How the recession could impact brands’ metaverse spending

‘Metaverse platforms’ are out, user-generated content is in

With crypto winter in full effect, metaverse platforms that are rooted in blockchain technology, such as Decentraland and The Sandbox, have experienced a massive decline in traffic. On the other hand, player counts in game-centric virtual worlds such as Roblox and Fortnite continue to rise. Brands might not have cared about user numbers in 2021 and 2022, when they were racing to stake a claim to the metaverse — but in 2023, they’re more likely to spend their marketing dollars activating inside the platforms people are actually using.

In recent years, the meaning of the word “metaverse” has been muddied by the rise and fall of the web3 space. Some experts believe that brands will allocate less money toward experimental metaverse marketing budgets and more to their gaming budgets, but that the outcome — virtual branded spaces, products and events — will be more or less the same.

“We call it the metaverse space, but the reality is, what we’re talking right now is UGC gaming,” said Margot Rodde, founder of the Fortnite Creative studio Creators Corp. “For sure, they will spend less, but not necessarily in UGC gaming, with its huge audiences and potentially new platforms that are going to pop up in that space, built by other gaming companies.”

Creating tangible revenue opportunities is key

At the moment, most brand activations inside metaverse platforms have not included any direct opportunities for e-commerce or the sale of virtual goods. Brands view the metaverse as more of a marketing channel at the moment — a way to raise brand loyalty or awareness and signal their commitment to future technologies.

As a recession mounts, brands will start to realize that they are leaving money on the table by not including direct commerce opportunities in their metaverse activations. Companies like Forever 21 have already sold millions of dollars of virtual goods by partnering with companies such as Virtual Brand Group, which helps connect Roblox creators with brands hoping to digitize their products.

“In a down market, you have to ask yourself, ‘why am I doing this?’ And if the answer is to build a sustainable, revenue-generating business, that’s a great answer,” said Virtual Brand Group CEO Justin Hochberg. “And if it’s anything else, you’re probably wasting your time.”

Experts on the brand side fully acknowledge the necessity of direct virtual commerce opportunities in the near future.

“We think the biggest monetizable opportunities in these spaces are from the sale of digital collectibles,” said an executive at a major brand that recently launched in Roblox, who agreed to speak to Digiday on background. “Some of those are going to be tickets, but [virtual merchandise] is a big part of it as well.” 

Entertainment brands will continue to spend more than consumer goods

The types of brands that activate in metaverse platforms will change as economic headwinds pick up — and as brands slowly but surely become more educated about the benefits of the metaverse.

At the moment, brands of all kinds have invested in custom metaverse experiences, from Invisalign to Walmart. But following its launch in September 2022, “Walmart Land” was widely maligned on the internet for its cavernous emptiness and apparent lack of activities. The reality is that many consumer brands simply lack the intellectual properties needed to populate virtual worlds and make them truly worthwhile.

As the potential for a recession picks up, some experts anticipate that entertainment brands will continue to invest in the metaverse, taking advantage of their wealth of homegrown IP. Warner Music Group, for example, recently opened its “Rhythm City” experience in Roblox, which the company will use moving forward to sell digital merchandise and host virtual concerts featuring WMG artists — the sort of tangible revenue opportunities that are lacking in experiences such as “Walmart Land.”

“Panasonic batteries or whatever — they’re not an entertainment brand, so why would they build their own standalone experience?” said Matthew Warneford, CEO of the metaverse development studio Dubit. “That doesn’t mean that they shouldn’t try and achieve awareness or tell a story about how great their batteries are in these spaces, but they shouldn’t be deploying hundreds of thousands of dollars to build something and then maintain it.”