Driven by fear of missing out on the next big thing, large corporations and institutional investors are consuming digital property choices, with virtual plots being bought out almost faster than the environment can create.
The prices of space in connected virtual and augmented reality environments, known as the metauniverse, rose last year, with digital property sales reaching $ 500 million. The trend could make the virtual real estate industry a $ 5 billion market by 2026.
Many companies see digital real estate as an opportunity to market their brands and engage with customers. But some observers say the flood of capital, along with bullish forecasts of financial opportunities in the metaverse, show a bubble.
“The value of virtual real estate, which is not zero in the long run, is certainly inflated and inflated right now by this crazy interest, which may be ahead of what technology can actually provide,” said Philip Rosedale, founder of Second Life. , a multimedia online world where consumers can also buy virtual land, CBS News said.
“We have to cross a really big gap, and that gap is from what young children do and want to do in multiplayer games, to adults who want to be together socially in a virtual environment,” Rosedale said. “And we’re a lot further from that than a lot of the enthusiastic people in the market think right now.”
The big brands are making their claims
While a fully functional virtual world in which adults can communicate and engage with companies is still years away, more than 200 consumer-oriented brands, including Gucci, Atari, Wari Music Group and HSBC, have already purchased virtual land in the metaverse.
“The usefulness of virtual land is real,” said Sebastian Bourges, co-founder and chief operating officer of The Sandbox, one of the four major digital real estate platforms. The other three main meta real estate platforms include Decentraland, Somnium Space and Cryptovoxels, which together own nearly 269,000 digital real estate plots.
“The opportunities are huge because there are no more limitations for physics, for imagination, and it makes sense because consumers want to get more involved with the brand community,” he added.
Many companies use virtual land to create new marketing channels through immersive experiences, digital goods such as NFT and sponsored content. Borget said that “brands will want to be closest to where consumers need to continue to engage with them.”
Yet this crucial first step – buying first-class real estate in the metaverse – is becoming more and more expensive.
According to a report by RepublicRealm, which tracks projects related to the metaverse, the average price of a plot of land on the four main platforms has doubled to $ 12,000 in the six-month period last year.
Just like in the real world, the location of the map can significantly affect property prices in the metaverse. Plot of land next to the virtual property of the rapper Snoop Dog in Sandbox it was reportedly sold for $ 450,000 in December. Other factors that affect the value of real estate in the metaverse include plot size and the popularity of the metauniverse platform you have chosen to build on.
Noise is attracting many new users, as well as creating a new demand for crypto wallets. In these virtual spaces, cryptocurrencies are the main currency for transactions, making access to the crypto wallet – a space where converted dollars are stored – essential for participation.
Of The Sandbox’s more than 2.5 million registered crypto wallets, half belong to users who created a wallet the first time they signed up for the platform, the company said.
Of Sandbox’s 166,000 real estate plots, about 70% have already been sold to more than 20,000 people, Borget said. In terms of size, a single plot in Sandbox is the equivalent of real-world construction space measuring 315 feet long and 315 feet wide with 420 feet high in the real world. Each platform offers different plot sizes, ranging from 50 square feet to over 400 square feet.
Big money is accumulating
Growing advertising is rapidly attracting institutional investors to cyberspace.
In January, professional services company PricewaterhouseCoopers (PwC) bought virtual real estate from Sandbox. Last month, HSBC, one of the world’s largest financial institutions, also bought virtual land and followed suit by launching a fund to capture investment opportunities in the metaverse.
“We see great potential for creating new experiences through emerging platforms,” said Suresh Balaji, chief marketing officer at HSBC, Asia-Pacific, adding that this is an opportunity for HSBC branding to engage new and existing customers.
In addition to The Sandbox, other platforms such as Decentraland, Somnium Space and Cryptovoxels also offer digital land plots that can be used to build virtual experiences.
$ 1 trillion market
JP Morgan, which recently said that “the opportunities offered by interactive, digital worlds seem limitless” have bought virtual real estate in Decentraland. The global banking company estimates that the metauniverse market will soon generate more than $ 1 trillion in annual revenue and that the monetary risks for early jumping businesses are relatively low.
“The astronomical risk of being abandoned is worth the extra investment needed to start and explore this new digital landscape for yourself,” writes JPMorgan in January reportadding that virtual real estate provides corporations with opportunities for “mass scaling”.
“Instead of having stores in every city, a big retailer can build a global center in the metaverse that is able to serve millions of customers,” JPMorgan said.
This is one of the strategies that Prager Metis, a large accounting firm, is trying to implement. Prager Metis recently acquired virtual real estate in Decentraland and is in the process of opening a three-story digital building that will serve as its headquarters in the metaverse.
The company has appointed Jerry Aitel, an accountant with more than 40 years of experience who also leads the real estate company’s practice, as its CEO of Metaverse. His job is to help businesses and individuals navigate the financial challenges of the real estate market in the metaverse.
“We are developing a consulting practice around this,” Eitel told CBS News. “Look at what the Internet did years ago, it destroyed so many industries, and it will do the same.”
Technical and ethical wrinkles
Despite the current virtual land, digital real estate is not a new concept, but dates back nearly two decades. Consumers can also buy land on the popular multiplayer online platform Second Life, which first launched in 2003.
Founder Rosedale said Second Life has an economy of $ 650 million a year, but the average transaction is $ 2. “It gives you an indication of what we will see in the long run in terms of the value of virtual goods,” he said.
In addition to cautious optimism about the future value of virtual land, Rosedale noted the current challenges that platforms need to address in order to scale. One problem is gathering many user avatars in the same place at the same time, he explained, adding that Second Life managed to bring together only 100 users in one place.
He also warned of potential nightmares if advertising became the main method of making money in cyberspace.
“If virtual worlds use advertising as a way to generate revenue, they are very, very likely to do great harm to people,” Rosedale said. He added that body and eye movements, which can be tracked through virtual reality headphones, reveal levels of information to the advertiser “with which you should not feel comfortable.”
“We can’t go that way,” Rosedale said. “As an industry or as an ecosystem, we can’t use advertising as a business model for metauniverses.”