McKinsey: A CEO’s Guide to the Metaverse – Brian Solis

Via By Homayoun Hatami, Eric Hazan, Hamza Khanand Kim Rants, McKinsey Quarterly

Suddenly, the metaverse is in the zeitgeist, for better or for worse. Investments more than doubled in 2022 thanks to moves big (like Microsoft's $69 billion acquisition of Activision Blizzard, which is now under antitrust scrutiny) and small (about $12 to $14 billion in venture capital and private equity investments). Everyone has heard about the success of some major gaming companies: Roblox reported more than 58 million daily active users in 2022.1 while Fortnite had more than 20 million in 2020 and generated more than $9 billion in sales between 2018 and 2019.2 And others are investing; Meta continues to spend at least $10 billion annually on metaverse development. Still, investors are asking questions of metaverse companies about when they can expect tangible, short-term results from those companies' investments.

How should CEOs view the metaverse? Is it a great opportunity or a great risk? Our answer: the opportunity is huge — and the risk isn't what you think it is. The companies building the metaverse see it as the next iteration of the internet (see this McKinsey explainer for more). And as with any technology so vast and all-encompassing (it's similar in scope to AI), the potential is huge. We estimate that the metaverse could generate $4 trillion to $5 trillion in value by 2030; see our report for full details.

The case for optimism

When we estimated the market value of metaverse activity in June 2022, we estimated it to be between $200 and $300 billion. It's bigger now, and in eight years or so it could be $4 trillion to $5 trillion (exhibit), which is roughly the size of Japan's economy, the third largest in the world. Exponential growth is possible due to an alignment of multiple forces: the appeal of the metaverse spans gender, geographies, and generations; consumers have already shown they are ready to spend on metaverse assets; they are open to adopting new technologies; companies invest heavily in the necessary infrastructure; and brands that experiment in the metaverse are finding that customers are happy.

The large scale forces the CEO's attention. As the old saying goes, a billion here and a billion there, and pretty soon you're talking real money – and $5 trillion is a lot of billions. For context, we estimate that the path to net zero will require $3.5 trillion in annual spending, and that the ongoing shift to the cloud has an opportunity for another $3 trillion.

The number we've put on the potential of the metaverse is so great because the metaverse is a combinatorial technology: it combines elements of many of the top trends that the McKinsey Technology Council this year identified as most promising, including AI, immersive reality, advanced connectivity. and Web3. That's the main reason CEOs should be interested; another is that the metaverse touches many parts of the enterprise. The CEO is the natural integrator who can bring together the company's resources to put together a coherent, value-driven response. And with the CEO's backing, there's less chance of the metaverse effort getting stuck in “pilot purgatory.”

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A long way to go

Skeptics note that other technologies have sometimes taken a surprisingly long time to reach their commercial potential. AI is one; even after a decades-long “AI winter,” many analysts believe AI still hasn't reached its potential, although recent advances in generative AI bring many skeptics. Autonomous vehicles are another. Isn't there a risk that the metaverse will suffer a similar fate? In other words, where are we on the hype cycle? The peak of inflated expectations? Or heading into the valley of disillusionment?

In our view, the evolution of the metaverse is a few years away from a real tipping point. It could easily take longer (although that's no reason not to prepare).

As Brian Solis of Salesforce shared with us recently, generational shifts like Web 1.0, social media and mobile “rarely happen overnight. They take years and are the result of an accumulation of incremental technological advances, growing consumer demand and cycles of experimentation.” That seems like an apt description of the obstacles the metaverse must overcome.

“Generational changes like Web 1.0, social media and mobile rarely happen overnight. They take years and are the result of an accumulation of incremental technological advances, growing consumer demand and cycles of experimentation.”

The technology is not yet ready to support the metaverse at scale: advances in 5G networks, edge computing, hardware and software must come online (they are ongoing). Currently, the audience is primarily gamers and tech savvy; others need to be recruited (our surveys indicate that they are very interested). Many metaverse transactions are done in cryptocurrency; we have all seen the shortcomings of crypto as a reliable and secure exchange system. Finally, there is no connection between all the different partial metaverses (Roblox, Sandbox and many others). The integrated or true metaverse is far away.

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Please read McKinsey's interview with Brian Solis about Metaverse here.

About the Authors

Homayoun Hatami is managing partner for global client capabilities and senior partner based in McKinsey's Paris office, where Eric Hazan is senior partner. Hamza Khan is a partner in the London office. Kim Rants is an associate partner in the Copenhagen office. The authors would like to thank Nikita Pillai and Adam Ridemar for their contributions to this article.