The VR hardware and software market is expected to reach at least $30 billion by 2023 thanks to the wider adoption of immersive technologies and new advances in hardware advances. An estimated 52.1 million people will have used VR at least once in 2020 — that’s 15.7% of the population!
VR is finally becoming affordable. The Oculus Quest, Facebook’s standalone and wireless headset, costs less than a new smartphone. Although this and other VR sets give users access to a huge collection of apps, including all of the VR social media platforms, users can also join them using just their computers.
The constant growth of these virtual worlds has created a user's desire for more personalized experiences. This can mean rooms adapted to their hobbies and interests, games that can be shared with others, and an unprecedented thirst for custom avatars and 3D models.
The Economy of Second Life
Second Life, a virtual world created by San Francisco-based firm Linden Lab, launched in June 2003. Ten years later, the platform had approximately one million regular users, a number that has now stabilized at around 700,000.
The game has an internal economy based on the “Linden dollar,” or L$. These currency tokens allow users to buy, sell, rent, or trade lands, goods, and services with each other.
During September 2005, Linden Lab reported that the game’s economy had generated $3.6 million. By 2009, the total size of the Second Life economy had become about 25% of the entire US virtual goods market, and ten years after the game was created, users had made transactions for a whopping $3.2 billion.
The game’s economy continues to do so well because residents are allowed not just to create virtual objects and content, but also to distribute and sell their creations using the platform itself. Buildings, vehicles, clothing, animations, and works of art, among others, can all be purchased inside Second Life.
Selling and renting virtual real estate has also kept the economy stable, with incredible stories like that of user Ailin Graef (or Anshe Chung, her avatar), who turned an initial investment of $9.95 into over $1 million in two and a half years.
Several fashion designers and land speculators have been able to quit their real-life jobs to focus solely on virtual world businesses. Many are now following their steps with the latest generation of VR social media.
Avatars and Identity
The only VR platform that has defined an internal model for their economy is Somnium Space. This persistent social world recently announced a large offering of land that can be acquired using blockchain. The integration, which supports Etherium, Somnium CUBEs, and DAI Stablecoin, also allows for monetization of digital goods, avatars, and items.
Platforms like VRChat have also produced a variety of services and products, however these are (at least for now) hosted externally. The biggest segment is that of avatar creation and customization.
Avatars are not a new concept. Before games and virtual worlds, authors were using pseudonyms, and people took on alternative identities. Now, thanks to advances in technology and 3D modeling, avatars can look like practically anything a person can imagine. In a way, avatars give people the chance to change their persona and experience what it would be like to feel like someone else.
Because avatars are digital, they offer endless possibilities for expression. While some people try alternative identities or play with anonymity, others choose to project and highlight certain aspects of themselves and carefully construct a visual expression of their identity.
The looks might be digital, but the relationships people create in virtual worlds have led to very real friendships and marriages.
The Avatar Business
One of the biggest platforms for avatar creation and customization linked to VRChat (the largest social VR platform today) is VRC Traders.
VRC Traders is actually a Discord server - a forum or chat platform that users access via invitation. With over 100 creators, it operates as an advertisement board. Users commission avatars that can include custom clothing, rigging, and animations, and pay between $100 and $2,000 depending on the complexity of the model and the skills of the creator. Some of the models are available through sales platforms, but the majority are specified by users.
With millions of people trying new social media platforms or establishing strong virtual identities, the need for avatar and prop customizations increases every day. Popular creators have reported getting several requests a day, having to then choose the ones they prefer to work on. Additionally, customers frequently order more than one avatar and make changes to the ones they already own.
Among those offering avatar creation services are individuals and groups. A company named Tafi, for example, offers access to its 400-plus closet options using a freemium (a combination of the words “free” and “premium”) model and has its own desktop app connected directly to VRChat. While a basic customizable avatar is free, one with premium clothing and hair options costs about $5 to $20. They can both be exported to the virtual world in seconds.
Other Economic Activities
Although avatar customization is, right now, the biggest segment in the VR business, there are other activities that show promising growth.
The first few times playing games like VRChat and RecRoom can be quite scary. In addition to the challenge of learning how to use new interfaces and controllers that feel sometimes counter-intuitive, these worlds offer hundreds if not thousands of rooms a person can visit. And because VR sets are not mainstream yet, the chances of someone having friends already playing the games are smaller than for other platforms like PC or PlayStation.
Consequently, web platforms like Fiverr have seen the appearance of new online services such as VR guides and companions for playing games. These “VR gurus” take users through different games and platforms and keep people company while exploring the world.
Other smaller businesses are also taking shape and will probably see modest growth in the coming years. These are, for example, detective agencies that keep an eye on infidelity, notary publics that guarantee the legitimacy of avatar contracts, and advertising companies that design and place ads in the games.
A World of Potential
Faster connection speeds and the establishment of 5G can only improve VR experiences and create an ever-larger market for cloud-based applications and games.
The combination and overlap of virtual commerce models has already created several opportunities for real-world marketers and creators. Organizations have sponsored hundreds if not thousands of virtual competitions and events, and brands have successfully integrated their products and services into the virtual world.
Avatars are particularly useful subjects for market research — at the same time, they can also play a marketing role, becoming “advertars” that can publicize products. Real-world fashion houses have approached several Second Life designers, and many businesses have created virtual models of their real products.
Virtual worlds offer incredible advantages in terms of reach (millions of potential clients all in the same space) and costs (coding, designing, and modeling, but no physical manufacturing or distribution). Avatars can try on and combine any products in virtual malls, picking clothes they wouldn’t be able to afford or dare to wear in real life.
The opportunities for self-expression are just unprecedented, and the amount of marketing and purchasing data these games could provide is astonishing.
VR worlds are, ironically, becoming a tangible reality. As such, they will continue to evolve into a new landscape filled with challenges and opportunities.