactful, meaningful activations from publicity stunts and teasing the real value of the Metaverse out of the hype can allow businesses to make rational decisions at this crucial state of the opportunities that are emerging. At the end of the day, what is the value you are creating for your community or your fans?

Right now, there is no universally agreed-upon definition of the Metaverse. While there are a few common criteria, most people have their own ideas about what the Metaverse is, or will be. And that’s okay. But, for the sake of common understanding, the Metaverse in this article does refer to a further convergence of our physical and digital lives.

As our current societies and economies are populated and shaped by individuals; the Metaverse is populated and shaped by our digital lifestyles. It’s about digital identity and ownership feeding, and being fed, by a new extension of human creativity. Additionally, culture is being created in virtual spaces, and that culture, in turn, impacts fashion, entertainment, and more.

The digital lifestyle isn’t new-we’ve been living it on phones, tablets, computers, increasingly in VR headsets and soon in AR glasses and other emerging display systems that bring our digital lives up to our physical lives. So, to what extent do we live party in the early glimpses of the Metaverse already?

The Metaverse that many imagine is still a long way off. But, the Metaverse isn’t (just) a virtual place at which we will someday arrive and will include our physical world. It’s an evolution. The Metaverse reveals itself more and more everyday in glimpses – “metaverse moments.”

While it’s important not to confuse these metaverse moments for the actual arrival of the Metaverse, we can learn from them about what the Metaverse will look like, and how we can build it, and build in it, successfully.

Pure Virtual Markets

Commerce is evolving into more virtual spaces and experiences, including experiences shared virtually through augmented reality. The world of the previous century was driven by physical-to-physical commerce – economic activity in the physical world buying experiences and items in the physical world. The Metaverse is driven by virtual-to-physical, physical-to-virtual and virtual-to-virtual commerce.

Virtual-to-virtual commerce has been happening in games for decades. This kind of commerce involves online economic activity buying online experiences and items. We can also call this the “direct-to-avatar” model – similar to today’s “direct-to-consumer” model but emphasizing that the “consumption” is taking place virtually.

According to Statista, in-game purchases alone accounted for over $61million in 2021, with the total virtual goods market expected to reach nearly $200 billion or more by 2025. That’s possible, especially considering other kinds of virtual-enabled commerce, which is also growing in scale through app and hardware adoption. This is presenting huge opportunities for companies exploring these concepts – particularly at this early stage of the market.

V2P And P2V

There are activations and economies in the Metaverse beyond the virtual-to-virtual model. These are virtual-to-physical and physical-to-virtual.

Virtual-to-Physical activations involve purchasing a virtual good or making a purchase within a virtual-first marketplace or a gaming experience that may have some virtual benefit but that also allows some kind of physical product or experience. Physical-to-Virtual markets involve purchasing a physical item or experience that also “unlocks” some virtual component.

Some Virtual-to-Physical commerce activations are relatively simple, like making purchases through an AR or fully-virtual storefront. There are dedicated companies making bespoke virtual marketplaces that integrate directly with a retailer’s existing 2D eCommerce solution.

Many online retailers have also seen success creating immersive shopping experiences through applications like Snapchat. Parent company, Snap Inc., has been making eCommerce through the platform easier and more enjoyable for users as well as more efficient for retailers for a while now. And that’s just in time since a recent study found that over 90% of GenZ want to use AR for shopping.

NFTs Could Play A Role

While both of these examples are exciting, it is true that they are versions of how some eCommerce already happens. Nevertheless, there are more technologically advanced options with even more potential to reinvent business models and present new ones. Consider those that involve the purchase of non-fungible tokens.

NFTs represent and allow ownership of digital goods. But, through the magic of blockchain, they also allow the minter of the NFT to grant exclusive boons to the holder. Consider a restaurant that hasn’t opened yet but sells NFTs allowing exclusive access to owners when the restaurant does open. If done properly it becomes a new way for start-ups to generate capital, for example Fly Fish Restaurant which opens in 2023 in New York.

Some might think that the use of an NFT in this way is gambling. (In the example above, will buyers get enough use out of the restaurant to make up for their initial purchase? Will the restaurant ever actually open at all?) However, it’s more appropriate to think of this kind of use of NFTs as “crowdsourced corporations” earning start-up money in much the same way that a new corporation would make money by selling stocks.

Just like a corporation selling stocks, a startup selling NFTs can grant holders exclusive benefits including helping to make decisions about how the project is run. This can go as far as “decentralized autonomous organizations” that are run completely by the people that run the digital infrastructure supporting a project. But, that’s a conversation for another day.

First, we need to look at some forward-thinking companies that are making major strides in using the NFT option as the marketing hook. London-based, Auroboros, which was recently featured in a Netflix documentary, for example, is a Metaverse native luxury fashion house that is creating for both the physical and digital markets.

Highly successful, the founders seek to embrace the art and fashion worlds merging them into the Metaverse. They are being aided in this task by using Boson Protocol which is a decentralized Web3 marketplace that allows a marketer to sell physical products in the Metaverse as NFTs. Future commerce will run seamlessly with the company promoting its products while having direct access to its data to determine future sales.

Some consider Boson Protocol a new form of “banking” platform by eliminating intermediaries expediting sales, a belief recently supported with its partnership with MasterCard. Its appeal is far-reaching with Tommy Hilfiger, Hogan, Cider, IKKS, Anrealage, Deadfellaz, SSIAN and others partnering with Boson.

It isn’t stopping here. Last year, Balenciaga partnered with Fortnite, the world’s most popular video game, to promote the fashion company’s high-end fashion. Albeit an interesting match for a high-priced fashion company to team up with a game that teens and young adults prefer, it is certainly the beginning of partnerships that may eventually increase brand recognition and eventual sales for brands. Time will tell but companies are eagerly exploring these possibilities.

Enter Physical-To-Virtual

There is also a lot of work being done in activating physical items or experience purchases to enable virtual benefits. These transactions are simpler for people that aren’t (yet) into crypto and NFTs, and it gives them the comfort of having a physical item or experience regardless of whether the virtual benefit materializes – or even in the event that they choose not to interact with the virtual component at all.

One example from last year’s holiday season came from toy company MGA Entertainment teaming up with Ioconic to create NFTs and virtual experiences that were launched from QR codes in the packaging of the L.O.L Surprise! toy line. This was in keeping with the spirit and business model of the line, which already involved collectability. It also added fun new components without replacing the existing model.

This example was relatively limited in terms of scale – only select retailers were involved and not all purchases from within those retailers included the QR code to the experience. Some of this is because blockchain and NFT activations can still be relatively expensive – particularly at scale. It’s also because companies are still learning how these emerging technologies fit into the customer journey.

Regardless of these concerns, the companies that are using brand activations are creating sensations wherever they play out. The result is greater brand awareness, more positive impressions and more customers which equals more sales. According to product>lead,a brand activation strategy marketer, companies are finding great results with their brand activation efforts, such as Revolve using an annual festival to combine experiential and influencer marketing tactics driving 70 percent of its annual sales, or Top Line makeup developing a Shop Your Mood interactive feature to increase conversion rates without damaging their reputation, or even Samsung encouraging users to use Samsung Galaxy s9 smartphone to take photos in any condition using the #reimaginemuseum hashtag.

The Wave Of The Future Is Coming To Shore

The time has come for business professionals to recognize that they have two options: they can stay entrenched in the traditional paradigms and strategies of consumer purchasing, shopper marketing, and customer experience or they can fully embrace new user journeys in the virtual spaces and in turn the Metaverse. Change and evolution in customer behaviors are not going away and will be further impacted by Gen Alpha’s reality which further blurs the physical and virtual divide.

While there is still no perfect roadmap for marketing in the Metaverse, there are now sufficient examples of initiatives from which we can learn to help us move forward. Through a holistic strategy that has clear goals and that is flexible change you can eventually build the confidence to put your toe in the water so to speak. No one is suggesting that you go full-blown into the abyss. Taking measured steps is the realistic way to start. With each of your own successes, you will be able to close the gap between the physical world and the virtual world. When you do, you will be amazed at the results.

In the next article in this series, we will dive deep into the Virtual-to-Physical commerce model. This will include its current state, what a current customer journey looks at all the stages of the commerce model from pre-purchase to post-purchase, as well explore the impact of player actions, touchpoints, pain points, solutions, and challenges.

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