9/5/22, 10:18 AM What is the metaverse--and what does it mean for business?

| McKinsey

What is the metaverse—and what does it

mean for business?

March 29, 2022
| Podcast

No official definition yet exists for the metaverse, but companies can’t
afford to wait until one does or the metaverse fully evolves to start
experimenting and investing in it.

N
o one quite agrees on how to precisely define the metaverse, but there is no

denying that we are already seeing glimpses of it and what it might become. In

this episode of the At the Edge podcast, Cathy Hackl—foremost futurist, metaverse
expert, and author—joins McKinsey’s Mina Alaghband to share her informed take on

what the metaverse is, how it’s currently manifesting, and what it might evolve into in the

future. She also discusses the potential opportunities—and responsibilities—for

businesses as the metaverse develops.

An edited transcript of the discussion follows. For more conversations on cutting-edge

technology, follow the series on your preferred podcast platform .

“If you wait a year and a half or two years to do something, to have a clear

strategy, and to start testing these assumptions, it might be a little bit too late.”

— Cathy Hackl

Mina Alaghband: That’s Cathy Hackl, tech futurist and metaverse expert. She’s a sought-

after advisor to luxury brands, a prolific writer, and she headlines many of the leading

conferences on the metaverse. She joins me today.

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This is the first of a three-part series on the metaverse. I’m Mina Alaghband. Welcome to

At the Edge, a production of McKinsey’s Technology Council.

Cathy, thank you so much for joining us for our inaugural episode. Let me start by asking
you, what is the metaverse?

Cathy Hackl: I think it’s important to state that there is really no agreed-upon definition

right now. Every morning—it’s become a bit of a ritual—I go to the Merriam-Webster

dictionary and type in the word metaverse. And every day it says this word is not in the

dictionary.

But if we needed to define it, I tend to have a pretty expansive view of what the

metaverse is. I believe it’s a convergence of our physical and digital lives. It’s our digital

lifestyles, which we’ve been living on phones or computers, slowly catching up to our
physical lives in some way, so that full convergence. It is enabled by many different

technologies, like AR [augmented reality] and VR [virtual reality], which are the ones that
most people tend to think about. But they’re not the only entry points. There’s also

blockchain, which is a big component, there’s 5G, there’s edge computing, and many,
many other technologies.

To me, the metaverse is also about our identity and digital ownership. It’s about a new
extension of human creativity in some ways. But it’s not going to be like one day we’re

going to wake up and exclaim, “The metaverse is here!” It’s going to be an evolution.

Mina Alaghband: Can you paint us a more specific picture? For example, what might a

young woman’s life look like in the metaverse ten years from now?

Cathy Hackl: I envision that she wakes up and starts her morning routine thanks to her

voice adviser. She goes to her closet and looks at her volumetric version of herself, which
is like an avatar or hologram of herself, and starts trying on clothes virtually using that

volumetric version of herself that has all her measurements, and then selects what she’s
going to wear that day. And the actual clothing she then puts on her physical self has a

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digital component to it. She can alter what her outfit looks like depending on who she’s
with virtually, or maybe her lipstick has digital haptic nanoparticles embedded in it so she
can greet her partner who is traveling in another country and feel his embrace.

Much of what we’ve read about the metaverse from sci-fi has been pretty dystopic, but I
do think we need to envision what it will look like so we can build toward a more positive

view of the future. We don’t want to escape reality but rather embrace and augment it
with virtual content and experiences that can make things more fulfilling and make us

feel more connected to our loved ones, more productive at work, and happier people.

Mina Alaghband: The players that are in the metaverse today are really going to shape

and define what the metaverse becomes over the next ten years as it matures. What are
some experiences that you’re seeing that might bring to life what the early metaverse

looks like?

Cathy Hackl: What we’re seeing right now are a lot of glimpses of the metaverse, or what

I call metaverse moments. I’ll give you a personal example. The first concert I went to was
in a stadium. For my son, who is ten years old, his first concert was Lil Nas X, who

performed in Roblox during the pandemic. And just because it happened in a virtual
space, it didn’t make it less real to him. During the pandemic, we hosted a Roblox
birthday party for my son, and the way his avatar showed up at that party was very

important to him. Just as if you were going to a physical party, you would probably think
about what shirt you would wear.

So it’s this evolution in how we separate what we do in the virtual space from what we do
in the physical world that’s further converging. A big thing I’m seeing in business right
now is how commerce is evolving as we head into these new virtual spaces and shared

experiences, both in the virtual and physical world.

You also have virtual-to-virtual commerce, which has been happening for decades in the

gaming space and now is something that a lot of people are interested in. For example, a
Fortnite player uses Vbucks to buy a skin within the game. I’m interested in exploring
beyond the virtual-to-virtual to the virtual-to-physical component. I may be in a virtual

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experience and purchase something that could arrive physically at my home. And then

there’s the opposite, where I am buying a physical item or a physical experience that
unlocks something for me in a virtual space. I’m really interested in looking at how those
business models and new commerce models evolve, and other new commerce models
that have yet to be created.

Mina Alaghband: You mentioned this idea of gaming being the earliest iteration of the
metaverse. How is the metaverse different from gaming? How is this not just gaming 2.0

or gaming with VR instead of a console?

Cathy Hackl: I see gaming as the on-ramp. When you talk about some of those enabling

technologies or the infrastructure that’s needed, you can’t escape talking about game
engines, like Unreal Engine or Unity. A lot of these virtual experiences are built on those
game engines, so they’re linked, but they’re not the same thing.

I would also argue from an anthropological standpoint that there’s a really interesting
shift happening in the idea and the concept of work. There is an evolution where work is
starting to be, for some of us, less physical and more mental, and because of the tools
that we’re starting to use, it’s becoming more fun and sometimes more gamified. I see

this with my children. When I think about what jobs they’re going to have in the future,
they’re going to be very much tied to creativity and building, but not building in the
physical form—rather it’s building in these virtual spaces.

I always use a phrase: in the metaverse, we are all world builders, and now is your time to
build. I’m not saying that we’re going to get rid of physical labor, because we are still
physical beings in a physical world, but I do think that the concept of work is expanding,

and gaming is a part of that future.

Mina Alaghband: There is debate about whether the metaverse is a billion-dollar

economy, or a trillion-dollar economy. What are those economic opportunities that are
emerging in the metaverse? What does a trillion-dollar or billion-dollar vision of this look
like?

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Cathy Hackl: When you start to think about how much is being spent on what I call the
direct-to-avatar model, which is a new direct-to-consumer model, I think the estimates
are $100 million dollars spent in 2021 inside gaming platforms for virtual goods, and
that’s a number that’s going to keep expanding. So I see these projections as being very

possible. When someone says $800 billion or $1 trillion by 2024, that’s possible,
especially when you start to look at commerce beyond just virtual-to-virtual commerce
but thinking of physical-to-virtual and virtual-to-physical commerce and unlocking those
at scale.

That’s why a company—for example, Apple—is going all in on what they’re calling
augmented reality and potentially leading us to whatever comes after the mobile phone.
What I am seeing in the work I am doing is that there are massive opportunities to take

these new commerce models and do them at scale, which unlocks huge opportunities.

Mina Alaghband: Can you give us some specific examples of the crossover economy

between digital and physical? I’m thinking of a case that has become early metaverse
lore, where users of Decentraland—the online marketplace of virtual wares—could order
a pizza within that platform and have it delivered to their door.

Cathy Hackl: There is some really interesting work being done to enable people to
purchase physical items in virtual spaces. You also have the component of being able to
do physical-to-virtual transactions. For example, the children’s toy company L.O.L

Surprise! has created card packets that have a QR code that can be scanned to unlock
NFTs and virtual experiences. These are things that have not been done at scale yet, but I
know they will be eventually as companies understand more about how the customer
journey in retail and the purchase points are changing.

Those are some simple examples. A more complex example involves investing in NFTs. I
recently bought a membership to a private NFT restaurant of sorts that will open
potentially in 2023. Only NFT holders can make a reservation there. I’m making a bet that

buying this membership in this restaurant where eventually I can host business meetings

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or have special celebrations is going to be worth more than what I paid for the NFTs on
which it’s being created. I think we’re testing a lot of assumptions right now. And some of
those will prove to be correct.

Mina Alaghband: How should brands be thinking about their identity in the metaverse?

Cathy Hackl: What I say to the companies I work with is that this is your chance to
reimagine what you become in the metaverse—what is the extension of who you are?
Just because you sell a physical good in the physical world, do you have to replicate that

in the same way in the metaverse? Or do you even launch a new brand that is Web3[ 1 ]
based, that is collaborative and co-created, so you don’t necessarily have to worry about
the IP [intellectual property] that you have created. There might be new ways to create
new things.

What I’ve seen over the past year is that a lot of companies and brands have begun to dip
their toes in the metaverse, maybe it was a marketing effort, but now they’re taking a
step back and asking, “What does it really mean?” They’re really wondering what this

means for their company, for their brand DNA, for everything that they stand for. What are
the potential OKRs [objectives and key results] and the potential ROI, which is obviously
very nascent? You can have projections on numbers, but everything’s evolving. Some of

those early assumptions and pilots might fail, but the brands might still get a pass. But if
you wait a year and a half or two years to do something, to have a clear strategy, and to

start testing these assumptions, it might be a little bit too late.

Mina Alaghband: It won’t just be marketing metrics, then. What are some of the metrics
that will emerge in this new environment?

Cathy Hackl: There will definitely be new metrics. We’ve been measuring things by likes

and shares and subscribers, but what does that mean when you’re now talking about
virtual experiences and communities? Are you going to measure by the number of people

on your Discord channel? What if half of them are bots?

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It’s going to be an evolution of learning how to know what you’re measuring and having a
clear idea of what success means with each pilot that you do—what is it that you’re trying

to test and what are you trying to learn? That will then help define success beyond just a
number.

Mina Alaghband: How do business leaders distinguish between the hype and the reality,

and where should they be investing today to be sure they have access to Web3 over the
next decade?

Cathy Hackl: We definitely have to admit that there is hype. There are people wanting to

do things just because they’re metaverse or doing NFT because it’s an NFT.

I would advise any executive that there are three things they can start doing today.
Education is number one, so you understand a little bit more of what’s happening. That is

going to be critical. But also allowing your staff and your teams to get educated as well,

because education is power.

Number two is to be strategic, and really think through your response to the metaverse. If
you’re already activated in the metaverse and what you’re doing is a marketing activation,

I would say you need to take a step back and create a holistic strategy.

And number three is to look internally—who within your company has the experience that
you need right now to start thinking about the metaverse and start building teams? You

might have innovation teams that have been developing AR and VR for a very long time.

They are leaders. They know how to think in 3-D and how to think spatially. You might
have crypto natives who work for you, who you don’t even know are crypto natives.

Sometimes the smartest person might be the youngest person in the room.

And if you do not have the experience you need, who do you need to bring into your
talent pool? If you think we currently have a talent war, just wait. It’s about to get a lot

harder.

Mina Alaghband: There’s a lot of excitement about Web3 and the metaverse. What are
you most concerned about?

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Cathy Hackl: Privacy. I worry a lot about data and privacy and challenges that we might
not even know yet might happen.

Mina Alaghband: What responsibility do business leaders have to help develop a

metaverse that will be equitable, safe, and sustainable and serve society at large?

Cathy Hackl: An important place to start is to look at what you are doing to make sure
your hiring processes are expanding, that you’re not recruiting from only one specific

geographic region because that’s where you’ve recruited talent before. Look at the skills
you need, because if you are creating a metaverse team, they should be distributed.

Also, I think being very vocal is important. That’s something I try to do, to help allow more

women, more minorities, and more LGBTQ communities know that they are welcome in

this future and welcome to help build it.

And I’m very passionate about educating lawmakers. I live in Washington, DC, so I go to

Capitol Hill to talk about these technologies to help answer their questions and help them

up-level their own knowledge. Some of the challenges of Web2 might not happen in
Web3 if we can have these conversations right now.

And we have to check our biases. I’ll give you a very clear example. I was giving a talk to

the [US] Department of Labor about how wonderful immersive technologies would be for
someone in a wheelchair who would be able to see themselves walk in the metaverse.

And someone checked me and said, “What if a part of their identity is their wheelchair,

and they’re comfortable with that? Why would you want to take that away?” I realized I
was looking at this with a lens of a bias, and I needed to check my bias. This is true of

anything, but it is especially so when you’re creating new worlds and you’re creating the
future of the internet.

Mina Alaghband: Cathy, thank you as always for bringing the metaverse to life and

helping our listeners really understand the opportunities in front of them.

Cathy Hackl: I am so happy to have been here, and I will see everyone in the metaverse.

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At the Edge is a production of McKinsey’s Technology Council. It is hosted by Mina

Alaghband. Contact us at McKinsey_Technology_Council@mckinsey.com .

Comments and opinions expressed by interviewees are their own and do not represent

or reflect the opinions, policies, or positions of McKinsey & Company or have its
endorsement.
1.
Web3 is the concept that a new phase of the World Wide Web will develop based on blockchain
technologies and decentralized finance tools such as tokens that replicate and expand on the
concept of real property ownership. It would be an advanced form of the current Web2, or Web 2.0,
which refers to the use of social media, interactivity, and user-generated content, which advanced
from Web1, or Web 1.0, the initial phase of the web, in which users at scale were able to access the
internet’s core information retrieval system via web pages and browsers.

ABOUT THE AUTHOR(S)

Cathy Hackl is a metaverse strategist, author, and speaker. Mina Alaghband is
a partner in McKinsey’s New York office.

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