What is the metaverse—and what does it mean for business?

No 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.

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 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.

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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 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?

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 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.

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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 Web31 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?

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?

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.

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.

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