Force Over Mass
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Force Over Mass

The Future of E-Commerce Part 3

Photo by Xianjuan HU on Unsplash

This is the final instalment of our three-part series on E-Commerce. In our previous instalments, we examined the history of E-Commerce and its developments up to today, as well as what we think might be important trends for E-Commerce in future. In this part, we will examine how the emergence of the metaverse might influence E-Commerce.

Across mainstream culture, the idea of the metaverse is beginning to gain momentum.

In short, the metaverse is a virtual world in which we are able to work, play, and interact with each other entirely online — think of the films Ready Player One or The Matrix. The idea of a metaverse strikes many as science fiction turning into reality, but Facebook’s recent rebrand as Meta is forcing people to take the idea seriously.

While this future seems abstract and far off, it may come sooner than expected. We see the metaverse as a trend that might combine many of the themes we are most interested in –bringing together areas such as Fintech (payments, crypto), Gaming, Deep Tech/AI and E-Commerce into a single convergent point.

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Commerce is an activity as old as time itself. Ever since people could communicate, they have bartered, negotiated, and traded with others. We have evolved from bartering goods, to using shells as money, to fiat money, and now crypto. While the heart of commerce remains a transactional activity, it is increasingly becoming an experiential activity on top of the transaction itself, and brands are learning that they can differentiate themselves via the experience they create.

As more avenues of trade open up, we can expect that commerce will continue in many different forms, with storefronts, digital purchase points or devices that may not yet exist. We have already seen the increasing use of technologies like augmented reality in everyday life — perhaps via filters in Snapchat or in games such as Pokémon Go.

It is not such a stretch, then, to apply it to E-Commerce. Today, we can try on virtual clothes on Amazon or makeup on Sephora. As our devices get more powerful, we can expect to see the increasing use of tech in commerce to deliver an experience to the consumer.

As we increasingly use augmented reality in everyday life and the virtual world becomes more immersive, the line between our virtual and physical reality begins to blur. The creation of a metaverse in future would be the ultimate immersive reality and could serve as an important inflection point for E-Commerce.

A centralised metaverse, virtual goods & NFTs

It is important to note that, while most of the mainstream is still getting used to the concept of a metaverse, the idea is not new. The term was first coined in the 1992 novel Snow Crash by Neal Stephenson. The idea of a virtual world blending with reality goes back even further in science fiction, with characters interacting with holograms in Star Wars or Blade Runner.

We expect the battle for supremacy of the metaverse to be fiercer than the one we’ve seen for operating systems. Think about it: in the last 30 years, the proportion of our interactions that are digital — be it personal or professional — has grown exponentially.

The metaverse is essentially a platform for our virtual universe, and if correctly predicted by Zuckerberg, will be the place where most of our non-physical interaction happens. The volume of data on users is much higher, and hence more is at stake than the battle for our wallet share seen by today’s grocery or food delivery startups.

Whoever owns the metaverse owns the rails for the future of E-Commerce within that space. Facebook/Meta already monetises its social media platforms, and it’s a safe bet that they will do so for their metaverse. Indeed, patent applications seem to imply Meta plans to employ a similar playbook of personalised ads.

While there may be space for a new E-Commerce behemoth to grow, they will most certainly have to play by the metaverse creator’s rules if they want to sell within that universe. The metaverse would possess data on its users and have great influence in deciding the rules of advertising

Virtual goods and NFTs could be used to establish ownership within the metaverse. Designers today have started selling virtual goods. In October, Dolce & Gabbana auctioned off $6m worth of digital fashion items. However this is also not a new phenomenon — Balenciaga and Fortnite collaborated on Balenciaga themed skins in the game, Louis Vuitton for League of Legends, and Gucci with Roblox.

In the popular Sims franchise, players could dress their avatar in H&M-designed clothes or buy IKEA-themed furniture for their virtual homes. Dressing our avatar in the metaverse is merely an extension of this idea. This trend for virtual goods (along with proof of ownership) will accelerate as users look to personalise the appearance of their avatar.

This trend goes beyond virtual goods into virtual assets. For example, our portfolio company Admix recently sold a series of billboards in the metaverse Somnium Space as NFTs. Selling for thousands of dollars each, these billboards entitle the NFT owner to a share of the ad revenue they generate.

Virtual goods marketplaces can emerge alongside the metaverse (akin to current CS GO skins marketplaces). If NFTs are essential to proving ownership of the virtual good, then future E-Commerce infrastructure for virtual goods must somehow be able to communicate with the most popular ledger technologies that capture most of the transactions for virtual goods around the world.

Instead of having stores the way we know them to be in the physical world, consumers can have an immersive experience as part of the sales process — for example, users can visit the tundra and experience a snowboarding game, before being offered the chance to buy snowboarding-themed items. Advertising can be made immersive yet unobtrusive within the metaverse, similar to what Admix currently does for games.

Of course, this is just one scenario that could materialise. A centralised metaverse should spark discussions around data privacy and the amount of power and control the metaverse creator has over an individual in the metaverse itself.

A decentralised metaverse?

An alternate reality to a centralised metaverse — a decentralised metaverse could be on the cards. This means there would be several metaverses co-existing alongside each other with interoperability.

In this case, depending how the metaverses are designed, a “headless” E-Commerce could serve across multiple metaverses to maintain a single source of truth in terms of inventory (physical and possibly also virtual). As we’ve explored earlier, the idea of having a “single source of truth” for a merchant’s inventory is not new — they just exist on a different level with the introduction of the metaverse.

There is also perhaps the wider question of where the general backend of the store (i.e. the tech infrastructure of the store) would exist. It has to also be able to integrate with the logistics tech infrastructure (for physical goods) as well so all orders can still be fulfilled automatically.

An ecosystem of apps can be developed around the need for new infrastructure (e.g. add-ons or modifications to existing store templates), which will allow new behemoths to spring up in its place.

With all this excitement around the metaverse, will our world be mostly virtual? Probably not, seeing as we remain physical creatures with physical needs, requiring physical goods for our existence. We will still want to go to the farmer’s market and buy fresh apples, catch a whiff of a scent of baking bread at the bakery, or feel the texture of a shirt at a shop downtown.

What will happen instead is the range of experiences that will be available to consumers will widen — it will no longer be a question of buying online vs in a shop. The virtual world will enable shopping experiences akin to, yet distinct from, the physical world. All the while, backend infrastructure around fulfilment, delivery, and returns, will blur the line between physical retail and E-Commerce.

While our reality becomes a lot more virtual, the core elements of E-Commerce — the unseen orchestration of inventory, carts, checkout systems, fulfilment, shipment and return of goods at the push of a button, will remain.

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If you are an E-Commerce startup looking for funding, do reach out to us at pitch@fomcap.com or by signing up to Floww.

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