Metaverse and Advertising Starting to Take Shape

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By Michael Inouye | 1Q 2022 | IN-6410

Though advertising often lags behind in adopting the newest technology, the metaverse offers a chance to revolutionize how advertising works.

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Triller and SeaChange International Merger and Microsoft Acquires Xandr from AT&T

NEWS


The metaverse captured headlines in 2020 with most of the attention focused on immersive, virtual goods/worlds, and 3D simulations. All of which are critical elements of a future metaverse, but one of the largest upcoming market opportunities—advertising—in comparison, was missing from this early hype cycle until recently. Three recent announcements stood out as laying the groundwork for advertising within the metaverse:

The first news comes from Triller, known as a TikTok rival for short form videos. It is merging with video solutions company SeaChange International. The new combined company will be called TrillerVerz Corp., which will leverage Triller’s advertising and marketing expertise in SeaChange’s cable, satellite, and Over the Top (OTT) target markets.

Occurring in late in 2020 as well, Microsoft (who is an early leader in the build-up to the metaverse) acquired Xandr from AT&T to bring in additional advertising expertise and market exposure (demand side platform (DSP) and supply side platform (SSP)).

Comscore, in January 2022, launched its unified cross-platform measurement solution, “Comscore Everywhere”, which many within the advertising industry hope will bring some standardization to omnichannel measurement.

While these examples are not directly tied to the metaverse, they serve as essential building blocks and, in the case of SeaChange and their customer base (pay TV operators in particular), access to a younger audience. The younger audience is critical not only in terms of remaining relevant in the competitive landscape but also in the build-up to the metaverse. Some of the early metaverse platforms like Zepeto predominantly skew to younger generations. For some younger users these metaverse platforms are their first exposure (and remain the primary connection) to social networks, which means advertisers will need to support these platforms to continue reaching wider audiences.

Advertising will Play Larger Role in the Build-Up to the Metaverse in 2022

IMPACT


The advertising business model can lag behind new market trends (i.e., OTT, Direct to Consumer (D2C), mobile gaming) and this is the case with the metaverse. The push to D2C, for example, was heavily driven by subscription services and only more recently has advertising risen to match Subscription Video on Demand (SVOD) while the rise in connected TV (CTV) helped catapult video advertising into the forefront of the ad tech market. Mobile gaming similarly started with premium games but shifted to free to play with advertising based to reach a wider audience and to combat rampant piracy. New markets, like those mentioned (DTC and mobile gaming), and the build-up to the metaverse target early adopters with premium content and services in order to maximize revenue among the initially smaller user bases.

In the metaverse space these early (premium) experiences mean utilizing Non-Fungible Tokens (NFTs) for virtual assets and land, subscription services, and software purchases. Advertising has yet to break into these more interactive mediums in a meaningful way and while ad-based models will become common in the build-up to the metaverse, its ramp up won’t occur as quickly as was seen in mobile gaming and D2C. Looking outside of mobile gaming, for example, we can point to a period when in-game advertising was viewed as “the next big thing” in PC and console gaming but it failed to materialize. Similarly, advertising in VR showed some early promise but it too failed to gain traction—a victim from slower uptake in hardware and among the early adopters a reluctance to combine ads with their purchased content.

These markets, however, are shifting: Meta’s Oculus Quest 2 is a success and live service games, along with virtual goods and cosmetics in video games, has proven to be successful. The build-up to the metaverse, with the arrival of more virtual worlds and economies will both attract new users and create opportunities to bring advertising to these interactive platforms. This plays well into Microsoft’s acquisition of Xandr. For companies (like pay TV operators) looking to remain relevant and competitive in the new landscape, the merger of Triller and SeaChange makes quite a bit of sense.

It is still early days for the build-up to the metaverse but 2022 is shaping up to be a much stronger year for advertising in these interactive platforms. Brands like Adidas are already investing in virtual economies and making the connections between real world and virtual world goods. Retailers like Walmart and H&M are also exploring virtual shops and experiences. These types of opportunities will expand and as consumers spend more time in these virtual spaces the marketing groups will shift their attention to advertising.

Invest in Interactive with an Eye on the Metaverse

RECOMMENDATIONS


While the metaverse speaks to a cohesive and interconnected experience like the Internet, the build-up to this future will be fragmented. Efforts are underway to make these individual virtual worlds and different “metaverses” more interconnected, but they still largely remain separate ecosystems. Until these platforms are better connected, the user bases will remain relatively small. Even the larger ones are still at risk of collapsing if consumer preferences change and users move to new platforms—think early days of social networking. This doesn’t mean however, that companies should wait and see what happens. While the end version of the metaverse is unknown, it isn’t a flash in the pan and ignoring these early opportunities will inevitably put the sideline players at a competitive disadvantage and behind the curve.

Investments should be made in interactive advertising, even for platforms like CTV. Interactive advertising remains a highly polarizing topic among advertising experts, with some espousing the market potential while others see it as snake oil with little chance of making an impact or developing. Part of the problem with the latter’s view is it was based on different mediums and use cases—the metaverse and virtual worlds in general change this dynamic significantly. For example, interaction in the past meant being able to click on a link to see more information (about an ad or good) or receive a link to your mobile device; generally speaking, this isn’t a compelling experience. With virtual goods, an interactive ad could allow a user to see and rotate a 3D item (e.g., a virtual shoe) to see if they want to buy the real good and virtual facsimile for their favorite virtual world. This could happen on a CTV with the basic directional keys on the remote. Although limitations with TV remote controls are often cited as reasons for difficulties with interactive CTV, but there have been good use cases and demos using the directional keys alone.

The goal is to find ways to engage with users in meaningful ways that create value for them. Value creation for the user is too often overlooked and needs to be placed at the top of the list. This creates a foundation where users will not only continue to engage but also evangelize the experiences to others. The goal is to bring in more active users and in time we will see other markets like advertising finding similar opportunities as well.