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31 AUGUST 2021
Getting to grips with the virtual economy

by Dion Chang: Observer, trend analyst - forever curious. Founder of Flux Trends.


If you want to watch the iconic Charlie Bit My Finger video clip, you won’t find it on YouTube anymore. After racking up over 883 million views, it was sold as a non-fungible token (NFT) on its 14th anniversary for R10.5 million.

Many see the craze for NFTs as a passing fad, but it is just the tip of a new virtual economy. We venture into virtual reality to discover why business is booming for goods and services you can own or experience but never physically touch.

Skins in the game

A year or two ago, parents were puzzled when they realised that their teenagers were no longer spending their pocket money on fast fashion but rather saving up to buy skins for their avatars. In gaming terms, a skin is something that can be used to change the appearance of a player’s avatar. It can be as simple as changing a colour scheme or as complex as a new “outfit”, which can include lighting effects and animations. Always on the lookout for new markets, big luxury brands took note and started creating virtual replicas of their collections, specifically for gamers’ avatars.

In May last year, Valentino used the new Nintendo game, Animal Crossing: New Horizons (ACNH), to feature 20 custom virtual looks from its men’s and women’s SS20 and pre-fall 20/21 collections and invited 11 million ACNH players from around the world to dress their avatars for free.

Gucci also created digital versions of its collections for a new video game called Genies. Players were invited to dress their avatars in Gucci and then send images to friends on WhatsApp, Instagram and Facebook Messenger. This move into the gaming world might seem incongruous for these global luxury brands, but it is an inspired business strategy. A perfect convergence of gaming and social media, gaming is increasingly becoming a social hub and not just about the game.

Most Genies' users (and other gaming platforms, like Fortnite) are for those aged 18 to 25 or younger – i.e., the next generation customer, the Gen Zs. Luring these digital natives with virtual outfits for their online avatars is a long-term strategy to build brand affinity for the not-too-distant future when their spending power comes of age. They will hopefully be brand loyal enough to buy the physical items.

Balenciaga went one step further. Instead of a traditional catwalk, they released their fall 2021 fashion collection in the form of a bespoke video game called Afterworld: The Age of Tomorrow. The game – developed by Epic Games, the makers of Fortnite – is set in a near-future city of 2031 and begins with a ‘Choose your fighter style’ portal, offering a selection of different characters. The player is then led through a labyrinthine Balenciaga store, where pieces from the collection are on display.

Virtual sustainability

Also entering the gaming world, fast fashion chain, H&M, now offers Animal Crossing gamers a recycling service for their avatars on Looop Island. Yes, really. Named after the fashion retailer’s in-store circular recycling system, Looop, the island will host virtual meet and greets, allow players to recycle their avatar’s outfits, and provide news on the latest sustainability innovations.

Fast fashion brands are coming under fire for their devastating environmental impact, so they are using gaming to attract younger customers and push a recycling message. H&M launched this virtual initiative with actor Maisie Williams, who portrayed Arya Stark in Game of Thrones and became H&M’s new global sustainability ambassador.

From avatar skins to digital fashion

It was inevitable that digital garments for avatars would transition into digital fashion for humans, but how do the virtual and real worlds connect?

When you purchase a digital design (prices range from R200 to R3,000), you also submit a photo of yourself. The virtual designers then tailor an outfit to your image in either a static or a moving motion version, which is more fluid and three dimensional. The digital garment is then used as augmented reality and layered on top of your original photograph, which can then be shared on social media.

One such digital dress – a motion version called The Iridescence – was bought for US$9,500. The design was registered as a blockchain asset, which gives it a cryptocurrency value like an NFT. Furthermore, it is based on 2D patterns, so you could theoretically create a physical equivalent.

But the virtual economy escalates quickly. Gucci also moved from avatar skins into digital fashion and released its own digital accessories – their virtual handbag sold for more than the real thing.

The University for the Creative Arts in Farnham in the UK noticed the rising trend and is now the first institution to offer a Master’s degree in digital fashion. “Digital fashion is disrupting the industry, and it was not an option to wait. We really see digital fashion as the future of fashion,” said Professor Jules Dagonet, head of fashion at the university.

The e-thletes cometh

The International Olympic Committee (IOC) announced that it was organising a series of five e-sports events ahead of the Summer Games in Tokyo. The five disciplines in the new Olympic virtual series are auto racing, baseball, cycling, rowing and sailing.

Auto racing is not an Olympic sport, but neither is gaming. This is part of a long-term IOC plan to grow digital engagement and encourage the development of virtual sports. The aim is to nurture sports participation and promote Olympic values, specifically with youth demographics.

As of March 2021, Johan Sundstein (aka N0tail), a player from Denmark, is the top-ranked e-sports player in the world (by earnings). So far, he has earned US$6.97 million throughout his gaming career. So it’s no wonder the IOC are acknowledging the lure of e-sports.

Virtual groupies

It’s not just the fashion industry being lured into the gaming world. Musician, Lil Nas X, blurred entertainment boundaries by taking his performances into the gaming world of Roblox. His avatar performed four shows over two days and garnered 33 million views. Fortnite also hosted a Travis Scott performance, which drew 45.8 million views over five shows, with 27.7 million unique attendees watching in real time.

The performances may have been virtual, but the numbers (and ROI) were very real. Roblox sees virtual concerts as a new way to give its players a chance to hang out in the game and stay relevant as players get older.

Virtual services

V-commerce in the gaming world is fast becoming a lucrative environment for other industries. If you’re going to dress your avatar in designer labels, you might as well hire an interior designer to refurbish your virtual home.

UK-based homeware brand, Olivia's, recently announced that it had started to recruit "virtual interior design consultants” to provide advice to gamers who want to spruce up their virtual homes in ACNH.

Parents should take note; these virtual design consultants can earn upwards of R800 per hour, so a career in a parallel universe might not seem that bizarre after all.

The bellwether

Epic Games, the company which develops popular games like Fortnite, purchased an abandoned mall for US$95 million to convert it into their new corporate headquarters. The Cary Town Centre Mall in Cary, North Carolina, USA, operated for more than 40 years but closed its doors in January. Another bricks and mortar casualty in America’s retail sector.

After expanding its headquarters multiple times over the past three decades, Epic Games keeps running out of physical space as the gaming industry grows exponentially.

So, in a cruel twist of irony, a gaming company opening new portals to the virtual economy takes over the physical space of a now-defunct retail concept from the bricks and mortar era.
Useful resources:

Gordon Institute of Business Science
Making an impact to significantly improve the competitive performance of individuals and organisation through business education to build our national competitiveness. GIBS is a leading business school in the heart of Sandton’s business hub, offering a wide range of executive and academic programmes. Visit our InfoCentre or website.

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