Porter’s Five Forces: Profit Potential of The Metaverse & Real Estate

• Porter’s Five Forces: Profit Potential of The Metaverse & Real Estate
• Abstract
• Keywords
• Introduction
• Industry Competition
• Supplier Bargaining Power
• Customer Bargaining Power
• New Entrants & Threats of Substitutions
• Conclusion
• References

Abstract

The Metaverse is the next evolution of virtual reality, and it has the potential to be one of the most lucrative markets in history. But how much can you make? And what are your chances of success? Here's a breakdown of Porter's five forces so you know exactly what you're getting into before jumping in. The first is industry competition- industry leaders, standouts, and differentiators. The second is the bargaining power of the suppliers- “It is affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a company to switch to another supplier” (The Investopedia Team). The third is the bargaining power of the customers- where the customers are spending their money. The fourth is the potential for new elements into an existing industry. The fifth is the threats that are presented for substitutions in an existing market. For the sake of meeting a page-length maximum, the fourth and fifth forces will be merged.

Keywords

Metaverse, Real Estate, Porter’s Five Forces, Strategic Business

Introduction

The Metaverse consists of a group of digital universes, built by companies and organizations around the world. The Metaverse will be inhabited by their avatars - virtual representations of people who travel from one site to another, interact with other residents on social media-like "town squares," (ReportsnReports) purchase items at stores for their avatar's convenience, and even get jobs within the metaverse. In short, if you use any kind of 3D applications in your daily life (posting pictures on Instagram or Facebook, building a house in Minecraft), then you're already familiar with some aspects of this new technology and its potential uses and implications. However, just like anything else that is created or capitalized upon by humans, before the World Wide Web or smartphones, the Metaverse has its own set of challenges that digital companies will need to figure out how to deal with. Some potential problems include attracting a critical mass of users upon launch, an environment free from malware and hackers infiltrating people’s information, and navigating international laws regarding privacy rights. In this paper, Porter's Five Forces will be utilized to understand the profit potential of the metaverse versus traditional real estate.

Industry Competition

Industry Competition is when you compare the potential of the Metaverse and real estate. The companies in both industries compete with each other to make a bigger profit, but while some companies may have a “higher competitive advantage than others do” (Vantage Market Research), they can still make a healthy living by going against the competition. For example, if a company had a huge marketing team that created advertising to endorse their product or service and also had more affordable prices this would give it an economic value on how much money it could potentially make from its consumers. Another aspect of Industry Competition is that there are new investors every day wanting to put their money into good businesses that provide good services/products which means there's always going to be more competition no matter what industry you're in. For Real Estate, there's an increase in competition due to there being more opportunities and investors every day wanting to put their money into good businesses that provide good services/products. For the Metaverse, there's a decrease in competition because it would take time for investors to find opportunities within the Metaverse market.

Supplier Bargaining Power

Bargaining power of suppliers is when you compare the potential of the Metaverse and Real Estate industries. An example of this would be if a supplier had all of these things like lower prices than other competitors, higher quality goods/services, and was willing to give discounts or free samples to the business. This would give it a high bargaining power because businesses would have to purchase their goods/services from them otherwise they wouldn't be able to stay in business as well as other competitors that didn't buy their product or service. In addition, if one supplier had a huge market share and there wasn't any competition then they could increase prices by raising costs which would make it more difficult for businesses without suppliers to function efficiently. For the Metaverse, it is harder for suppliers to make a significant amount of money through sheer marketing means because there are no real-world characteristics that can be emulated in VR, but it's easier for them to create new experiences in order to stay relevant within their markets. The potential of new entrants into the industry is low because it is expensive to start a business in this field, there are few resources that are available to help you get started, and the barriers to entry are high. For Real Estate, it is easier for suppliers to make more money by just marketing due to having physical characteristics that can be emulated in virtual reality making it easy for companies to replicate what already exists. The potential of new entrants into the industry is high because it's easy to start a business in this field, there are many resources that are available to help you get started, and the barriers to entry are low.

Customer Bargaining Power

When customers are powerful, they can make a company do what they want. They might be able to get the company to change how they do business or even make them stop doing business. Customers are the most powerful when they have alternatives to your product. If your customers don't need you, it is easy for them to leave you and go somewhere else. Real Estate, like any business, has powerful customers in the form of homeowners who demand many things (maintenance on their houses, curfews for young residents in neighborhoods). A homeowner can easily sell his house in favor of another real estate investment. The company must keep up appearances in order to prevent this loss in revenue. The Metaverse is quite different from Real Estate because there is no centralization between participants looking to buy or sell the virtual property. This means that participants are far less powerful than homeowners because they do not have the ability to leave. Porter's five forces only really apply on an individual level, so for any company looking to get involved in the Metaverse, it is important to analyze their power on each of these fronts.

New Entrants & Threats of Substitutions

The Metaverse offers an unprecedented opportunity to make money by selling virtual property. More people, especially investors who do not want their investments tied up in physical goods, will be able to participate in this new market that has yet to fully develop. Currently, there are few barriers to entry into Second Life and other related games like it; anyone with disposable income can buy land and create something of value. The Metaverse is so attractive because the possibilities for new content are endless. Real Estate, on the other hand, is “a very limited investment with massive barriers to entry” (Kasi). People who want to invest must have a significant amount of cash on hand as well as some degree of knowledge about real estate markets and property management. In addition, those looking to buy up new property face legal hurdles from zoning ordinances as well as limitations from lenders. In terms of profit potential, it is clear that companies stand to make more money in the Metaverse than Real Estate. However, this does not mean that it will be easy; companies must compete with thousands of players willing to develop virtual territory themselves or create their own prosperous spaces without buying land. As such the Metaverse will likely be a harder market to break into than the Real Estate industry.

Conclusion

In conclusion, I believe that based on Porter's Five Forces Model, businesses stand a better chance of making a return on investment from entering The Metaverse instead of Real Estate. However, one must not overlook the potential for success over time provided by Real Estate. For companies looking to make a quick buck or enter this market early, I suggest that they consider looking at The Metaverse as an opportunity for success. For those looking to invest in Real Estate, I would suggest that there is still potential for growth over time as the market allows if you are willing to take your research and knowledge of logistics to the next level.

References

1. Kasi, A. (2021, May 28). Porter’s Five (5) Forces of Poly Real Estate. Porter Analysis. Retrieved January 18, 2022, from https://www.porteranalysis.com/porters-five-5-forces-of-poly-real-estate/
2. ReportsnReports. (2021, October 29). Outlook of Metaverse Market with Industry Regional Analysis. OpenPR.Com. Retrieved January 18, 2022, from https://www.openpr.com/news/2447954/outlook-of-metaverse-market-with-industry-regional-analysis
3. Research, V. M. (2021, November 16). Metaverse Market to Witness Promising Growth to Reach USD 814.2 Billion by 2028; Developing Metaverse Platforms for Educational Sector may Open Avenues for the Market: Vantage Market Research. GlobeNewswire News Room. Retrieved January 18, 2022, from https://www.globenewswire.com/fr/news-release/2021/11/16/2335813/0/en/Metaverse-Market-to-Witness-Promising-Growth-to-Reach-USD-814-2-Billion-by-2028-Developing-Metaverse-Platforms-for-Educational-Sector-may-Open-Avenues-for-the-Market-Vantage-Market.html
4. The Investopedia Team. (2020, February 22). Porter’s 5 Forces. Investopedia. Retrieved January 18, 2022, from https://www.investopedia.com/terms/p/porter.asp