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The metaverse is a non-physical, entirely virtual plane that is thought to be the next manifestation of the internet. It is essentially – at its most basic – a 3D online environment whereby humans can live their lives outside the physical realm. The metaverse allows humans to think, feel, and experience inside an entirely virtual reality. Everything from corporate transactions to property ownership to retail experiences can occur within the metaverse. The foundations of human existence will effectively be uploaded and transferred onto the metaverse. Undoubtedly, the metaverse is the next logical progression of social media, technology, and the internet. However, there remain large question marks over the challenges it will bring for corporate transactions and corporate behaviour.

Despite its risks, the metaverse has unlimited potential. Arguably, it is the most significant development in the corporate world since the creation of the internet. The metaverse will create a new medium of communication, entertainment, commerce and education, amongst other things. Companies all over the world will be able to expand customer relations and increase revenue. This analysis looks at recent developments in this fast-moving area and considers the potential impact in light of recent FTSE 350 annual reports.

Facebook leads a move to Meta

On October 28, 2021, during the conference, Mark Zuckerberg outlined his plans to rebrand the Facebook and Instagram empire into a single, interconnected digital space known as Meta. Meta was considered a better, more accurate representation of social media today and of the future. The Meta rebrand was an attempt to solidify Meta’s position within the new technological frontier, the metaverse.

Zuckerberg :

“We are at the beginning of the next chapter for the internet, and it’s the next chapter for our company today… The next platform will be even more immersive — an embodied internet where you’re in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build.”

Market Tracker has analysed metaverse disclosures across the annual reporting of 277 FTSE 350 companies publishing a notice of AGM from 1 December 2021 to 30 November 2022 (the 2022 data set). Surprisingly, only 3% (8) of the results mentioned the metaverse in the annual reports. However, while this figure is relatively modest, this was an extraordinary jump from the same data set the year prior which saw only one of 281 FTSE companies mention the metaverse in its report. RELX plc’s , published eight months before Zuckerberg’s announcement at the Connect 2021 conference, references the metaverse as an example of a successful digital event by Reed Exhibitions during the pandemic.

Zuckerberg’s October 2021 rebrand was an attempt to bring the metaverse into the collective consciousness. It appears that he was successful to some degree. Prior to the Connect 2021 conference, the metaverse was a non sequitur for FTSE companies. There were zero results from the same search in 2020-2019. Two years ago, the metaverse was science fiction, now it is an active talking point for some FTSE companies.

Risk, opportunity and uncertainty in the metaverse

The 2021-2022 companies derived from four different industry sectors. Of the 3% group, 25% were from the Fashion and Retail industry sector, 25% Computing and IT, 38% Media and Telecommunications, and 12% from Travel and Leisure. Risk, opportunity, and uncertainty appear to be recurring trends within the data set. These FTSE companies are in the midst of grappling with the juxtaposing, complex discourses the metaverse brings.

Risk

Three of the FTSE companies (38%) in the 2022 data set mentioned risk and the metaverse interchangeably. Asos Group plc (ASOS), a fashion retail giant, stated that the metaverse was a ‘technological disrupter’ that is an emerging risk for the company. In its , ASOS mentioned the metaverse could ‘change how customers interact with us, how we do business, and what customers want.’ ASOS have acknowledged the metaverse has the potential to fundamentally change the company’s traditional model of e-commerce. It is anticipated that consumers would abandon online shopping on the internet once an immersive shopping trip in the metaverse becomes an option.

Vodafone Group plc identifies growing consumer demand for technology that does not exist as a major risk factor. However, the 2022 recognises that pre-existing technology for ‘fast and reliable connectivity’ will act as a ‘catalyst’ for the development of mobile networks that can support the metaverse. Vodafone Group plc expands on this point, reflecting on how contemporary connections are challenged by the metaverse and its various applications:

‘Emerging threats: New and emerging applications require not just low latency but also low jitter (no variation in latency). High-end gaming, Augmented reality/Virtual reality and future Metaverse applications using holographic displays and haptic feedback sensors for immersive experiences may require higher upstream speeds with low latency and low jitter which is a challenge today for both fixed and mobile networks.'

Perhaps the most polemic of the data set is Burberry Group plc. Burberry identifies the metaverse as an ‘emerging risk.’ In its ,  conceptualising this as a ‘highly uncertain' area that has the ‘potential to affect our business.’ Burberry categorises the metaverse as a ‘new technology’ leading to ‘changes in consumer spending habits and expectations around product availability.’ This includes the metaverse, along with virtual stores and new materials.

Burberry‘s resistance to the metaverse is an interesting juxtaposition against its competitors in the fashion space. On 1 December 2022 the Council of Fashion Designers of America their debut collection of Non-Fungible Tokens (NFTs) and a metaverse exhibition. Collaborators include Coach, Michael Kors, Tommy Hilfiger, and Diane Von Furstenberg.  This comes after Gucci became the first luxury fashion house to create a presence on the NFT gaming metaverse, the Sandbox. Market Tracker will continue to monitor any changes to Burberry’s stance on the metaverse considering market developments.  

Opportunity

Themes of opportunity are the most common across the board. 88% of companies that included the metaverse in company disclosures perceived it as something with significant opportunity and potential.  For example, technology consulting company, Aveva Group plc stated in its 2022 that:

‘Data visualisation, information and 3D models are critical tools for many connected workers. The technology is becoming available on mobile devices and companies will increasingly need to make the content available to their employees. Using XR tools, such as augmented reality and industrial metaverse models that allow workers to remotely monitor and manage real industrial processes in a virtually stimulating environment, can drive dramatic improvements in worker performance, safety, and productivity.’

Despite hesitations from Vodafone Group plc on the capability of the company’s technology, a similar sentiment is shared.  Vodafone Group plc notes that this next generation of connectivity will be one of the ‘driving forces that redefine relationships between sectors, employees, customers, and friends and family.’ Similarly, ITV Group plc’s from earlier in the year highlights the importance of ‘dynamic creative advertising’ campaigns from 2021. ITV Group plc champions one campaign which involved a virtual, interactive, branded experience inside the game Fortnite Creative. Advertiser WPP plc created a similar metaverse-centric ad campaign. Sports equipment company, Under Armour, celebrated basketballer Stephen Curry’s three-point world record score through the launch of 2,974 virtual sneakers. Consumers purchased and used the sneakers inside the metaverse. The campaign saw 25 million site visits, 4.5 million purchase attempts, and 1.3 billion online impressions. WWP plc’s 2022 outlines that:

‘We continued to push the boundaries and expand the definition of creativity itself. The metaverse, for example, brings countless new opportunities for creative expression and for brands to connect with consumers. To capture those opportunities, this year Hogarth launched The Metaverse Foundry, a global team of over 700 creatives, producers, visual artists, and technologists focused on delivering the most creative and compelling metaverse experiences for our clients.’

International sports gambling company Entain plc is another example of this opportunistic optimism. Entain launched Ennovate in 2021 backed by a £100m investment. Ennovate is defined as an ‘innovation hub’ tasked with designing, developing, and showcasing ‘disruptive technologies and first consumer products for the sports and entertainment metaverse.’ Entain’s 2022 recognises that:

‘Customers are seeking more content, more engagement, more interactive and social experiences, more video, more audio and more free-to-play entertainment… Technology continues to evolve and the Entain platform puts us in a unique position to be able to explore and innovate to create exciting new unique products and experiences for our customers.’

Uncertainty

Uncertainty is a theme identified in the Annual Reports of ASOS and NCC Group plc (25% of the data pool). The company’s suggests there are many aspects of the metaverse that are uncertain, which creates the risks identified earlier. For example, consumer behaviour will drastically change with the rise of the metaverse although the details of these changes remain undefined and largely hypothetical. ASOS also hints that a larger problem faced by companies when engaging with the metaverse is that consumers haven’t interacted with the metaverse before, and their habits and behaviours are difficult to predict. And of course, there is the ever-present dilemma the metaverse is yet to actually confront - the desire for human connection and intimacy is something that can’t be easily replicated nor replaced.  

Information assurance firm, NCC’s 2022 contains a similar undercurrent of uncertainty in its references to the metaverse. NCC Group plc seeks to continue its ‘research focus’ on ‘nascent programmes around the metaverse ecosystem.’ as research is absolutely paramount for companies to mitigate some of the uncertainty and risk associated with the metaverse. Burberry Group plc also referenced research and specialist third parties as keyways to counteract these challenges. Uncertainty is a live issue when it comes to the metaverse. It is likely it will continue to be a significant problem as companies attempt to evolve and adapt in line with future technology that is very much ambiguous.

It is expected the metaverse will be a continuing preoccupation of FTSE companies. United States’ based investment banking company, Citi, the metaverse will be worth £10tn ($13tn) by 2030. The metaverse may be at the beginning of its journey of corporate recognition, but it certainly has a long, prosperous road ahead. Market Tracker anticipates references to the metaverse to dramatically increase next AGM season, in line with the boom in metaverse discourse since the original 28 October 2021 Meta announcement.

An update reviewing annual reporting on this topic will be published in 2023.