Meta Consumerism: Holiday Gifts, Digital Goods, & Virtual Expression

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Metaverse Article II:

It’s holiday season. So as investors, we’re naturally thinking about the American consumer. The holiday season is a big part of consumer spending and a huge barometer of the broader health of the American consumer. Said another way, we’re thinking about how much money people spent buying, and how they made purchases.

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On that note – holiday sales were up significantly in 2021. The retail data came in ahead of expectations — the American consumer is healthier, they’re spending money, and they love giving gifts at this time of year. They are also purchasing those gifts through digital means and are buying digital gifts. We expect this trend to continue, especially with the expansion of the metaverse and digitization more broadly. The younger generation is also much more comfortable with digital spending; Digital spending should increase as Millennial income power grows and wealth transfers to Millennials begin to accelerate.

History of Digitization:

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Over the past two decades, we have made the transition from in-store shopping to online shopping, to shopping on our phones on the go. The logistics network has expanded to deliver packages from warehouse to doorstep in days or hours. The shopping mall experience has become an at-home experience, and the at-home experience is increasingly becoming an online or digital experience. We are not only buying physical goods online, but we are now starting to spend more of our walletshare on digital goods – or even forget digital goods – only digital leases or subscriptions.

For example, see Change in video and audio. Twenty years ago we spent time choosing films in blockbusters. We bought DVDs for the house, and when a new album came out, you had to go buy records or CDs. Then the disruption started. You can buy books on Amazon instead of going to the store and you can buy songs for your iPod on iTunes, a digital download.

Today, things have changed even more. You don’t actually buy movies or songs anymore – you don’t even own them. Instead, you have a digital subscription to listen to as many songs as you want from across the music world using Spotify or Apple Music.

The same pattern has repeated across different consumer categories – physical purchases have become digital downloads, and in some cases digital downloads have become streaming access or subscription access. This has happened in music, entertainment, gaming, etc. The same theme is evident in the sharing economy with AirBNB
ABNB
and uber
Uber
Less ownership, more access, driven by digitization and changing consumer attitudes.

The future of consumption:

Going forward, we expect sharing to continue, more home buying, and increased spending in the digital environment. The first two are fairly straightforward – sharing economies make sense for limited use items like cars – you typically drive your car an hour or two and let it idle for over 90% of the time – Why is that when you can share it. The same goes for shopping from home – the convenience factor trumps just about everything the physical experience can offer.

But spending within the digital environment, the shift from physical goods to consumption of digital goods, we think is incredible opportunity in that space. The power of the American consumer will shift from buying physical goods to buying goods in the metaverse and other digital spaces – this is an investment opportunity we want to be a part of.

However, in order to invest, we have to understand a few things. First, why are they spending money in the Metaverse. Second, what will people spend their money on? Third and lastly, how technology shifts will transform the shopping experiences across all platforms.

Meta Expenses:

Consumption in the metaverse is all about expression and network effects. Unlike the personally oriented fads of the past, Tamagotchi or Webkinz, the new era of meta-expressions is based on posture for your peers (look at the success of Instagram or Tik Tok influencers!).

People can use the metaverse to find like-minded people or explore a different lifestyle than in the real world. They can meet and explore, attend events and express their creative flair in the digital space.

As the digital world becomes a bigger part of our lives, the amount spent on expression in these digital spaces should also increase. Companies that stand out for excellence in the metaverse are those that understand how people want to express themselves and what they are willing to pay for it.

digital goods:

People can indulge in many types of digital spending. Digital expression can take many forms and the distinction between digital and physical expression will become very blurred over the next several years. There are a few ways for this to happen.

One way is the dual sale/hybrid version of consumption. Physical sales will increasingly be tied to a related digital product. For example a new pair of Nike sneakers can not only be a shoe in your wardrobe, but can also come with a non-fungible token (NFT) for a unique pair of Nike in the selected digital metaverse. If they are an exclusively collectible pair of Nikes, the digital token can also act as a guarantor of authenticity and make ownership rights to collectibles more transparent. This kind of dual platforming not only makes it easier to collect items, but also to transport self-expression from the physical world into the metaverse.

Another route of self-expression within the metaverse is through the purchase of purely digital assets. Right now these are taking a variety of forms – NFTs, access to events, or entitlements to various stuff within the environment – but all of these methods are headed towards the same place – more time in the metaverse.

Art collections being sold digitally are essentially acknowledging that the way art is seen in the future will be digital, not in person. It can be nice to physically visit an art museum, but why not visit an art museum in the Metaverse and see a wide variety of different art forms from around the world? A decade ago this wouldn’t have been practical – load times would have been too long, the resolution of your screen just wasn’t high enough to see it, but in the future you’ll be able to put on some VR glasses and dive into the art collection in spectacular detail. New art works can be sold, traded, and displayed within the metaverse and a physical copy of the work may not even exist.

You can take the same experience we’ve described for visiting an art and museum and apply it to sporting events, performances, and shows of all different kinds. You can also take a collector/proprietary model from a virtual art gallery and apply it to any number of collectibles, from fine art to trading cards to sports reels to status items or add-ons for specific platforms.

In addition, platform specific digital goods will become increasingly valuable as people spend more time expressing themselves on those platforms. The ownership of various goods represents certain tastes or claims of a certain status.

Luxury goods makers like LMVH are fully aware of the potential new market. Just as people buy high-end handbags and name brands in the physical world to claim status, people will gradually define status items in the digital world. Luxury brands are jumping to new virtual platforms in an attempt to establish themselves. Just as there are special items or decorative skins that drive value in particular video games – there will also be indicators of special value in various multiverses.

Video game makers like Activision have long gotten into these habits—new skins, new items, new maps or terrain, all of which have generated incremental revenue for some time. Expand situations from a typical game environment to an open world environment where the situation is on wide display and the variety of items people can buy will increase.

Increased Purchases:

Technology-driven changes in the consumer experience are not limited to the metaverse. How we shop for physical goods online will also be a big part of the changes…

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