Eric Hazan, an expert in strategic marketing and digital transformation issues, is a Senior Partner at McKinsey, leading the consulting firm’s marketing and sales practice for the EMEA region. He is the leader of the firm’s consumer and retail and telecoms, media, and technology practices worldwide. He is also a member of the board of directors of the McKinsey Global Institute, the economic think tank of McKinsey & Company. Prior to joining McKinsey, Hazan was a Senior Partner at Arthur D. Little, where he led the global telecoms, Internet, media, and entertainment practice and the consumer practice. He started his career in marketing and sales in consumer goods at Kraft Jacobs Suchard and at Danone. Hazan holds a Master of Science degree in management from HEC Paris, where he is a professor of business strategy. He recently spoke to The Innovator about business opportunities in the metaverse.
Q: You recently co-authored a report that predicts annual global spending by businesses and consumers in the metaverse will equal $5 trillion by 2030 and that the metaverse is likely to impact all industries, including manufacturing, finance, utilities, and healthcare. What makes you think this will be the case?
EH: When we looked at what was being written about the metaverse we saw a lot of hype. The reason we wrote this report was to separate the hype from the reality, provide our clients a fair estimate of the potential in our view, and give some advice at this stage of the maturity of the technology. We think there is huge potential in eight to ten years and that the tipping point will be two to three years from now. There is a lot of talk about this being the successor of the Internet. This may be true, but we are not in 1995, we are in the equivalent of 2002. Just look at gaming: there are already 350 million people playing on Fortnite and 50 million on Roblox. There was a concert inside Fortnite performed by Travis Scott in 2020 that 33 million people attended virtually. At the peak of NFT transactions people were trading $250 million a day on the OpenSea marketplace, so we are not talking about starting from zero, just enhancing the focus. People are investing at scale. Some $120 billion was invested in the metaverse during the first semester of 2022 through M&A, corporate investments and private equity, roughly similar to the amount that was being invested at AI in 2016. There is a lot of investment and a lot of interest so even if you are skeptical there is mounting evidence that there is clearly something there.
Q: How does McKinsey define the metaverse?
EH: Content and experiences ranging from learning to collaboration to events and industry specific uses in virtual worlds, i.e. environments where large number of users can gather, interact, create, and move in and out different experiences; platforms that facilitate distribution and discovery of content, experiences, and apps including browsers and search, visual search, app stores, in-app storefronts; a core set of tools and platforms for building 3D experiences—including design, game engines, AI services, creator tools; devices and accessories that are part of the human interface layer; buildout of the underlying infrastructure across cloud, semiconductors, networks, etc. that power the metaverse; the right payments and monetization mechanisms and the necessary security and privacy. The metaverse will require these things. 5G and fiber optic networks will be necessary, and you can’t reply only on the glasses. Augmented reality will need to be assessable on mobile phones to give users a multi-device, multi-channel access experience. Some applications will be enablers. If we have them things could really skyrocket, if we don’t it will be much slower.
Q: McKinsey commissioned a survey of 3,500 consumers across W. Europe, Asia, and the U.S. for this report. What did you learn?
EH: There is a list of activities that 60% of consumers prefer to do virtually than physically such as remote work, for example. The top three drivers of excitement are connectivity with people, exploring digital worlds and meeting with remote colleagues. Already about 79% of consumers active on the metaverse have made a purchase, mainly to enhance their online experience. Other top use cases included gaming, social, attending virtual events and fitness. We are predicting that there will be $5 trillion in spending in the metaverse by 2030. One of the assumptions is that 15% to 20% of commerce will switch to the metaverse. Consumers also told us they would love to travel virtually and go places they would never go otherwise, including Mars.
Q: You also surveyed executives. What did they have to say?
EH: While the metaverse is still evolving, senior executives believe in its potential. Our research found 95 % of senior executives expect the metaverse to have a positive impact on their industry within five to ten years, and 61% expect it to moderately change the way their industry operates . In addition, almost two-thirds (65%) of senior executives expect metaverse technology to drive more than 5 % of their organization’s total revenue in five years, while 24% of executives expect it to drive more than 15% of revenue. The high-tech and media sectors will be the first ones to be impacted and just after that luxury and retail but also healthcare and manufacturing.
Q: What are some of the applications?
EH: Marketing is an obvious one. Luxury goods makers are already selling virtual collections and it is increasing sales in the shops. There are also a lot of use cases for the industrial metaverse. We see a lot of companies testing applications, everything from allowing surgeons to map their patients in 3D environments to enabling factory digital twining down to the screw level, virtual R & D collaboration and radical improvements in operational maintenance. It’s easier and less costly to build a digital twin in the metaverse. You can achieve a level of precision in the metaverse that is scientific, whether you are in textiles, surgery, or manufacturing. That is the beauty. Everything that is painful to do in the physical world becomes easier in the metaverse. The fluidity of this is important. In the future there will be no borders in usage.
Q: How quickly do you think the industrial metaverse will evolve?
EH: 57% of companies are currently testing in the metaverse. This is huge. We are in an era of trial and error. Some 26% expect to create a dedicated metaverse business unit and 21% expect to do business in the metaverse. For example, the textile industry is already projecting that it will be generating €2 billion worth of business in the metaverse in five years.
Q: How do you advise businesses to approach the metaverse?
EH: As is the case with every technology it is ok to be skeptical at the beginning. However, given the current level of investment, development, and anticipated potential it is important to start testing. Remember that when e-commerce first emerged many people said, ‘I don’t need that, I go to stores.’ We don’t know how fluid and attractive the metaverse will be. Some consumers will adopt this new way of buying and if you have not tested you will not have the capacity to accelerate. Some brands are already embracing NFTS, some are progressively selling online and offline goods and some are focusing on industrial use cases. Focus on two or three use cases before you invest significantly and see if there is a good use case for your company. My advice is test, monitor and then eventually scale. I would not pass on this one.
This article is content that would normally only be available to subscribers. Sign up for a four-week free trial to see what you have been missing.
To read more of The Innovator’s Interview Of The Week stories click here.