Are virtual goods an untapped commerce opportunity for brands?

With spend on virtual goods outpacing mainstream industries, we explore why they could well be an under-explored avenue for brands. An NFT campaign by Virtue to promote virtual fashion. US$1.4 million in a year.

That's how much 21-year-old designer Arthur Trusov made last year selling virtual goods, mostly digital outfits and accessories, via Roblox, a global online gaming platform featuring hundreds of games made by professional and hobbyist programmers.

Trusov is not alone in making millions by creating and selling virtual goods. Every year, US$54 billion is spent on virtual goods, almost double the amount spent buying music. This is a massive, if largely untapped, commercial opportunity to be explored.

Earlier this year, a global survey of 3,000 consumers by Virtue, the creative agency from Vice Media, found that virtual goods are no longer considered niche purchases. More than eight in ten respondents had already purchased a virtual good, with digital fashion being the most popular category.

Authors of the study believe virtual goods represent an untapped opportunity for brands, especially with young people. "As our future becomes a blended reality between the physical and virtual, virtual goods will become the mainstream, changing the way young people own things in a time where owning physical land or traditional investments is almost unreachable," says Zoe Chen, strategy director APAC, Virtue.

Opportunities for brands

Multiple consumer brands have already entered virtual worlds to sell their products as digital items. From Nike to Gucci and even Taco Bell, tens of thousands of dollars are made every month by brands who create and sell virtual products, often in collaboration with metaverse platforms like Roblox. Josh Neuman, president of gaming studio Melon, which develops immersive digital metaverse experiences on Roblox for major brands, believes there is a massive opportunity for brands to create virtual goods in the metaverse. "Nearly every popular metaverse platform has a user generated content (UGC) structure that allows for creators to design and release products," says Neuman. "Players are 100% invested in their avatars and value the opportunity to obtain levelled up looks, rare items and generally like to rep their favourite brands in the virtual world as much (if not more so) as they do in the real world."

Last year Neuman worked with NFL, the American football league, to bring the NFL Shop to life on the Roblox platform, which includes a complete line of virtual goods that is updated constantly. "In addition to dedicated virtual goods releases, brands can build entire virtual worlds, games and activities around the release of virtual products within various platforms in the metaverse, creating deeply immersive and interactive engagement," says Neuman.

While current virtual goods are mostly recreations of physical things in digital worlds, the metaverse is opening up new creative collaborations between marketing, tech, experience, licensing, agencies, partners, and communities.

"What happens in the metaverse can and will defy many limitations that exist in our physical world," says Virtue's Chen. "The Web3 rulebook is still being written, and the only limit is our imagination." But for now, Culture Group president Michael Patent says virtual goods offer an opportunity for both revenue and engagement. Revenue for companies engaged in creating and selling virtual goods, and engagement for brands that are not selling virtual goods but are using them as part of integrated virtual campaigns.

"Marketers should also recognise that as the entire suite of Web3 tools and assets develops for the consumer—such as wallets, NFTs and avatars— there will naturally be growth in virtual goods as all of these are interlinked," says Patent.

Are virtual goods more sustainable?

According to a study by Virtue, 71% of 3,000 consumers surveyed cited ‘sustainability’ of digital goods as being a purchase driver. Plus, recent research by EY found that “substituting resource-intensive physical goods and real-world experiences with digital and virtual alternatives in the metaverse could drive substantial sustainability benefits”. The report added that digital products and virtual experiences in the metaverse will likely be significantly less resource-intensive and more carbon-efficient than comparable ones in the real world.

But, currently, are brands right to market virtual goods as more sustainable? "There’s certainly a school of thought that touts virtual goods as the sustainable alternative to their physical counterparts, as they don’t come with the carbon footprint associated with a traditional supply chain if they are on a carbon neutral blockchain, like the NEAR protocol," says Patent. "But the real opportunity around sustainability is to leverage virtual goods to drive more sustainable behaviour in real life.”

For example, Alibaba’s Ant Forest programme allows users to grow virtual trees by completing sustainable real-world activities, such as taking public transportation. For each successful virtual tree grown by a user, Alibaba will then plant a real-world tree in one of China’s most arid regions.

However, at the moment, virtual goods are being marketed more as a sign of brand innovation or a tool for self-expression, instead of sustainability, such as NFTs from beauty brands like NARS and Elf Cosmetics, or the latest Spotify Island on Roblox—they are mostly marketed as new product offerings (digital art) or new brand experiences.

Virtue's Chen says that while sustainability presents a massive opportunity for brands and marketers when it comes to virtual goods, it’s important for brands to demonstrate genuine and real effort towards sustainability to avoid greenwashing. "A simple way to embark on this could include leveraging smaller but sustainable blockchains that utilise less energy such as Solana and Tezos, instead of more mainstream, but unsustainable blockchains, like Ethereum’s existing platform,” she says.

Will virtual goods go mainstream?

Justin Peyton, chief strategy & transformation officer at APAC, Wunderman Thompson, believes we will all be buying and using virtual goods in the near term. "I expect we will see clothing brands focus on Digital Twins, and start to give people digital versions of the garments they buy in real life," says Peyton. "Virtual goods could also be a big opportunity for brands loyalty programmes. In this regard, digital products and virtual goods may provide access to gated environments or exclusive product or content access."

Dentsu Gaming recently carried out research across six markets in Southeast Asia (Singapore, Thailand, Indonesia, Malaysia, Philippines and Vietnam) and found that 75.8% of those interested in gaming are used to interacting with brands in the virtual space and 50% have a high interest in collecting in-game items from brands.

"As people continue to spend more time in virtual spaces as digital avatars, we expect the demand for virtual goods to continue to increase in parallel," says Jamie McConville, regional lead at Dentsu Gaming APAC.

"For many brands already experimenting, they have found that virtual products can provide new revenue sources and audience engagement opportunities."

In a further sign of a step up in the interest and demand for virtual goods, Meta, the parent company of Facebook and Instagram, announced that from April 2022 onwards, it will give a handful of content creators the opportunity to sell virtual items to users in Horizon Worlds, its main platform in the metaverse.

"For example, someone could make and sell attachable accessories for a fashion world or offer paid access to a new part of a world," the Californian tech giant said in a press release.

And as platforms within the metaverse grow, it's likely we’re going to see demand across the board. "The numbers on platforms such as Roblox, Fortnite and Minecraft are pretty staggering already," says Melon’s Neuman. "And with the potential mass adoption of digital wallets and Web3 acceptance, we’re going to see the floodgates opening in the near future."

Virtue's Chen believes that virtual goods will allow marketers to conduct more experiments quickly. “While components of the metaverse evolve at a quick pace, treating one’s foray into the metaverse as a series of short experiments will allow brands to engage early and consistently to develop hypotheses for a long-term strategy,” she says. "Ultimately, while marketers are often cautious to start work in an unknown space, our attitude to the metaverse is optimistic,” adds Chen. “We believe that this is the next frontier of culture, and the costs and risks of being left behind are significantly higher than the incremental investment needed to enter the space.”

Written by: Matthew Keegan, Campaign Asia, 2 June 2022

Source: Campaign Asia-Pacific

Read more at: https://www.campaignasia.com/article/are-virtual-goods-an-untapped-commerce-opportunity-for-brands/478284