Morgan Stanley
  • Research
  • Feb 23, 2022

Metaverse: More Evolutionary than Revolutionary?

The metaverse blurs the lines between our physical and digital lives, potentially transforming advertising, e-commerce, entertainment and education. Learn how this investment theme could unfold.

The metaverse sounds like an idea dreamed up by science fiction writer Isaac Asimov, but the basic premise isn’t so farfetched: Create a network—or networks—of 3D virtual worlds that blur the lines between our physical and digital lives.

While many of these concepts are already used in gaming, the metaverse has consumer applications—imagine using a digital twin to try on clothing or shop for real estate and home décor—and the potential to transform everything from entertainment to education. Instead of reading about ancient Rome, for example, students could experience it virtually.

“We think the metaverse is most likely going to be a next-generation social media, streaming, gaming and shopping platform,” says Internet analyst Brian Nowak, “In some ways, we already live in a metaverse, as shown by the total time spent by daily active users in the U.S. on digital platforms.”

U.S. daily users of social media, streaming and gaming already spend the total equivalent of about 11 billion days per year consuming digital media and about 14 billion annual days watching linear television—time that could eventually move to the metaverse.

Still, before the metaverse becomes ubiquitous, it will need to overcome a range of hurdles, from the strength of existing digital platforms, to computing power and privacy issues. Here are some of the opportunities and risks.  

The Initial Opportunity: Real-World Commerce

The word metaverse evokes a virtual world where avatars drive digital cars and use non-fungible tokens (NFTs) to buy art for their imaginary homes.

While such virtual commerce could ultimately be significant, the initial applications of the metaverse are more pragmatic. “We expect the metaverse to primarily operate as an advertising and e-commerce platform for offline products and purchases,” says Nowak.

In fact, advertising and e-commerce represent an $8.3 trillion opportunity to monetize U.S. consumer spending on an everything from games and music, to apparel, automobiles and real estate. In the not-so-distant future, consumers in the metaverse may be able to test-drive new cars, walk through home renovation plans and attend live concert events anywhere in the world—potentially unlocking additional $5 trillion in consumer spending related to new, more immersive experiences. 

The metaverse has a potential $8.3 trillion total consumer expenditure TAM in the U.S. depending on the level of disruption

Source: Company data, PWC, Bureau of Economic Analysis, Census Bureau, National Center for Education Statistics, Morgan Stanley Research. Note: Concerts/live events and casino estimates are normalized.

Potential Hurdles

To be sure, the metaverse could eventually disrupt digital media and commerce in the same way streaming services shuttered video stores. For this reason, investors across industries should consider the long-term implications the metaverse could have for today’s stalwarts. Two potential hurdles, however, could slow the growth of this brave new digital world, and with it, the investment opportunities it may create:

  1. Current digital media and e-commerce offerings have never been more robust, are continually improving and represent a significant hurdle. Any metaverse offering or technology will need to be significantly better to compete for consumers’ attention. “In the end, we have to ask, what consumer pain-points will a metaverse solve for hundreds of millions of people?” says Nowak, noting that companies with aspirations to move into the metaverse will either need a partner or a “killer app” to drive mass adoption.
  3. Although consumers have become more accustomed to sharing personal data through e-commerce and social media, the metaverse is likely to introduce many new privacy issues—and not just because of the amount of data required to fuel it. If the metaverse in fact does transform commerce, education, healthcare and work, a far larger population than is currently active on social media— potentially hundreds of millions of people—will need to disclose detailed information about what they are doing and with whom. 

For more Morgan Stanley Research on the metaverse, ask your Morgan Stanley representative or Financial Advisor for the full report, “The Metaverse: Evolutionary or Revolutionary?” (Nov. 14, 2021). Plus, more Ideas from Morgan Stanley's thought leaders.