As the tech industry enters a period of winter, it’s not just the world of cryptocurrency that is feeling the chill. The Metaverse, venture capital tech investment, and social media are all facing challenges that are impacting retail.
It seems that after years of growth and hype surrounding eCommerce, mobile commerce, digital channels, and social media, the technology that consumers will adopt and use in their shopping journey has entered a dormant phase.
The Metaverse, a virtual reality world that Facebook has invested over $35 billion in, has faced backlash. Even employees of the company, who are paid to use the Metaverse, are unwilling to do so. This, combined with a 2% drop in VR headset sales in the US in 2022 (equivalent to a 12% drop in units shipped when accounting for inflation), has led to struggles for the industry. Some experts predict that only the introduction of Apple’s VR technology could revive sales in 2023. This could be especially frustrating for Facebook, as the company has already blamed Apple’s iOS 14.5 tracking opt-in for a potential loss of up to $10 billion in revenue in 2022.
Yes, retailers and brands are experimenting in the Metaverse – in all kinds of metaverses, which is its own problem. And especially luxury brands are finding that there is a market for NFT clothing that can be worn by your avatar in the Metaverse. They all experimented with Second Life, too.
The problem is adoption. When it comes to “getting into the Metaverse” vs. opening an app on your phone, your phone will win every time for speed, convenience, comfort, and battery life, just to name a few. I’ll be kind and say that Gartner’s prediction that at least 25% of people will spend at least one hour per day “in the Metaverse” by 2026 is very, very aggressive.
For me to use a VR headset, I have to clear a space in my house large enough to use it without bumping into anything (especially the TV). And I’m an empty nester still in the house my kids grew up in. Apartment living where the dining table doubles as the WFH desk and laundry folding stand is not compatible with VR. Then there’s the comfort level – it’s heavy, it fogs up, it’s not balanced right, the battery life is definitely not phone-level.
If 25% of people (voluntarily) spend an hour per day in the Metaverse, I’m investing in all the migraine and headache pain relief solutions out there, because their adoption will rise very coincidentally alongside VR adoption. What’s on my phone may depress me, but it doesn’t cause me physical pain.
Yes, we’ll get there with VR. The headsets will become more comfortable and the use cases more compelling. But it’s not going to be in 2023 and I feel pretty safe saying I think Gartner’s prediction hits at least four years too early.
For retailers, this means the Metaverse is an experiment only. The crypto crowd drove a lot of the NFT and Metaverse fashion spend in 2022, and it’s not clear that they’ll continue at that pace in 2023 (see “Crypto Winter” below). For a bunch of companies that spend a lot of time saying that store hardware investments – you know, the stuff that actually runs the transactions where retailers make money – are so expensive they can’t get to the question of ROI because they don’t even have enough cash to fund it anyway, I would strongly look askance at major investments in the Metaverse in 2023.
VC Funding Freeze
I learned a new term already this year: “dry powder” (no, I don’t pal around with VC’s very much). This is the amount of capital held by VC investment funds that is not currently deployed in any investments. There is a record amount of dry powder sitting out there right now and seemingly little interest to deploy it.
What about all those digital darlings that have already received a lot of VC funding? To borrow the Game of Thrones reference that undoubtedly spawned all this talk of winter, those DTC darlings of the last decade were summer children. They grew up in an age where the sun was warm and the wheat grew freely: where organic reach was a breakthrough, where interest rates were so low that money was free, and where investors were more than happy to invest in a one-hit wonder product company if it could show rapid growth. It wasn’t about profitability – it was about audience and scale.
But now interest rates are high and expected to go higher still in 2023. And digital customer acquisition costs are through the roof. Just because you’re a one-hit wonder with a cool product doesn’t mean that you have the platform to do it again and again. The digitization of business made it relatively easy to have an idea, develop it into a prototype, source production, set up your Instagram account, add a few cheeky posts and make money – all without having to acquire or invest in a lot of physical assets. The problem is, that’s more like a lifestyle business or side hustle, even if it turns into a $1M or even $100M product. It’s a product, not a business model or platform from which to grow into the next P&G or even Dyson, for that matter.
With VC’s now talking about “platforms” and “distribution and channel strategies” and even “profitability”, it means that the few most promising investments will continue to get funding, and the rest will need to figure out something, and quick.
What this means for retailers is a genuine opportunity. You want to snap up tech talent? You want an injection of digital marketing know-how? You want to add to a portfolio of private label brands? You have a better idea of how to turn a product into a platform? I think you’ll find a lot of DTC founders out there willing to talk.
Crypto Winter
As the world of cryptocurrency struggles to find its footing, other technology sectors are also facing challenges. The Metaverse, a virtual reality world invested in by Facebook, has faced backlash and declining interest. Sales of VR headsets in the US have dropped 2% in 2022, leading some experts to predict that only the introduction of Apple’s VR technology in 2023 could revive the industry. This could be especially frustrating for Facebook, as the company has already blamed the tracking opt-in feature of Apple’s iOS 14.5 for a potential loss of up to $10 billion in revenue in 2022.
When it comes to cryptocurrency, it seems that even those who own digital currency wallets and have a stake in the game are uncertain about its future. A survey by Future Commerce found that 58% of digital currency wallet owners don’t understand the hype surrounding crypto, and 52% believe it is “all hype.” This is in comparison to 69% and 55% of the general population who feel the same way. While the foundation of crypto may be faith, its acceptance as a form of payment is limited and decreasing. Additionally, the potential of blockchain technology is often overshadowed by the hype surrounding currency, causing innovation in the sector to slow.
Despite this, retailers are still interested in loyalty programs as a way to reach consumers. The Bored Ape Yacht Club, while not as hyped as it once was, still serves as a model for unlocking consumer loyalty benefits through the use of blockchain technology. This use case for blockchain may not come to fruition in 2023, but it is worth keeping an eye on in the near future.
Retail’s Tech Summer
I feel obligated to point out that the tech winter is not Retail’s tech winter. Retailers have delayed a lot of important tech investment over the last 2+ years and they’re running out of runway to make very necessary upgrades. And, refreshingly, even the cheapest, most anti-technology brands are viewing these necessary upgrades as a chance to leapfrog ahead to modern solutions built on modern architecture. It’s not the “sexy” stuff. But it will have more impact on how consumers shop than any of these tech winter storms.
Hi, I’m Oren, founder at BIGINTRO, a content strategy agency that helps B2B companies drive growth. We develop search, social, PR, and content marketing strategies tailored to business goals. I also have a dog named Milo.