Advertising in the Metaverse

The concept of the Metaverse has gained an intense amount of interest in 2021. Check out the Google Trends data for the search term metaverse since the beginning of 2020:

That huge uptick in searches coincides with the announcement of a $1 billion funding round to support Epic Game’s long-term vision for the Metaverse.

A few months following Epic's announcement, Facebook CEO, Mark Zuckerberg, outlined his intentions to turn Facebook into a metaverse company on a quarterly earnings call in July.

These companies are aiming to build the next phase of the Internet, and you should pay attention.

The Metaverse presents an entirely new vector for advertisers and marketers to reach their audience. Brands need to begin considering how the Metaverse may unfold so they can take part in the construction of this new reality.

What is the Metaverse?

The Metaverse is a persistent and shared interoperable virtual universe rendered in three dimensions.

The easiest way to explain the Metaverse is to draw comparisons to familiar experiences. Think of the Metaverse like a video game, except there is no objective. You can play games in the Metaverse, but you can also hang out with friends, shop, watch movies and concerts, or even work.

You may one day access these experiences through virtual or augmented reality hardware to create a truly immersive experience. You can also bring any items collected or bought across the Metaverse with you wherever you go.

The closest experiences we have to a Metaverse today are games like Fortnite and Roblox. Each of these platforms offers a shared virtual and three-dimensional space that facilitates experiences beyond gaming.

The reach of these games is staggering. Since Roblox is now a public company, we know exactly how many players log on to the platform per day. Roblox reported 43.2 million daily active users in their Q2 2021 financial results.

Fortnite does not report daily active users, but some monitoring tools typically show 6-12 million daily active users. The last user count report from their parent company, Epic Games, boasted over 350 million registered accounts in May 2020.

Within each of these games, millions of users create avatars to represent themselves. Players craft avatars using items collected or bought, and these identities persist across whatever experience they participate in within each platform.

So instead of merely watching a film premiere or concert within these games as a passive viewer, you bring your avatar identity along with you and become an active participant.

Allowing users to persist their in-world identities across experiences outside the core game touches on what some consider a Metaverse. But since the experiences are confined to their respective platforms, they do not satisfy the commonly accepted grandiose vision of the Metaverse. In a true Metaverse, you could seamlessly flow between each platform without leaving the Metaverse.

I can collect gear for my Fortnite character, but I cannot wear that same gear outside the Fortnite world. In the Metaverse, the digital items that I own come with me. Metaverse platforms will all operate on top of a set of open standards and protocols rather than a closed system.

Although we are far from a fully realized and all-encompassing Metaverse, we can learn from the Fortnite and Roblox proto-Metaverses. Analyzing new developments in gaming, decentralization, and Web 3 can help us predict how a full Metaverse may come together. We can also learn from the mistakes made in the past to carve out a more harmonious future between advertisers and users.

In-World Advertising

Have you heard of in-world advertising? No, you have not because I made it up. In-world is a phrase used to refer to something in a virtual environment, so I find the term in-world advertising an apt description of what we are about to discuss.

In-game advertising is a commonly used term in advertising, but I believe we should decouple the term from the advertising we are about to discuss. In-game advertising could refer to a banner ad in Candy Crush or an interstitial unit in Clash of Clans.

I would define in-world advertising as an ad that appears in a virtual world that could, in some cases, mirror real-world out-of-home (OOH) ads. Imagine cruising city streets in a racing game, and the virtual billboards are ads for real-world products.

In-world advertising is not a new concept. In 2008, Barack Obama purchased ads in a handful of games from Electronic Arts. EA even provided geotargeting features and was able to place the ads in 10 swing states. Images of Obama, with the caption "Early Voting Has Begun/VoteForChange.com", graced digital signage in Madden 09, NBA Live 08, Need for Speed, and more.

Some companies already offer advertising solutions that deliver in-world ads. Bidstack helps brands place their ads in virtual environments. They work with developers to place ads in games and provide real-time performance reporting to advertisers.

Bidstack can place in-world ads in the rally racing game Dirt 2 or drop logos in the (virtual) digital billboards surrounding the fields in the soccer game, Football Manager.

If the Metaverse captures enough attention and in-world advertising gains popularity, buyers will want to use their existing programmatic buying tools. Advertisers would also expect the same verification and validation to occur, regardless of the environment.

Anzu.io is another company that works with developers to place in-world ads. The company partnered with OpenX to offer in-world advertising programmatically to buyers. The two companies even offered integrations with MOAT, Nielsen, and Comscore to bring the viewability and verification tools buyers expect to game environments.

One benefit of in-world advertising is that it could bring a level of realism to games. A Bidstack study revealed that "95% of gamers felt ads enhanced gameplay realism" from these types of ads. Ads on billboards and signs mirror reality and also do not disrupt the core gaming experience.

In contrast, Simulmedia launched a new platform called PlayerWON this year that rewards users with in-game perks for watching video ads. Simulmedia claims that their research shows that players are willing to watch up to 10 ads per day to unlock in-game content.

I do not doubt that some players are willing to exchange attention for loot. But there is no denying that these ads are much more disruptive to users than in-world placements and detract from immersion into any experience.

If someone walked up to you with an iPad and said they would give you a new pair of shoes for watching an ad, would you do it? Maybe. But you would probably feel uncomfortable the whole time. So why would the experience change in the Metaverse?

Instead, there are more seamless and less disruptive ways to market your brand in Metaverse environments, like live virtual events.

Events in the Metaverse

The limits of reality confine concert attendance to the capacity of the venue hosting the show. Rod Stewart claims the title for the highest attended concert in history at Copacabana Beach on New Year's Eve in 1994, with over 3.5 million attendees.

Travis Scott more than tripled this feat when over 12.3 million concurrent players attended his Astronomical event in Fortnite. The event occurred separately from the main battle royale experience in a non-combat environment.

Many of you may roll your eyes at such a prospect. Attending a concert in virtual reality cannot come anywhere near the multi-sensory and visceral experience obtained by attending a concert in reality. But for millions of players who came of age in a digital world, attending a concert in the same place they hang with friends every day is an alluring prospect.

For artists with young fans, there may not be a better way to promote their brand. The electronic music artist Marshmello paved the way with the first-ever concert experience within Fortnite in 2019 and Lil Nas X performed a similar concert in Roblox.

For artists like Travis Scott, Lil Nas X, and Marshmello, headlining these events raises their brand capital in the minds of millions of players. The reach obtained by the brands relative to the overhead far surpasses the logistics required for putting on a real-world concert even a fraction of the size.

Artists are not the only ones taking advantage of the possibility of enamoring a massive player base with virtual events. Media companies are utilizing these captive events to market new movies.

Fortnite hosted a Star Wars film preview event that included a live discussion with director JJ abrams and an exclusive screening of a previously unreleased scene from The Rise of Skywalker. Christopher Nolan and the marketing team behind the movie Tenet also dabbled with the Metaverse when the trailer premiered in Fortnite last year.

You could sit back and watch video streams of these events. But the killer feature that separates these events from any other digital live media experience is that you are an active participant.

Users can move within the three-dimensional space, dancing and expressing themselves using their avatars. Avatars are the digital identities of the users. Platforms like Roblox and Fortnite offer deep levels of customization to allow the player to express themselves with their avatars.

Companies like Hasbro, Marvel, and even luxury brands like Gucci have found creative ways to market their brand in the Metaverse using the in-game content users earn or purchase to outfit their avatars.

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Product Placement in the Metaverse

If you could completely rewrite your existence, who would you be? How would you dress if your options were limitless and you inhabited fantastical worlds?

Creating an avatar, or a virtual representation of yourself is a necessary first step before entering the Metaverse.

In games like Fortnite, players need to construct a humanoid avatar. The foundation of these avatars can range from a man, woman, or banana. The player can then outfit the avatar using generalized non-branded clothing or choose from sponsored clothing items.

The type of in-game outfits (called skins) Fortnite has offered run the gamut. Players can equip luxury clothing from brands like Balenciaga or suit up in the full uniform of their favorite NFL team. These skins instantly give each brand access to Fortnite's 350 million+ user base and keep the companies top of mind for however long a player chooses to equip their skins.

Roblox also offers the same type of brand placement to advertisers looking to reach their player base and even takes it a step further. The company recently partnered with the luxury brand Gucci to create a branded Gucci world within Roblox.

Players can enter the Gucci-themed land and shop for in-game items using the Roblox native currency, Robux. Players purchase Robux using real-world money and can spend it on in-game content. Users can even hawk these items on a secondary market if the demand is there. One player paid $4,115 real dollars for a limited-run virtual Gucci handbag in the game.

So sponsoring in-game items offers not only a way to market a brand but a potentially lucrative new revenue stream. Forget the overhead of producing, storing, and shipping physical goods, now brands can sell digital twins of their items with much lower overhead in the Metaverse.

Roblox has even reversed this concept with some brands. Hasbro partnered with Roblox to develop real-world physical Roblox-inspired Nerf blasters. The Nerf blasters include a code to redeem the virtual equivalent of the Nerf blaster within the game. Partnerships like these look to amplify brand impact across both reality and virtual reality.

The problem with these product placements is that the brand confines their promotion to a single platform or game. Users cannot bring their Roblox Gucci bag over to Fortnite or their Fortnite NFL uniforms to Roblox. There is no interoperability between experiences.

Standards & Interoperability

We have used Fortnite and Roblox as examples of Metaverse-like experiences so far, but neither of these platforms exemplifies a true Metaverse.

In a true Metaverse, players could seamlessly move their digital identity across platforms. You would be the same entity in Roblox, Fortnite, or any other platform operating on The Metaverse.

Epic Games, the company behind Fortnite, recently went to court to attempt to remove one of the biggest threats to an open Metaverse.

Apple, famous for its restrictive rules on its app store, removed Fortnite from the app store when Epic Games attempted to accept payment directly from users rather than giving Apple its 30% cut. Epic claimed that Apple effectively runs a monopoly since users cannot install apps on Apple products from outside the app store or accept in-app payments outside the Apple payment system.

The court ultimately ruled in favor of Apple on most counts, maintaining that they were well within their rights to remove Fortnite for violating Apple's terms of service. The one win for Epic came from a single ruling requiring Apple to allow other payment processors, which Apple is already appealing.

The point here is that for a Metaverse to work there need to be no barriers between platforms. The concept of a walled garden runs counter to the open nature of a Metaverse.

In the Metaverse, if I purchase an NFL uniform skin for my avatar on Fortnite on a Microsoft Xbox, I should be able to wear it on my Roblox avatar when playing on an Apple iPad. Maintaining cross-game inventory is not feasible today because these platforms are not interoperable since they have their individual identity systems and economies.

There currently is no financial incentive for any company to support an open and interoperable economy. Why would any company let a user bring items with them from other platforms? They did not earn any revenue from the purchase.

Platforms and brands sponsoring in-game items need to establish an economic model where everybody benefits from using an interoperable standard to persist identity across the Metaverse. Once the economic incentives are in place, everyone can benefit by moving towards an open model.

The explosion of popularity of Fortnite may be thanks to an open and interoperable stance Epic Games took when it came to distribution and access to Fortnite. Players could access the game for free on any device or platform. Players would have their same avatar, in-game items, and progress tracked across consoles, PCs, or mobile devices.

Sony was not ready to play ball when Fortnite first hit the scene. Sony actively prevented players from cross playing with their friends on any other devices. Sony believed that its position as the leader in the console market would not hold its competitive advantage if users could play with friends on devices other than Playstation.

Why convince your friend to buy a Playstation if they can play Fortnite with you on any device? Sony also believed they would lose royalties from in-game purchases if a user purchased an item on another platform but spent most of their time on Playstation.

Epic eventually made a deal with Sony that allowed crossplay if Epic made up for any royalty loss from users buying on other platforms but playing on Playstation most of the time.

If Epic Games wants to help create The Metaverse they should consider similar actions. They should consider open standards to persist player items not only across consoles but other games.

Tim Sweeney, the creator of Fortnite, acknowledges that Fortnite is a closed marketplace. But in that same article, he discusses what it would take to have an open Metaverse. He mentions that every game would need to agree on "file formats for describing a 3-D scene" to even consider moving 3D items across experiences.

The collective agreement on HTTP, IP, and other protocols gave rise to the Internet, and everyone will need to once again come to a consensus on standards to create a foundation for the Metaverse

The World Wide Web Consortium (W3C) Open Metaverse Interoperability Group (OMI) "is focused on bridging virtual worlds by designing and promoting protocols for identity, social graphs, inventory, and more." The wheels of standardization are already moving for some, but those standards will not mean anything until the big boys of the Metaverse like Epic, Roblox, and Facebook adopt them.

Identity, Web 3 and NFTs

Web 2.0 facilitated the rise of user-generated content and interactivity on the Internet. Becoming an active participant rather than a passive consumer incited a cascade of innovation. But this change also spurred the creation of massive walled gardens fervently controlled by corporations like Google, Apple, and Facebook.

These companies stand to benefit by locking their users and their precious data into their existing closed-off ecosystems. By making it more difficult or economically inefficient to advertise without their data, they position their companies to earn more revenue.

Google and Facebook possess a treasure trove of data outlining our desires, secrets, interests, and relationships. Why would they want to share that with anyone else?

Apple only earns revenue from in-app purchases or subscriptions, so why would they want app developers to focus on advertising?

These companies have already built their walls higher this year under several initiatives, ostensibly to protect user privacy. Apple made their advertising identifier nearly irrelevant, and Google continues its quest to deprecate cookies in Chrome.

So what can we learn in this final chapter of Web 2.0 and apply to the opening chapter of Web 3?

What is Web 3?

Web 3 is the next phase of the Internet. There is no established or widely agreed-upon definition of Web 3 — but the concept represents decentralized protocols that allow the creation of platforms, economies, and organizations that no single entity controls.

Bitcoin proved to the world that a decentralized system built on a blockchain could power an economic system now valued at over $1 trillion. The introduction of blockchain technology spurred the creation of many decentralized protocols designed to power finance, media, and entertainment applications. Collectively, these protocols command over $2.32 trillion in value as of this writing.

Web 3 may provide the foundation necessary to create a fully realized Metaverse and could help solve interoperability problems. The recent flurry of interest related to NFTs provides a sneak peek into how this could play out.

NFTs in the Metaverse

An NFT or non-fungible token is a one-of-a-kind digital asset that lives on a blockchain. The owner of the NFT can prove their ownership using their private key or wallet. The most popular form of NFT right now is art, but some metaverse platforms like The Sandbox or Decentraland are already embracing NFTs as in-game items.

Accepting in-game content as NFTs would allow users to prove ownership of those items across any platform. If metaverse platforms embrace NFTs users could also sell the items on decentralized secondary marketplaces.

So imagine the NFL creates a SuperBowl LV Tampa Bay Buccaneers uniform NFT. Any game, platform, or experience could allow a user to bring that uniform to the game by validating they own the item using their private key. The NFL could point to 2D or 3D assets in the metadata of the NFT to assist in the creation of virtual assets.

Obviously, in practice, there are more things to consider.

• Ethereum and NFTs are not very user friendly

• The assets in the NFT metadata may not be applicable on every platform

• There is no established economic model to benefit platforms

Entrepreneurs and innovators will eventually solve the first point as the technology progresses. Although, there is no denying that Ethereum and NFTs currently present a steep learning curve.

The second point will need to be solved by the services accepting NFTs as in-game items and the brands, artists, or users creating them.

The third point may present the most tricky challenge. Why would any platform give up the in-platform economies that they control for a decentralized system? I do not think they will, but I do believe they will eventually bow to outside pressures.

If a popular platform or game catches on with users that allows you to move your items freely on and off the platform, do you think users would willingly choose to use a closed-off system? What happens when more and more platforms band together to support the free exchange of items? A network effect will occur, and there will be no turning back.

Users will flock to the systems that allow them to persist their items across platforms. They will also enjoy the freedom of exchanging those items on open marketplaces. The increased utility of virtual assets will most certainly increase their value (which helps NFT creators or the brands behind them).

Established companies like Epic Games or Roblox may need to consider economic models that benefit them if such a system takes off. If they move early they could help write the rules to smart contracts or standards that establish incentives to use such a system. One example could be rewarding metaverse platforms with a royalty percentage of sales based on how often players equip the NFTs within their game relative to others.

To learn more about NFTs, check out this article I wrote about Marketing and Advertising NFT Projects.

Establishing Identity in the Metaverse

Establishing and persisting a unique identity across any experience is a core tenet to the Metaverse. Everyone must agree on a foundational identity system for users to seamlessly flow in and out of experiences run by separate companies.

In Web 3, private keys allow users to validate that they own something like a cryptocurrency or NFT. These private keys live in wallets, or software used to hold digital items, prove identity, and interact with Web 3 applications. Popular wallets like MetaMask allow a user to connect to a web application to prove their identity.

MetaMask and other wallets like it may pave the way for the future of identity on the Internet. Users could prove their identity by signing in with their Web 3 wallet, effectively making their public wallet address their identifier.

Using an alphanumeric public wallet address could serve as an identifier to maintain anonymity, as I outlined in my Private Identifier for Advertising (PIFA) post. The drawback is that users will forever have this value tied to any profiles marketers create with their public wallet address.

Future innovation in this space should focus on providing users control of the entities currently allowed to access a user's identifier. Users should have the ability to break the connection between their wallets and an advertiser or platform. A feature like this would give everyone control over their identity in the Metaverse.

Metaverse when?

Microsoft CEO Satya Nadella introduced new metaverse offerings on their Azure cloud hosting business during the Microsoft Build Conference this year. Microsoft designed the new components to help companies create digital twins or mirrored metaverse representations of physical factories, networks, or systems.

NVIDIA has also released their Omniverse platform designed to be the "plumbing of the Metaverse", utilizing Pixar's open-source Universal Scene Description (USD), a framework and file format for 3d computer graphics data. Omniverse will help developers and graphic artists work on three-dimensional scenes across environments, locations, and applications.

Facebook's Oculus virtual reality headset continues to decrease in price and increase in performance. With each new version of the Oculus, the barrier of entry to a high-fidelity and immersive world continues to decline.

The Metaverse is coming, and some of the largest and most influential technology companies are trying to get out ahead of it. These companies have committed to the creation of tools that help build and access the Metaverse.

Companies like Epic Games and Roblox have already established proto-metaverses that are compelling enough to dazzle millions of players. They have proven there is a desire and demand for users to interact, communicate and play in a persistent world. They have also shown that the Metaverse can be highly lucrative, with Roblox currently valued at $40.4 billion and Epic Games valuation sits around $30 billion.

But when will we realize the utopian Metaverse? Will we even achieve it? Will the Metaverse operate like a unified nation or an ocean filled with disparate islands?

We are still far from achieving The Metaverse. But there are plenty of opportunities for marketers to consider now. Advertising technology providers should support standards and frameworks that always keep user experience and privacy top of mind.

The Metaverse presents a unique opportunity to build from the ground up. Advertisers and technology providers should start anticipating how the Metaverse may operate. Consideration upfront can help us avoid the pitfalls of identity, walled gardens, and privacy that have plagued the Internet since the onset of Web 2.0.

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