Untangling Web 3.0 and the Metaverse – What do boards need to consider?

Web 3.0, blockchain, the Metaverse, and cryptocurrency – terms that seem to dominate any conversation about new technologies these days, even after the crypto market meltdown in late spring. Are these speculative hype or the next big fundamental disruptions?

On the one hand, tech giants, including Meta and Microsoft, are putting metaverse development at the forefront of their strategy. On the other, there are always substantial risks that go far beyond the financial when it comes to being an early mover jumping on a new technology trend. However, even firms outside the technology sector, such as luxury goods, automotive, and even food service are making a bid for the metaverse. Should companies and their boards be engaging on the topic? ?If so, how and when?

For anyone who isn’t a tech expert, exploring this space is not without its challenges - the terminology and technology is complex and some of the use cases feel futuristic. The virtual reality (VR) aspect conjures up images of Ready Player One. The hype around NFTs (non fungible tokens) and the broader bucket of digital assets has become conflated with stories of celebrities buying digital pictures of cartoon monkeys for eye-watering values. Most notably, the recent crash of cryptocurrency values has given naysayers much to point to.

During a recent executive webinar we hosted focusing on developments around the metaverse and Web 3.0, we shared our view that Web 3.0 is a game changer and boards should be engaging now. If Web 1.0 was the static, read-only internet, and Web 2.0 is the interactive communication superhighway we all use today, then Web 3.0 is the internet of value.[1] The fundamental technology advancements that are emerging are analogous to the early years of Web 1.0, with the potential to change the corporate landscape to an even greater degree.

Establishing the Lay of the Land

It’s worth disambiguating the terminology.

‘Web 3’ and the metaverse are most often used as terms to describe increasingly immersive digital experiences and people coming together to collaborate without being in the same physical space. In this sense, many of us have become used to working in the metaverse during the pandemic, collaborating using chat tools and videoconferencing.

Blockchain technology has introduced the capability for the more effective and seamless tracking and transfer of goods, wealth and assets between parties in a digital environment, while simultaneously empowering the idea of self-sovereignty. In the process, the capacity to create micro-economies around tokens and drive commercial opportunities has grown significantly . For more on our perspective about the use cases for cryptocurrency and blockchain, please see our paper.

Exactly how these new technical forces will manifest themselves is difficult to predict at this early stage of maturity, and depends heavily on continual technology innovation, as well as consumer acceptance, regulation, and the ability to integrate into business models. ?

However, while the qualitative impact is difficult to assess, quantitative forecasts are already ambitious. McKinsey estimates that the metaverse will generate up to $5 trillion in value by 2030. The value is forecasted to be driven mostly in e-commerce ($2 to $2.6 trillion) and have meaningful impacts on virtual education ($180 to $270 billion), advertising ($144 to $206 billion), and gaming ($108 to $125 billion).

The Chance for Fundamental Disruption

The implications of the advent of the metaverse and Web 3.0 are widespread for companies.

Fundamental Disruption. The most fundamental question is around the use of blockchain itself. Blockchain’s ability to create trustless, peer-to-peer networks is already transforming areas such as supply chain and logistics with platforms such as IBM’s Food Trust . Where new technology goes, disruptors follow. Is the board looking at what blockchain means for the core business model? For competitors? For disruptors?

Evolved Customer Engagement & Monetisation. In terms of digital assets, Web 3.0 and the metaverse, companies are exploring various ways in which they can enhance and expand the existing offering, engagement channels, and monetisation.

There are a number of areas for boards to consider:

·?Customer engagement. How are we engaging customers in the metaverse? Sotheby's has taken its auction house into the metaverse , offering bidders the opportunity to present their avatar as a representative at an NFT auction. ?

· Digital goods and services. How are customers engaging with our products in the metaverse?

· Payments. How can our customers spend with us? Another opportunity is to leverage financial assets such as cryptocurrencies, perhaps by accepting them as payment.

Talent Implications

Ideas are one thing, but the execution is also critical. Talent to develop metaverse, Web 3.0, and NFT solutions are in hot demand across all disciplines, so it’s important to have a strategy in place. A long-term implementation might call for establishing an internal function and hiring in the necessary talent. However, if the chosen approach is to be more experimental, it may be more appropriate to think about strategic partnerships.

For many established organisations, it’s important to understand that much of the talent at the cutting edge of this space will be very different to what they are used to, with ‘years of experience’ very relative and much more fungible functional track-records. The key for businesses looking to hire the talent that can take them into this domain for the first time is demonstrating themselves as an innovator willing to take first-mover risks. ?

With a possible skills gap in mind, it’s also worth balancing the fact that the barriers to entry in this space are relatively low. It’s easy enough to experiment with getting consumers involved in digital goods alongside physical goods to gauge interest and begin figuring out how digital assets might play a more strategic role in your business development.

At the same time, scale is critical. A successful experiment may mean customers are demanding more, and the more an organization can scale an idea across many consumers, the more valuable it becomes. However, scalability creates more dependency on talent. Once again, boards need to strike the right balance between short-term and long-term risks and opportunities.

How Can Executives and Boards Prepare?

How can boards begin to prepare themselves for this transition? Recognising the potential of Web 3.0 and keeping an open mind will be essential.

First, get out and explore. Even if you don’t have a VR helmet at your disposal, there’s plenty you can do to begin learning more about this new frontier of technology and what brands inside and outside your industry are doing to come up to speed. For instance, brands in the luxury sector have been blazing a trail when it comes to marketing and customer engagement, using NFTs to create exclusive digital apparel.

Second, challenge the board to think about the potential disruption of your relationship to customers and your industry created by Web 3.0. Consider how the technology could be disruptive to your industry – payments, identity solutions, data owned by customers, the ability to create online communities – and you’ll likely find many more ideas which resonate in your industry.

Third, think about culture and talent. Does your organisation have the kind of culture where people are keeping abreast with these technological changes and how they’re being used by your customers and competitors? Is there a way for people to generate creative ideas that can undergo rapid assessment or testing to see if they’re worth exploring further? Even if senior leadership decides that the firm is open to making a foray into the metaverse, the will to innovate needs to be nurtured, which ultimately comes back to talent. Many companies still struggle to find the necessary talent for Web 2.0 – it’s not too early to begin to get ahead of the need to identify talent for the Web 3.0 transition. ??

Finally, try to ignore the hype – be it positive or negative – around cryptocurrencies. The unregulated status of cryptocurrencies may create a perception of risk but don’t allow that to cloud the opportunities of harnessing the underlying technology. Look past the noise, and assess the technology against any potential business opportunity with a realistic assessment of any applicable risks in context.

While there are plenty of reasons to get excited, the one major sticking point is that this entire industry has developed to date in a way that’s unregulated. This creates substantial risk for participants, including businesses. Leaders typically have legitimate concerns about the compliance and reputational risks of encouraging customers to engage with assets that are volatile and have very different security and ownership considerations. ?

The regulatory risk may seem like an easy get-out to avoid engaging with these new technologies. But even if it seems like their mainstreaming is still in the distant future, it’s never too early to get ahead of the pack and begin setting the right strategy and finding the leadership to help propel the company through this next wave of digital transformation.

[1] A definition of the IoV is suggested as the “instant transfer of assets that can be expressed in monetary terms over the Internet between peers without the need for intermediaries”. Source: Treiblmaier, H. (2022). Defining the Internet of Value. In: Vadgama, N., Xu, J., Tasca, P. (eds) Enabling the Internet of Value . Future of Business and Finance. Springer, Cham.