Brands remain active despite a lot of doomsaying, though experts agree they must prioritize compliance as platforms like Roblox tighten their policies.

By Peter Adams, Senior Reporter from MarketingDive

A perfect storm has led some industry watchers to wonder if the metaverse, once marketing’s favorite shiny object, is on life support. Generative artificial intelligence (AI) like ChatGPT has taken over the tech hype cycle; key platforms are seeing paltry engagement and grappling with thorny questions around privacy and brand safety; and economic volatility has pushed brands to prioritize marketing fundamentals versus the digital bets that ran wild during the earlier pandemic boom.

“Generally, there’s a lot less conversation around it,” said Dave Kersey, chief media officer at GSD&M, of client interest in the metaverse. “Largely, people have pumped the brakes.”

That said, writing off the metaverse at large may be premature despite the higher risks in areas like data privacy. One doesn’t need to look far to see brands in a number of categories continuing to deploy metaverse strategies to connect with young consumers, foster community and support hybrid experiences. Rather than a curtain call, the current phase of metaverse development could be more of a hibernation period. What emerges following the rout may be a metaverse with clearer definition but a more limited scope compared to the far-flung descriptors that colored early excitement for the Web3-adjacent space.

“I believe it will be much narrower,” said Kersey of how definitions of the metaverse could shake out. “Marketers are going back to tried-and-true tactics that are driving sales and hitting the bottom line.”

Narrowing the playing field

In the same way that marketing departments are often the first to feel cuts in a downturn, dedicated metaverse teams have been on the chopping block of late. That’s led to some doomsaying for a channel that was built on lofty promises to bridge the real world with virtual realms and enable innovative forms of commerce, an obviously expensive prospect. Similarly, consumers have been watching their wallets closely amid sustained inflation, creating further barriers for pricey hardware in metaverse-related categories like virtual reality (VR) that have struggled to take off.

Disney recently eliminated its metaverse division as part of a broader round of layoffs, as reported in The Wall Street Journal, while Microsoft has pulled back on areas like social VR. Even Meta Platforms, arguably the metaverse’s biggest champion among the FAANG firms, has put more emphasis on AI, joining others in shifting focus to automated technology. Marketers, too, are taking quickly to generative AI solutions like ChatGPT.

“AI is a little more practical, functional, transactional,” said Kersey.

Yet, the metaverse is still attracting plenty of its own brand buy-in. Only 10% of marketing leaders believe the metaverse is irrelevant to their industry, according to Deloitte’s 2023 Global Marketing Trends report.

Papa John’s last week partnered with gamified metaverse company OneRare on an NFT drop. Absolut, an official Coachella sponsor, is making the metaverse a part of its efforts around the music festival this spring, revamping an Absolut.Land experience from the 2022 gathering. Announcing its first major rebranding in 14 years in March, Pepsi also nodded to its metaverse- and Web3-related pursuits as a piece of the overhaul.

“We’re now on the verge, in the next 10 to 15 years, of an explosion of where we will go as you think about Web3 and the metaverse, as you think about digital overall,” Pepsi CMO Todd Kaplan told Marketing Dive in a recent interview. A representative for the soft drink brand did not respond to multiple emails asking about Pepsi’s current metaverse strategy and levels of investment.

And then there are metaverse activations on gaming platforms like Fortnite and Roblox that draw tens of millions of players, with a hefty chunk in the Gen Z and Gen Alpha age range.

“It’s probably a good space long-term to invest in if you’re going to connect with audiences,” said Kersey. “Roblox has over 200 million monthly active users. There’s still an opportunity to build experiences, but I think economics plays a bigger factor.”

Marketers that remain interested in jumping into the metaverse ultimately need to make a stronger business case for doing so beyond trend-chasing. The upshot is that there are fewer players in the metaverse currently, but those that are present are vying for depth versus education or one-off experiments, some experts say.

“Clients are not looking at the KPI of ‘buzz’ when investing or strategizing around metaverse,” said Jeremy Cohen, a senior vice president at Publicis Groupe who leads Web3 investment at the agency. “The question is now shifting to more of a business transformation conversation.”

Back down to earth

Even with continued brand support and major metaverse-related news expected from companies like Apple, the channel is primed for potentially painful contractions. Startups that proliferated in the space’s halcyon days, when VC cash flowed freely, are facing down a bearish market amplified by events like the Silicon Valley Bank collapse.

“It’s not the lack of demand on the brand side. It’s really more on the supply side,” said Cohen. “This is a highly fragmented ecosystem right now. It’s been funded by a lot of low-cost capital for a while.”

“Many supporting companies that feed this ecosystem will not make it,” Cohen added later.

The mechanics of working in the metaverse are also more complicated and prone to pushback than they once were. Consumer advocates have gone after companies for leveraging metaverse platforms as a way to stealthily market to kids. That underpins a fundamental tension between many marketers’ goals in the metaverse — reaching young cohorts like Gen Z and Gen Alpha that are elusive elsewhere — and increasingly stringent privacy mandates.

Walmart has been called out by groups including Truth In Advertising.org on this front. The big-box store late in March wound down a Universe of Play experience on Roblox tied to a toy catalog of the same name, but claimed it was a planned development and not in reaction to pressure from watchdogs. The retailer made several moves to ensure compliance, such as joining the Children’s Advertising Review Unit’s COPPA Safe Harbor Program in late 2022.

“We’re always looking to create engaging experiences for our customers. The intent of our presence on Roblox is to continuously innovate,” Walmart said in a statement previously shared with Marketing Dive. “Taking down some experiences to work on new [ones] is part of that innovation. Universe of Play has been sunset as planned and we look forward to launching new content for customers soon.”

Roblox earlier in March revised its advertising policies to prohibit advertising messages targeted at users under 13. The changes also prevent linking off-site through means like URLs or QR codes.

Marketing Dive reached out to several other companies that have recently activated on Roblox via email to see if they’ve altered their approach. Only one, The Home Depot, responded in time for this story’s publication. The home improvement retailer in early March launched a virtual version of its Kids Workshop learning program on Roblox. A representative for the brand said The Home Depot was reviewing the new Roblox terms and conditions and would make any necessary updates to its experience.

“There’s no question that there’s more attention on it,” said Cohen of the privacy question. “Brands, especially large brands, are by definition conservative when there’s not regulatory certainty.”

Brewing controversies around metaverse-friendly services should serve as a reminder for marketers to put compliance and consumer safety protections first, experts agreed, especially since the channel is comparatively immature and does not have as many tools available in the ways of audience segmentation. More substantial privacy considerations could ward off sectors that are monitored more closely when it comes to sharing sensitive data.

“Politically, there’s a lot happening,” said Kersey of the compliance question. “The more safeguards you have as a marketer, whether it’s the agency on the brand’s behalf or a marketer on their own, the better off you are.”