While the sportswear leader’s focus on direct sales channels helped it amass a sizable digital loyalty program, it wasn’t enough to compensate for the loss of third-party retail customers and the cost of running its own D2C business.

Now, the brand is developing cost-cutting plans, returning to e-commerce marketplaces, and working to grow its NikePlus loyalty program — where members spend significantly more than the average customer.

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However, even with quarterly revenue growth in the double digits, the company is facing increasing profitability challenges. And the number of Amazon Prime members in the US reportedly fell to 168M last year from 170M in 2021 — the first drop since the program’s launch. 

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However, supply chain issues, a tight labor market, and evolving customer habits — such as the growing use of third-party delivery apps — have made customer loyalty more difficult to earn and profit margins harder to maintain around the industry.

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Microsoft was one of the first companies to see the value in virtual worlds, leading to its $2.5B acquisition of Minecraft in 2014. Now, with over $16B in gaming-related revenue generated in 2021, it’s one of the largest gaming companies in the world. 

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The tech is rapidly gaining investor attention as companies build applications to power an internet focused on empowering consumers. Web3 companies raised $13B in equity funding the first 3 quarters of 2022.

To Web3 evangelists, this momentum is unsurprising. A fully decentralized internet would change everything. Tech giants like Google and Meta would be unable to profit off personal data. Youtube creators and Spotify musicians would move to platforms that connect them directly to fans instead of being paid by tech middlemen. 

But critics maintain that Web3 is little more than hype. Many believe that Web3 won’t be able to overcome the Blockchain Trilemma, the belief that blockchain networks cannot be secure, decentralized, and scalable all at once. Others, like Twitter and Block founder Jack Dorsey, say that decentralization itself is not achievable, and that Web3 will simply be “a centralized entity with a different label.”

Nonetheless, startups are already challenging major internet companies with solutions that promise to give consumers more ownership of their content, improve data privacy, and end fees taken by middlemen. In this brief, we break down the layers of Web3 and highlight key players laying the foundation for a consumer-owned internet.

Access & identity

The access and identity layer enables consumers to access and prove their identity to decentralized applications (dApps). 

Many companies in this space are also building tools to help consumers control their data, including verifying identities without having to share personal information, controlling what data consumers share with dApps, and interacting with dApps completely anonymously.

Wallets

Web3 wallets have two key characteristics: 

1. Access: They give users unique addresses that act as both username and password for dApps.
2. Storage: They store digital assets such as NFTs, crypto, and even personal data.

To access a Web2 application, such as a game or email, users may be asked to enter their username and password. In Web3, the unique wallet address replaces these login credentials. For example, wallets like MetaMask are used to automatically login to decentralized applications such as games, decentralized finance, metaverse apps, and more. MetaMask is one of the most popular Web3 wallets, boasting about 21M monthly active users and integrating with nearly 4,000 Web3 applications. It’s also developing a web plugin where users can access dApps through the familiar format of websites. 

Meanwhile, Web3 wallet storage is key to decentralization and interoperability. A Web2 game might allow users to make in-app purchases, but these purchases only exist within the confines the game. To sell, buy, or receive payment for in-game items, a player will need to log back in. 

In a Web3 game, in-app purchases appear as non-fungible tokens (NFTs) in a player’s wallet. As a result, the player can buy, sell, or trade these NFTs without being in the game itself. The NFTs can be listed on marketplaces like OpenSea or Rarible, which exist entirely outside of the game. 

As interoperability improves, players may also be able to take NFTs from one game and access them in another. While it’s unclear how Web3 will address issues like in-game item fidelity or value, wallets enable players to automatically prove the assets they own across decentralized applications. For instance, some Web3 communities require users to own specific NFTs or crypto, which can be validated through Web3 wallets. 

Browsers

Currently, internet browsers like Chrome, Firefox, and Explorer cannot connect to all aspects of the decentralized internet. For example, an internet user can play Web3 metaverse games as a guest on a Web2 browser, but they couldn’t receive items or make in-game trades.  

Web3 browsers, on the other hand, either integrate with Web3 wallets or provide their own in-browser wallets, facilitating access to the decentralized internet. For example, Acent is developing a Web3 browser that can connect with multiple wallets. It’s also developing its own wallet, Metawallet, and a dApp store to help users discover Web3 applications.

Other wallets are differentiating themselves through unique rewards systems.

For example, Brave’s browser blocks advertisements, but users can choose to view ads for a reward. If they opt to see ads, the users are matched with a personalized advertisement based on local machine learning (this means Brave does not ever take data away from where it’s created into any private or central server). From there, users receive 70% of the revenue generated from the ad in the form of Basic Attention Tokens (BATs), which are automatically deposited into the users’ wallets. 

Decentralized digital identity

These companies are developing platforms and wallets that allow users to control their personally identifiable information (PII) as they access decentralized applications.

In Web2, some applications give users persistent identities across platforms. For example, Google Sign-in allows users to connect to a multitude of applications using a single identity — their Google account. In this scenario, Google has ownership over the information and data that can verify a user’s identity. Sometimes centralized Web2 identifiers can access and monetize consumers’ PII. They are also prone to cyberattacks due to the large troves of data they store.

Decentralized digital identity companies store and protect PII data for users. Several Web3 browsers and wallets are building decentralized digital identity solutions. Some are also developing identity platforms that integrate with popular existing wallets.  

In April 2022, Spruce raised a $34M Series A funding round led by Andreessen Horowitz to develop decentralized identity solutions. These include its consumer-facing product, Kepler, which integrates with Web3 wallets to help consumers define how their data can be used, where it can be stored, and who can access it.

Decentralized finance (DeFi)

DeFi refers to the ecosystem of financial services provided on an open, peer-to-peer blockchain, including borrowing, lending, and exchanging assets. 

DeFi is often mistaken for any financial service that involves crypto. This is not the case — DeFi is decentralized because of its blockchain network and smart contracts, which can automate transactions. 

For consumers, DeFi could reduce fees by eliminating the need for financial intermediaries like banks. At its best, DeFi would not only cut out the middleman in many financial transactions, but also provide a faster, more transparent way for individuals to access financial services. 

Decentralized exchanges (DEXs)

Decentralized exchanges (DEXS) are crypto and token marketplaces that use smart contracts to enable consumers to buy, sell, or trade tokens. 

Centralized exchanges partner with financial intermediaries — referred to as market makers — such as banks or hedge funds to ensure liquidity, or high trade volumes. In cases where liquidity is low (e.g., where there is a disproportionate number of buyers or sellers), prices can be volatile and trade times long. As a result, financial intermediaries complete almost all transactions for centralized exchanges on the backend.

Centralized exchanges then have to pay market makers for providing liquidity and taking on risk. This payment to market makers is often in the form of a spread (meaning market makers will sell assets for a slightly higher price and buy them for slightly less), fees, or both. Some of this burden is passed on to consumers. 

DEXs use liquidity pools to eliminate financial middlemen. Liquidity pools are caches of cryptocurrency that act as the market makers in centralized exchanges. Instead of trading with a market maker, consumers can swap their assets with the ones in the liquidity pool. These transactions are known as automatic market makers (AMMs) because they are priced by algorithms and trades fulfilled automatically by smart contracts. 

To incentivize people to engage with liquidity pools, DEXs offer liquidity pool tokens as rewards. The tokens act as digital receipts of a consumer’s share of the pool, and denote interest gained for providing liquidity. 

Because they don’t use intermediaries, transactions on DEXs are a cheaper alternative to centralized exchanges. In 2021, KPMG tested various exchanges and found DEX Uniswap charged a 0.05% transaction fee for a $100,000 trade while centralized exchanges Coinbase and Kraken charged 0.1% and 0.2%, respectively.

Lending

DeFi lending uses a peer-to-peer token system powered by smart contracts instead of financial intermediaries. 

With DeFi, any consumer can become a lender. Protocols like Aave, and Compound reward users for depositing assets (often stablecoins) into lending pools for others to borrow. Transactions are automatically executed and enforced by smart contracts. After a period of time, the smart contract issues interest to the lender, often in the form of the protocol’s native token. The interest is part of the fees paid by the borrower — DeFi lending interest rates can fall anywhere between 1% and 20%.

These loans may also be cheaper for borrowers. Financial institutions charge higher premiums on loans that are riskier. In crypto, most loans need to be overcollateralized. In the event a person defaults on a crypto loan, smart contracts will automatically compensate the lender. Lower risk often means lower interest rates for the borrower.

Still, currently, overcollateralized loans are not necessarily ideal for borrowers. People who need money to run a business or pay for an education are unlikely to have collateral worth well over 100% of the loan they’re asking for. In these cases, financial institutions are better suited to assess creditworthiness and take on risk. However, some protocols are experimenting with ways to prove creditworthiness on the blockchain and offer undercollateralized loans. 

In the future, this technology could be used to support undercollateralized crypto lending. This would also mean a major increased risk for DeFi lenders. 

Insurance

This category includes two types of Web3 insurance companies: those using decentralization to power traditional insurance, from flight delay to crop insurance, and those developing insurance to protect digital assets, such as crypto and NFTs.

Etherisc falls into the first category. In 2022, the Germany-based company announced the release of its blockchain-based travel delay and cancelation insurance, called FlightDelay. The product uses smart contracts to provide payouts for delays beyond 45 minutes. It covers around 80 airlines and provides payouts in cryptocurrency.

In 2021, Unslashed Finance raised a $2M seed round to help develop smart contracts that automatically pay out Web3 users affected by exchange hacks, wallet exploits, smart contract failures, and more.

Staking

These Web3 companies offer yield generation for consumer investors through staking, where crypto assets are allocated to process transactions and secure protocols (e.g., Ethereum) in exchange for rewards. 

Providers run nodes, which help process, verify, and record transactions as they happen on the blockchain. While this is helpful to developers, running nodes can require large amounts of crypto. For example, an Ethereum node requires 32 ETH (approximately $40,000 currently). Managing a node also requires technical overhead, from buying the correct hardware to setting up and managing software.

Staking services allow consumers globally to pool their crypto together and receive staking rewards for validating and securing blockchain networks. For example, a person can use a staking service and contribute 0.1 ETH to a node instead of contributing the total 32 ETH required to operate a node. This person would then receive rewards on their 0.1 ETH, unlocking the benefits of staking for anyone. These services also eliminate the technical overhead required to run nodes.   

Staking services are likely seeing increased demand now that the Ethereum network has fully transitioned to a proof-of-stake consensus mechanism. Lido Finance hosts over $6B in staked assets across 200,000 stakers, 97% of which is Ethereum. In 2022, Web3 staking platform Stader received a $12.5M seed round at a $450M valuation. 

Experiences

This layer highlights the experiences that will either be augmented or made possible by a Web3 internet, from earning token rewards for gaming to selling NFTs to interacting with the metaverse. 

METAVERSE

Web3 metaverses, or decentralized virtual worlds, are environments where users can participate in and build interactive experiences, from games to spaces to hangout.

Decentraland and The Sandbox are two of the most well known decentralized worlds. Inhabitants to buy, sell, and create goods and experiences; however, these transactions are all based on each world’s unique cryptocurrency. In-world items or land are traded as NFTs, which act as decentralized proof-of-ownership certificates for digital assets. 

The decentralized aspect of blockchain could boost interoperability between games and other platforms. For example, in the future, a person may be able to “move” their NFT yacht from one decentralized world to another. 

Decentralized worlds also tend to use a different business model than their centralized counterparts. They generate revenue from selling virtual land, crypto, and other digital assets instead of taking a percentage of the profit generated by in-world creators. Compare this to centralized virtual world Roblox, which pays creators 29 cents on every dollar they generate. 

Some decentralized virtual worlds even let their inhabitants help govern via a decentralized autonomous organization (DAO) approach. These setups — backed by smart contracts — typically grant users voting rights proportional to the in-world crypto assets they own, allowing them to have a say on in-world rules and regulations.

NFT marketplaces

These startups support commerce in decentralized worlds by developing platforms where users can buy and sell NFTs of everything from virtual land to avatar clothing to virtual yachts. 

Non-fungible tokens (NFTs) are not exclusively a metaverse concept — people can buy and sell NFTs of tweets, videos, and more without ever participating in the metaverse. However, NFTs are emerging as the backbone of economic activity in decentralized virtual worlds because they provide proof of ownership for metaverse-based property.

NFTs for metaverse items can also be listed on external NFT marketplaces. For example, marketplaces like OpenSea or Rarible already support the sale of virtual real estate and items from Decentraland and The Sandbox. Similarly, startups like DMarket are developing NFT marketplaces specifically catered to trading goods for decentralized worlds and games.

Social media

Web3 social media companies aim to improve user experiences by helping creators own and monetize their content and giving them more control their data. 

For many social media companies, end-users are also the product. Instagram, Facebook, and Reddit all generate revenue from advertising, but to accurately advertise, these companies tap into on-platform data to push relevant content to users. The users do not receive any compensation for actively engaging with the platform and fueling the social media companies’ access to data and advertising revenue.

Web3 communities like Steemit are looking to change this. Steemit, described as the Web3 version of Reddit, rewards users with tokens for liking and posting social media content. As users earn more tokens, they also earn a better reputation on the app, which allows their activity to carry more weight. A “like” from a highly reputable account is worth more than a fresh account. 

Web3 social media platforms are also turning to alternative revenue sources to survive without data harvesting and advertising. Web3 browser Brave allows users to earn tokens by watching ads; this could become the norm for Web3 social media companies. Meanwhile, platforms like Entre and Diamond allow users to purchase tokens they can use to tip their favorite creators. 

Developers are also building entirely new blockchain infrastructures to enable Web3 social platforms. For example, DeSo is creating decentralized protocols that support the infrastructure needed for Web3 social media, including interoperability between platforms, decentralized messaging, and token rewards for creators. The company raised $200M from investors including Andreessen Horowitz, Sequoia Capital, and Coinbase Ventures in September 2021.

While the idea of an ad-free social media platform where user data is protected sounds enticing, it’s not entirely clear how successful Web3 companies will be in convincing users to invest time and money into earning tokens when Web2 social media platforms are mostly free. 

Communities & fundraising

Web3 is also transforming how communities come together and raise money for shared goals by using decentralized autonomous organizations (DAOs). 

DAOs are blockchain-based governing bodies. To join a DAO, a person needs to become a stakeholder — which requires them to acquire the DAO’s token. These tokens use smart contracts to give stakeholders voting rights, allowing them to influence how the organization will operate. By giving members voting power, communities can feel more engaged.

LinksDAO is a community of golf enthusiasts that are pooling money to purchase and run an exclusive golf course. LinksDAO’s goal is to build a golf experience rich with benefits only exclusive members can access. In the future, DAO members may also be able to receive the profits that come from operating a successful golf course. 

While this may sound far fetched, LinksDAO sold over 9,000 memberships and raised over $10M in 24 hours. Other DAOs have even more ambitious goals: Krause House DAO is building a community to purchase an NBA team (full ownership of an NBA team costs well over $1B). 

DAOs are also gaining traction within philanthropy. For example, UkraineDAO raised over $6M through NFT sales to aid Ukrainian civilians and military. Supporters claimed the DAO was needed since many crowdfunding platforms do not support military fundraising, and relevant charities weren’t moving fast enough. Many of the largest crowdfunding platforms also stake small fees to pay for site operations (GoFundMe charges 2.9%) while DAOs ensure almost all money goes directly to the intended beneficiaries. 

But DAOs are not perfect. ConstitutionDAO raised around $40M to win a bid on the US Constitution. When it lost its bid, the money was seemingly locked in the DAO. Finding and returning money to relevant parties turned into an arduous, manual process. While most of the money has been refunded at this point, millions of dollars have been lost in gas fees, the price associated with transferring crypto. 

Video streaming services

Web3 video streaming services aim to empower creators by giving them ownership of content and profits while protecting users’ privacy and data. They are also exploring the use of blockchain protocols to reduce friction in the video streaming service. 

For example, Livepeer uses the Ethereum blockchain to cut the costs associated with hosting and transcoding live video by sharing processing power across a blockchain-based network of computers. Anyone can join the network by contributing computer resources (CPU, GPU, and bandwidth). In return, the contributors are rewarded with cryptocurrency. 

In January 2022, Livepeer raised a $20M Series B round from investors like Digital Currency Group and Tiger Global Management. More recently, the startup released a toolkit to help Web3 developers incorporate live streaming and video NFT minting to projects.

Music

Web3 aims to give creators a better way to monetize their music and engage with audiences without tech middlemen and labels or distributors. 

Music streaming service Spotify takes about a 30% cut of streaming revenue. Further, music can only be published to platforms like Spotify or Apple Music through a label or with an independent distributor. Some may only charge a flat fee, but some distributors and labels also take a percentage from streaming revenue. 

Web3 music streaming company Audius looks to solve this dilemma for artists. The platform allows creators to upload without distributors or labels and receive 90% of streaming revenue. 

In September 2021, Audius raised $5M from a group of music celebrities, including Katy Perry, Disclosure, Steve Aoki, and The Chainsmokers. Audius is also backed by investors like General Catalyst, Lightspeed Venture Partners, and Kleiner Perkins Caulfied & Byers.

Web3 music platforms are also changing the way artists and fans interact. 

Andreessen Horowitz-backed Royal allows fans to invest in an artist by buying tokens that automatically earn back streaming profits. Royal was founded by the artist 3lau, who used the platform to release 333 free NFTs that represented 50% of his streaming revenue on one of his new singles. The tokens have since generated over $6M.

Content & publishing

As personal blogs and newsletters have taken off, Web3 companies are looking to help creators better monetize and own their content. 

Web3 startup Mirror publishes content on the blockchain. While the content is free, creators can monetize their work by minting writings as NFTs, allowing them to generate revenue from readers and fans. In June 2021, Mirror raised a $10M seed round from Andreessen Horowitz and Union Square Ventures at a $100M valuation. 

Play-to-earn

In play-to-earn (P2E) communities, gamers are rewarded for playing games with tokens. 

The most popular play-to-earn game to date is Axie Infinity. Players can battle, breed, and eventually sell “Axies,” collectible monsters in the forms of NFTs. Axie marketed itself as a game that empowered players — instead of a game studio collecting all profits, the profits could be shared among players.

However, the crypto and NFT crash has put many play-to-earn games in a precarious position as users dwindle and company revenue falls short of expectations. Critics point out that most members of P2E games were only interested in speculative purposes — players were really just investors, and there was no real demand for game-issued NFTs. 

While the future of P2E is not entirely clear, VCs are not shying away. Axie raised a $150M round in April 2022 after it lost $600M in a hack. Meanwhile, blockchain game studio Mythical Games raised $150M at a $1.3B valuation in November 2021 to build Web3 games like Blankos Block Party.

In a Web3 internet, players will not only experience games, but also be rewarded for the time they spend in-game.

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In 2030, the metaverse will be a new digital channel for restaurants to offer engaging, interactive experiences that boost brand awareness and customer experience. In the metaverse, customers can step into a virtual restaurant to browse menus, meet friends, and even order real food that will then be delivered to their door. 

This is one of the key technologies that will shape the future of the fast food experience. Below, we dive into this technology: how it works, who has an edge, and how it’s changing the future of fast food.

WHAT IS THE METAVERSE?

The metaverse is the concept of shared worlds driven by virtual products and digital experiences that are highly immersive and interactive.

Clients can learn more about the companies building the metaverse in our metaverse Market Map.

In the context of the future of fast food, restaurants will be able to build virtual experiences, offer exclusive menu items or digital merchandise, and host virtual events for customers.

FIRST MOVERS

Chipotle was one of the first quick-service restaurant brands to create a virtual experience in the metaverse. In 2021, the fast-casual Mexican chain partnered with Roblox to digitize the brand’s famous Halloween promotion. Players could dress their avatars in Chipotle Halloween costumes, play mini-games, and receive codes for free burritos to redeem in person. 

During the campaign, the virtual restaurant was visited over 8M times and set a company record for digital sales in a single day. In 2022, the fast-casual giant even launched a new menu item on Roblox through an interactive game. 

McDonald’s also made an entrance into the metaverse with a Chinese Lunar New Year event. Partnering with AltspaceVR and Spatial, the brand designed a hall of Chinese zodiacs that players could explore through VR. The food giant has also filed trademark applications that suggest a virtual restaurant may be opening soon that sells both virtual and actual goods with home delivery.

Source: Wendy’s

Wendy’s is another fast food chain experimenting with the metaverse. Wendyverse opened in Horizon Worlds (Meta’s virtual reality world using the Oculus VR platform) in April 2022. Through this partnership with Meta, players were given a set of tasks to complete that would give them a promo code to redeem at a real Wendy’s restaurant.

IMPLICATIONS 

• The metaverse gives restaurant chains space to experiment with marketing and menus. Fast food chains investing in the metaverse can use the virtual space to try out new strategies that build brand awareness among new and existing audiences. This can include collaborations, virtual events, or even just experimenting with tweaks to existing considerations, like restaurant layout and menu items.
• The metaverse is still in its early stages. Restaurant brands and operators should pay attention to the successes and failures of other consumer industries — like fashion and grocery — that are further ahead in their metaverse efforts, to better understand what strategies work best with consumers.
• The metaverse will be an additional channel for facilitating delivery orders and can help drive consumers to stores, growing both revenue and customer loyalty for restaurant brands.

Read more in this report about how tech will shape the future of fast food, including:

• AI tongues and social listening to help brands quickly develop and test new menu items to meet changing consumer demands
• Conversational AI and AI recommendation engines will power online and in-store orders, allowing restaurants to upsell orders through personalized suggestions and prioritize labor for other customer service operations 
• Robotic food preparation will automate cooking to increase profitability and reduce food waste
• Autonomous delivery will help reduce reliance on gig workers
• NFT loyalty programs will create unique experiences and boost customer loyalty

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Microsoft, Meta, and Qualcomm have stepped up their efforts in tech product development, investments, partnerships, and acquisitions.

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• The major tailwinds fueling big tech activity in the metaverse
• The competitive advantages of different tech giants in the metaverse
• Where big tech is competing in the metaverse

REPORT HIGHLIGHTS:

• Big tech is showing an increasing interest in gaming. Microsoft and Meta have made a combined 15+ gaming acquisitions, with the goal to own immersive entertainment in the metaverse.
• Tech giants are expanding outside of their core products to compete in the metaverse. Meta is attempting to bring semiconductor development in-house to reduce its dependency on players like Qualcomm, while Qualcomm is bundling its AR/VR chips with AR/VR software development tools.
• Big tech is doubling down on their competitive advantages. Qualcomm is dominating in developing processors for AR/VR. Meanwhile, Meta is exploring social networks and advertising opportunities, while Microsoft is building an arsenal of gaming content it will offer exclusively on Xbox platforms.

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But conventional production approaches might not be able to support brands and retailers delivering personalized, engaging digital content at scale. Synthetic media — content that has been generated, edited, or enabled by artificial intelligence — could be the solution. 

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The creator economy is growing and evolving rapidly, with new platforms and content types continuously emerging. Content creators (such as influencers) and the platforms where they build their followings represent a significant portion of consumers’ online behavior, including who they listen to when it comes to buying decisions — as well as, increasingly, where they are making direct purchases.

The future of the creator economy will depend on depth rather than breadth of reach to followers. The playing field is shifting in favor of smaller, more niche content creators, with new ways to monetize, like tokenized content and branded merchandise. The space also faces new opportunities from synthetic media such as virtual influencers. 

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As it looks to stay at the forefront of digital innovation, the firm has ramped up its activity in everything from extended reality (XR) to autonomous driving. Since 2019, Qualcomm has backed more than 80 companies (via Qualcomm Ventures) and made nearly 10 acquisitions, including mobile AR-focused Wikitude and autonomous driving software developer Arriver. In March 2022, the company announced its $100M Snapdragon Metaverse Fund.

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Social media users could monetize their own data. Content creators could receive crypto payments directly every time someone views their latest post. Ride-sharing platforms could be owned by the drivers. 

This is the promise of Web3, a decentralized internet built on an open, permissionless blockchain network. 

The internet as we know it now is centralized — data flows through and is stored in data centers owned by a handful of companies. A few powerful players control the most widely used services and platforms. But in Web3, data storage and flow take place on networks that run on many computers without a single entity controlling them. Online services from e-commerce to social media to gaming are provided and controlled by democratic groups of developers, creators, and users.

Three use cases are already gaining traction today:

• • Decentralized finance (DeFi): an ecosystem of smart contracts that allows participants to offer and access financial services in a peer-to-peer format, without relying on traditional intermediaries like banks, credit unions, or brokerages
  • Non-fungible tokens (NFTs): digital assets — which can range from images to songs to videos — that are verified through blockchain technology
  • Decentralized gaming: token-based gaming economies and virtual worlds powered by blockchain technology. Most decentralized games integrate NFTs in some capacity. 

While a fully decentralized internet may still be a distant vision — and critics say the idea is little more than hype — its implications could be far-reaching.

Download the full report to learn about the elements of Web3, its use cases, and what it could mean for the future of the internet.

TABLE OF CONTENTS

• How does Web3 work?
  • dApps aim to cut out the middle man
  • DAOs govern Web3 apps and communities
  • Decentralized networks own and control data on Web 3
  • Decentralized identifiers (DIDs) verify Web3 users
• What is Web3 today?
  • DeFi powers Web3 financial products and services
  • NFTs could have use cases beyond art and gaming
• What could Web3 impact in the future?
  • Metaverses
  • Digital content
    
  • Dispute resolution
  • Social media
• What are the challenges facing Web3?
  • Web3 is a digital Wild West
  • DAOs are vulnerable to abuse and centralized control
  • Total decentralization is difficult to implement — and could leave Web3 on shaky ground
  • Cryptocurrencies still face formidable hurdles

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In this evolving retail environment, big tech companies Meta, Amazon, and Google continue to expand their product development, investment, and partnerships into new sectors of retail tech.

Download the report to find out:

• How each giant’s retail tech priorities have evolved over the last 3 years
• The top areas of retail tech where big tech is investing
• The global markets where big tech companies see the most potential for growth
• What the big tech companies’ expansions into retail tell us about their broader strategies

REPORT HIGHLIGHTS:

• Big tech companies will make themselves more prominent competitors with traditional retailers. The giants are reaching into retail across the customer journey, capitalizing on their ability to collect consumer data and personalize the experience.
• Retail tech-as-a-service providers will gain new competition from big tech companies as well. The tech giants are elevating themselves as B2B partners to optimize retail operations online as well as in stores.
• Big tech is eyeing the metaverse as retail’s next destination. Since 2020, nearly a quarter of Meta, Amazon, and Google’s retail investment activity has focused on metaverse tech.

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Virtual try-on uses technologies like augmented reality, computer vision, and artificial intelligence to allow customers to overlay images of clothes, makeup, and other accessories on an image of themselves or an avatar to visualize how an item will look.

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An increasing number of companies are betting that consumers will soon be earning, spending, and investing their money in shared, highly immersive virtual spaces that both mimic and go beyond what’s possible in real life.

Facebook is so taken by the idea that it changed its name to Meta and said it would spend billions developing supporting technologies. Following the social media giant’s rebranding, earnings call mentions of “metaverse” soared as perplexed corporations scrambled to figure out the opportunities and risks.

The fully-formed online worlds being talked up by metaverse proponents don’t exist yet — though veteran avatar-based social platform Second Life, videogame creator playground Roblox, and blockchain-forward Decentraland hint at what could be in store. Younger generations like Gen Z and Gen Alpha (those born after 2010) look particularly likely to embrace metaverse-style platforms, with surveys indicating that they are putting more and more value on their online identities.

As the concept evolves, the metaverse has implications for — and the potential to disrupt — a wide range of industries, including:

• Fashion
• Retail
• Gaming
• Sports
• Fitness
• Real estate
• Financial services
• Cybersecurity
• Advertising
• Workplaces and collaboration tools
• Education
• Events
• Law

The metaverse vision of a next-gen internet would rely on technologies like virtual reality headsets, advanced haptic feedback, 3D modeling tools, and more to power immersive digital environments. And this tech is only getting better and more convenient — for instance, within just a few years, VR headsets have evolved from clunky setups requiring a wired connection to a specced-out computer to user-friendly, self-contained devices. 

Many also see a role for blockchain-based tech like non-fungible tokens (NFTs), which can act as digital deeds to prove ownership without the need for a centralized verifying body. These may find uses for enforcing private property rights within loosely-governed virtual spaces, helping to set interoperability standards, and facilitating trade.

How the metaverse eventually pans out is uncertain — excitement could fade if technical hurdles prove too cumbersome or if mainstream consumers balk at investing in digital-only goods and experiences — but if it takes off then it could be a $1T+ market opportunity by the end of the decade, according to CB Insights’ Industry Analyst Consensus. Businesses are right to pay attention.

Download the full report to discover the 13 industries poised to be reshaped by the metaverse.

We break down the companies building the metaverse layer-by-layer in this Market Map.

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Coinbase has seen its share price fall sharply amid a broader crypto selloff — prompting it to take money-saving measures like slowing hiring — but its investment activity over the last year points to 2 long-term goals that the company will likely still be going after: global expansion and fueling the growth of Web3, a broad term for decentralized, blockchain-based internet applications.

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These promises of simplicity and speed, alongside pandemic-induced shifts to online shopping, have accelerated e-commerce growth over the last few years. Globally, retail e-commerce sales are set to grow at a 10% CAGR to top $7T in 2025, according to CB Insights’ analyst consensus.

At the same time, the concept of “online shopping” is expanding, as the rise of the metaverse and shared virtual spaces transforms how consumers interact with people and businesses. In the not-too-distant future, shoppers may be able to craft entirely personalized digital shopping experiences — from consulting with virtual advisors, to customizing physical and virtual goods, to seamlessly moving between devices and platforms.

Already, retail execs are turning their attention to enhancing the e-commerce experience via personalization, immersive tech, and more:

The tech enabling the metaverse — including augmented reality, next-generation 3D content, and new devices like smart glasses — will create this more immersive and hyper-relevant experience. AI-enabled tools like chat commerce and virtual try-on will also make retail more accessible to shoppers as platforms can more easily shift to accommodate differing personal as well as cultural needs.

Download the full report to discover the key technologies shaping the future of e-commerce, including:

• Conversational commerce gives shoppers a direct line to service
• Headless tech makes e-commerce accessible everywhere
• Personalization tech tailors assortments to every shopper’s needs
• 3D assets and virtual try-ons bring products to life
• Metaverse tech makes shopping immersive and engaging
• Crypto wallets make checkout faster and more secure

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As it looks to solidify its position as a luxury leader, Kering has made clear its continued commitment to sustainability and, more recently, entering “the metaverse.”

Via numerous partnerships and several startup investments over the last 4 years, the luxury group has engaged with a range of technologies in its product offerings and operations — from virtual makeup to regenerative agriculture techniques to traceable jewelry. Its subsidiary Gucci is one of the first luxury brands to tap into the metaverse space by creating branded NFTs and virtual apparel and experiences. 

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We already have virtual worlds featuring live concerts and online games where players spend hundreds of hours — but metaverse enthusiasts see a future where entire societies thrive in an online realm inhabited by avatars of real people.

While the space is still in early days, the longer-term implications may not be trivial. Some users — especially younger ones — may eventually earn, spend, and invest most of their money in digital worlds. The metaverse could represent a $1T market by the end of the decade, according to CB Insights’ Industry Analyst Consensus.

The metaverse is a vision, not a specific technology. For enterprises, this ambiguity can make it challenging to figure out how to tap into the emerging trends the metaverse represents.

In this report, we provide a framework to navigate this evolving topic by breaking down the metaverse into distinct technological layers and highlighting the key vendors set on making the metaverse a reality.

Download the report to explore each layer in detail:

• Infrastructure (network & computing)
• Access/interface (hardware)
• Virtualization tools
• Virtual worlds
• Economic infrastructure
• Experiences

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The fashion sector is also one of the largest industries in the world, estimated to be worth more than $3T by the end of the decade, according to CB Insights’ Industry Analyst Consensus.

And today, fashion technology is growing at a faster pace than ever.

Robots that sew and cut fabric, AI algorithms that predict style trends, clothes to be worn in virtual reality — an array of innovations show how technology is automating, personalizing, and speeding up the fashion space.

Seizing the opportunity to open more revenue streams and business models, fashion companies are partnering with technology providers, snapping up startups, and even building their own tech.

Meanwhile, as the industry faces a long-overdue reckoning with its environmental and social impact, it is reexamining processes across the value chain in an attempt to reinvent itself.

Download the full report to discover the trends reshaping how our clothes and accessories are designed, manufactured, distributed, and marketed.

Table of Contents

• • Product design
    • AI becomes the design partner
    • How AI is influencing brands
  • Manufacturing
    • What fast fashion means for seasons
    • Rapid iteration & production
    • Streamlining the fashion supply chain
    • 3D printing personalized apparel products
    • New robots for the manufacturing floor
  • Inventory & distribution
    • RFID for verification, automation, & online integration
    • Blockchain in the fashion supply chain
    • Apparel distribution scales down
    • D2C fashion brands shun physical retail
    • From ownership to usership: The rise of clothing-as-a-service
    • Automated warehouses
  • Retail & virtual merchandising
    • AR/VR redefines the online and in-store experience
    • Digital stylists get personal
    • Fintech and fashion join forces
    • Reselling marketplaces proliferate
    • Omnichannel clienteling as a service
    • 3D scanning in the apparel industry

• • The push for sustainability in fashion
    • Resale platforms as sustainable alternatives
    • Demand forecasting to reduce waste
    • Recyclable garments & reinvented recycling plants
    • Back to the drawing board: New earth-friendly textiles
    • Rethinking fashion from end to end to achieve circularity

• • What’s next? High-tech fashion trends to watch
    • Wearables
    • Virtual fashion
    • Digital twins
    • 3D scanning in the apparel industry
    • Novel fabrics
    • Synthetic media
    • Cryptocurrencies
    • Livestream shopping
  • Closing thoughts

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Earnings calls and news mentions of the tech have skyrocketed in recent months, as the pandemic continues to push digital interaction to the forefront of our lives — from virtual work to gaming to social media.

AR/VR tech is also seeing major boosts in hardware and has been making its way into an array of enterprise use cases, from workforce training to oil rig inspections.

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In 2021 so far, the company has grown its direct-to-consumer sales to 39% of its Nike brand revenues — up from 16% a decade ago. By 2025, DTC sales are expected to account for more than half of revenues, based on the company’s growth outlook.

Aiming to deliver a more consistent experience and deeper connections with consumers, Nike has shifted away from wholesale partners, toward its own distribution. The company has constructed a technology ecosystem to support its shift to DTC, investing in technology and distribution and acquiring start-ups with expertise in content creation to data analysis.

DTC sales offer deeper insights into customer data that can be used to enhance the customer experience. In going direct, brands like Nike have greater access to its customers and by layering on customer analytics further allows them to effectively market, merchandise, promote and launch new products to satisfy customers’ demands.

Below, we look at how companies are unbundling Nike, from customer data platforms to fulfillment and logistics.

Note: This graphic is not exhaustive of the space. Categories are not mutually exclusive.

Category breakdown

We categorize technologies and products unbundling Nike across 3 segments:

• Product management & visualization: This segment includes new ways to present traditional retail products, leveraging tools like inventory management and merchandising tech.
• Digital shopper experiences: This segment features customer engagement tools to enable omnichannel and personalized customer experiences, to help brands better engage their audiences.
• E-commerce enablement: This segment features companies that enable and streamline online retail sales.

Product management & visualization

INVENTORY MANAGEMENT & MERCHANDISING

As supply chain issues and unpredictable demand remain ongoing, retailers need a dynamic, tech-enabled approach to inventory planning. Companies in this category use predictive analytics and demand forecasting tools to help predict future consumer buying patterns, both online and in-store.

Notably, in August 2019, Nike acquired Celect, a retail predictive analytics and demand sensing company. 

• Companies like Toolio and Brightpearl offer merchandising and inventory planning software. Toolio, co-founded by ex-Walmart employees, provides its commerce enablement platform to retailers like Chubbies, Mack Weldon, and Rothy’s.
• Hivery is focused on AI-driven category and merchandising simulation and assortment optimization solutions that are used by Merchandise Directors, Retail Buyers, and Category Managers among others.

For a more in-depth look at startups boosting retail store efficiency and productivity, check out our market map of brands boosting performance at the shelf.

VIRTUAL TRY-ON

The global virtual fitting room market is expected to grow from $3.4B in 2020 to a $19.3B industry by 2030, according to CB Insights’ Industry Analyst Consensus. The technology has become especially popular during the pandemic as a way to boost online conversion rates and reduce returns.

3DLOOK and Perfitly use AI to convert 2D photos of people into 3D custom avatars that can be used to virtually try on clothes and provide size recommendations. 

3D DIGITAL CONTENT

Shoppers are searching for more effective ways to experience products online and buy with confidence. To improve the online experience, startups here are using visual technology to improve designing and prototyping.

ThreeKit uses product information and design files to inexpensively create unlimited interactive 3D, AR, and photorealistic 2D visuals. The company claims its customers see higher conversions, reduced returns, and reduced photography costs. Among its customers are Crate & Barrel, Herman Miller, and California Closets. 

Digital shopper experiences

CONVERSATIONAL COMMERCE

Conversational commerce makes the shopping experience more personal by leveraging messaging apps for convenience, personalization, and decision support to consumers. While the tech was once used exclusively for customer service, startups today are integrating existing e-commerce, chat apps, and bots into one interface. 

• Germany-based Charles and UK-based Blueprint offer software and commerce integrations to help brands sell via WhatsApp and other messenger apps. Blueprint’s solution sends replenishment reminders with pre-loaded checkout links to speed up future purchases.
• Yalo uses AI to enable businesses to communicate and transact directly with customers. In May 2021 the company raised $50M in a Series C led by Sierra Ventures. Its customers include Coca-Cola, Unilever, and Nike. 

CUSTOMER DATA ANALYTICS

Consumer data platforms (CDP) and vendors offer solutions for ingesting different datasets to create unified shopper profiles, optimizing cross-channel messaging and improving customer segmentation. AI-powered CDPs can help retailers unify and deduplicate shopper profiles, cluster similar shoppers together, and generate advanced business and operational insights.

In February 2021, Nike acquired data integration platform Datalogue to pull data from multiple sources — including the company’s app ecosystem and supply chain — to glean deeper customer insights.

• mParticle helps retailers simplify their customer data architecture by connecting and cleaning data from disparate sources. One of the most well-funded companies in the space, mParticle raised a $150M Series E in October 2021, receiving investment from Greylock Partners, Google Ventures, and Bowery Capital, among others. 
• ActionIQ stitches together first- and third-party data to personalize the customer experience. The company has received investment from Sequoia Capital and Andreesen Horowitz, and its clients include Shopify, Neiman Marcus, and Michael Kors.

MARKETING AUTOMATION

Marketing automation software automates repetitive tasks such as email marketing, social media posting, and ad campaigns. 

With e-commerce growing at a staggering rate, brands and retailers are grappling with reaching, engaging, and converting customers shopping across a variety of channels. Omnichannel customer engagement platforms can help marketers reach the right customer with the right message at the right time.

• Attentive and Klaviyo automate personalized text messaging, sending notifications about sales, product recommendations, and cart abandonment.
• Iterable‘s brand affinity tool analyzes cross-channel engagement to measure customer sentiment. The company counts Boxed, Care/of, and DoorDash among its customer base.
• MoEngage uses analytics to understand customer behavior across digital touchpoints and send personalized campaigns on customers’ preferred channels.

SOCIAL COMMERCE & CONTENT

Content creation is critical for building and engaging online communities. Brands are partnering with influencers across social apps to build trust and authenticity and better connect with new and existing audiences. According to CB Insights’ Analyst Consensus, influencer marketing market is worth $14.8B today, compared to just $2B in 2016.

In addition to influencer marketing strategies, an increasing number of brands and retailers are turning to livestreaming as more platforms emerge to allow viewers to instantly buy featured products.

• Product Wind and Influence.co offer brands tools for finding and working with influencers.
• Buywith allows influencers to broadcast live online shopping sessions to their followers, who can buy directly during the session.

virtual stores & Metaverses

As brands aim to foster new forms of customer engagement, virtual spaces (metaverses) are opportunities for retailers to sell more products. This is especially true as virtual spaces like Roblox and Fortnite have gained significant traction during the pandemic, attracting millions of users and partnering with brands to create unique digital experiences. 

Nike has signaled its interest in the space, recently filing seven trademark applications outlining its intent to make and sell virtual branded sneakers and apparel, as well as making key hires to support its newly established metaverse studios. In November 2021, the company launched Nikeland on Roblox for fans to connect, create, and share experiences inside Roblox’s immersive 3D space. In December 2021, the brand acquired virtual sneakers creator RTFKT Studios. 

• New York-based Obsess raised a $10M Series A in June 2021 to expand its virtual stores and showrooms solution beyond beauty and fashion. The company offers an AR/VR platform for enabling online 3D shopping experiences.
• DressX is an online multi-brand retailer for virtual-only garments and accessories.

Clients can view our latest metaverse market map here.

E-commerce enablement

CHECKOUT & PAYMENT SOLUTIONS

Buy now, pay later (BNPL) is a popular payment method among millennial and Gen Z consumers, whose spending power reached more than $2.5T in 2020, according to YPulse. BNPL apps allow customers to make purchases online and pay them off over time in recurring installments.

As a generation of shoppers has come to expect the ease of Amazon’s one-click checkout, companies are also increasingly allowing users to flow through checkout in one tap.

• Fintechs like Zilch, Zoodpay, and Aplazo offer installment loans to consumers for point-of-sale purchase. These point-of-sale loans are easy for retailers to manage and popular in e-commerce categories like apparel & beauty.
• Bolt and Fast are online checkout tech startups that help users quickly check out of e-commerce sites, improving conversion and retention for retailers. Bolt One Click and Fast Checkout allow consumers to complete purchases with a single click, while offering data and insights to merchants.

For a more in-depth look at the BNPL landscape, check out our buy now, pay later market map.

DATA MANAGEMENT & ANALYTICS

An added benefit of offering products directly to consumers is enriched data access and reporting systems that synthesize deeper insights. Data visualization takes reporting to the next level. Pouring over spreadsheets is time-consuming and makes it easy to miss key insights. Companies in this category prepare, enhance, or transform raw data into actionable business intelligence and key insights.

• Data preparation startup Trifacta specializes in cleaning and preparing data.
• Peak and Dataiku are centralized data platforms that use AI to help organizations build applications for data analytics.

FULFILLMENT & LOGISTICS

Major retailers and brands have been experimenting with new fulfillment solutions to make the delivery journey more efficient. Companies hope to reduce costs by outsourcing to e-commerce fulfillment providers who achieve economies of scale by aggregating orders and integrating with a network of partners (e.g., third-party logistics providers, point-of-sale system providers, and retailers). 

Consumer brands that have their own retail network often use their stores as e-commerce fulfillment centers. Nike, for example, lets online shoppers pick up their purchases at brick-and-mortar Nike stores. 

• Companies such as ShipBob and ShipMonk offer software solutions that combine order and inventory management, warehouse management, predictive data and analytics, and optimized shipping to fulfill orders for e-commerce companies.

ON-DEMAND WAREHOUSING & DELIVERY MANAGEMENT

The Covid-19 pandemic accelerated the growth of online retail in 2020, driving an increase in demand for consumer packaged goods, medical supplies, and other consumer goods. Companies in this category offer temporary warehousing space, delivery management software, and e-commerce fulfillment support services.

• Flexe, Flowspace, and Stord all offer on-demand warehousing solutions. Stord offers a cloud supply chain that allows users to view and manage their entire distribution network from a single platform. The company integrates physical logistic services such as warehousing, freight, and fulfillment into its digital platform to enhance fulfillment and delivery networks.
• Bringg is a cloud-based delivery and fulfillment platform for retailers and logistics providers. The company focuses on last-mile delivery, fleet management, third-party delivery management, and more. Bringg recently introduced a number of sustainability-oriented tools, including carbon emissions tracking and eco-friendly fleet selection for retailers that prioritize green vehicles. 

RETURNS OPTIMIZATION

As more consumers turn to e-commerce for their shopping needs, reverse logistics has become a priority for retailers and brands. A number of startups have taken on the task of optimizing the returns process, offering platforms that make it easier for consumers to return and exchange products.

• Narvar provides retailers with data and visibility during the returns process, helping to improve plan operations and manage inventory as well as to more quickly identify product issues.
• Loop Returns offers an exchange-first returns platform.
• Trove offers a white-label solution to help retailers resell their returned inventory, working with brands like Lululemon and Patagonia.

shopping platforms & subscription commerce

Shopping platforms integrate all essential commerce and business functionalities into a single platform. Building a well-designed and engaging shopping platform or digital storefront is one of the most important ways that retailers differentiate themselves.

With the rise of e-commerce businesses and online shopping platforms, DTC subscriptions have never been easier to set up. The subscription box model has become popular among direct-to-consumer brands because it allows brands to cultivate long-term customer relationships, improving customer retention and lifetime value. 

• Nacelle and Builder use headless architecture, allowing users to create e-commerce sites using visual tools and no coding. Nacelle raised $50M Series B from Tiger Global Management in August 2021, while Builder has received funding from a number of well-known DTC founders and angel investors and consumer-focused venture capital funds.
• E-commerce subscription management providers Bold Commerce, Recharge, and Upscribe help online stores create recurring orders and subscriptions. 

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While the company’s rebrand to “Meta” in October 2021 catapulted conversations about the metaverse into the mainstream, it’s been quietly gathering tools to build the metaverse for years.

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Even as restrictions lift, these initiatives aren’t going anywhere — but with new opportunities come new responsibilities. Like social media platforms, brands are now having trouble ensuring all of this newly created content is appropriate for their customers and does not damage their reputation.

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Malls are meant to be social and a form of entertainment; now, virtual worlds are fulfilling these functions more than ever, spurred by the Covid-19 pandemic. Rather than shopping through a specific retailer’s website, imagine rendezvousing with a friend in a Minecraft-like world to hang out and shop at digital storefronts. 

Though definitions vary, the metaverse generally refers to the idea of a shared, persistent virtual space, akin to a digital mirror of the real world — but without any of the constraints. Topics of debate around what a metaverse would eventually look like include the degree of interoperability, multiple metaverses vs. a singular one, consistent identity systems, and decentralization vs. monopolization (e.g. will it be owned by big tech or by users, à la Ethereum-based Decentraland?). 

Source: Decentraland

Gaming has long been at the forefront of building out what a metaverse could look like. 

Massively multiplayer online game (MMO) Fortnite is one of the more successful examples: it has hosted multiple live concerts, screened movies, shorts, and various other programs, launched branded game modes, and more. 

But it still falls short of the metaverse ideal of true concurrency due to tech limitations. At Travis Scott’s Fortnite performance, for example, the 12.3M concert attendees weren’t actually in the same universe, watching the same show in real time. Instead, viewers were split up into 250,000 virtual “copies,” each capped at 50 participants, of the concert.

Source: Rolling Stone

Progress is being made, however, and expect more movement on this front to come. In one example, software development unicorn Improbable is developing SpatialOS, a cloud platform that allows games to support up to 20,000 players in a seamless world.

So, what comes next? E-sports applications and goods are pushing into the mainstream, marking a natural step toward the metaverse. 

For example, virtual goods, initially popularized by gamers (mostly via character skins), have since entered the worlds of fashion, real estate, art, and even pets to become a $190B market. Personalized digital avatars have also gained a foothold beyond games like The Sims in the last 5 years, popularized by Snapchat-owned Bitmoji, Apple’s Memojis, influencer and celebrity-focused Genies, and most recently, Roblox’s acquisition of avatar company Loom.ai. 

On a broader scale, these trends illustrate the rapid convergence of the online and the offline. Among other things, metaverses will enable the serendipity that is often missing in e-commerce interactions. For example, Aglet — a “Pokémon Go for sneakerheads” that allows players to collect virtual sneakers by walking — plans to eventually allow people and brands to launch their own virtual retail stores in the app. 

“I think where we’re going as a world [is] where Nike and Adidas will release products in the real world, and then they’ll throw these into a game. And I think the inverse of that is true in the future. There will be people designing their own brands in these game worlds, and then they’ll be made in reality.” — Aglet CEO Ryan Mullins

Once the tech is there, the commerce implications are massive, as the metaverse offers unprecedented access and total immersion to consumers — creating a sort of virtual “third space.”

Brands and sellers can thus: 

• Operate in a less fragmented marketplace than the internet as we know it.
• Avoid the “marketplace cut” from third-party discovery or selling platforms entirely.
• Enable deeper cross-franchise or fan collaboration where, instead of individual brand marketing opportunities (e.g. each brand has its own app or website), the metaverse’s open world allows for more immersive experiences pioneered by both brands and fans.

Ultimately, spearheading this effort will require massive amounts of cash, engineering talent, and hunger for domination — making big tech firms the most likely contenders to build out the metaverse beyond gaming platforms like Fortnite and Roblox. Tech giants like Microsoft, Facebook, and Amazon are likely to double down on this in the coming years, according to VC Matthew Ball, given each’s persistence in owning a significant portion of the online work economy, social graph, and e-commerce infrastructure.

Though the complete metaverse appears to be years away, in 2021, look for further convergence of the online and offline amid technological advancements that will enable the build-out of the metaverse. In the meantime, retailers should look beyond the near-term and strive to experiment with VR/AR (including the use of virtual humans), games like Fortnite, or various other existing tech capabilities.

Offering virtual goods may be trendy for 2021, but in the next 5 years, the trend will likely evolve toward designing fuller, more fleshed-out virtual universes that offer an immersive shopping experience.

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