Virtual economies – the next big opportunity for business? - BNP Paribas CIB
 
Thursday 19 December 2019

What are virtual economies and how are they beginning to impact the real world? What opportunities might these emerging marketplaces bring for business?


At a client event in Amsterdam in December, Nadya Ivanova, COO of L'Atelier BNP Paribas, spoke about virtual economies and why companies should look to them for business opportunities in the near future. We talked to Nadya after the event.

Hello Nadya and thanks for talking to us. First, could you tell us about L'Atelier?
L'Atelier is an independent research subsidiary of BNP Paribas, founded more than 40 years ago with the aim of understanding how emerging technologies affect society. The Group and its clients have been able to use this research and foresight to inform their strategies and transform their businesses.

L'Atelier has recently refocused its strategy and activities. Our mandate now is to identify new markets emerging at the intersection of technological and societal change. We are essentially trying to identify what the next big transformation will be – the next Internet of Things, the next 'digital' - and to understand the behaviour and motivations of the people using it. We do this because our experience shows that the biggest business opportunities come from identifying and exploiting emerging marketplaces.

Our exclusive focus at the moment is on virtual economies, the digital universe of people and markets that exists entirely in cyberspace and sells mostly virtual (intangible) goods and services. Our aim is to create foresight, intellectual property and finance solutions for virtual economies.


Nadya Ivanova speaks to clients at BNP Paribas' Amsterdam 'Prospective Event'

Tell us more about virtual economies and how they can affect the real economy.
Virtual economies were created to service and augment the needs of multi-participant digital platforms, mostly gaming platforms. The annual revenue of the virtual economy is on track to reach about $130 billion in 2019, more than the music or film industry combined, with a total user base of about two billion people globally.

The growth of these economies is accelerating. New categories of jobs, industries, assets, products and services are emerging to meet their needs as they reach critical mass. This parallel economy is invisible to most of us because we don't engage with it, but we believe it represents one of the greatest economic opportunities and societal shifts in a generation.

How is this economy invisible: what makes it difficult to understand and navigate?
Due to the emerging nature of this space, we lack terminology, taxonomy and a framework to define and understand it, and a lot of the data about it is scattered or proprietary. We also need a much better understanding of the user base, the audience and their behaviour. These are some of the things we are working on at L'Atelier.

Another difficulty lies in the fact that the space itself is changing fast and is still volatile. Regulators and policymakers are also lagging in terms of understanding and potentially monitoring or regulating activity in this space. There is a strong likelihood of increased regulation ahead.

Where do the economic opportunities lie?
There's an emerging ecosystem around virtual economies – publishers, developers and distributors – who are actively building these environments, and many have found ways to be profitable.

" One of the greatest economic opportunities and societal shifts in a generation "
However, there are also increasing opportunities for traditional businesses to not only offer existing products and services to new audiences, but also to create completely new ones. These new channels offer access to a rapidly growing, young and global audience that is increasingly spending time in these environments rather than on, say, Facebook or Netflix. Cultures and cultural experiences emerge and take place entirely within virtual worlds – from everyday social interactions to virtual events like concerts and virtual space wars. We are already seeing non-endemic brands – from luxury fashion through telecommunications to logistics – successfully experimenting with new products that capture these specificities.

Financial services could also offer economic infrastructure solutions for these environments, to allow them to scale and meet demand – anything from payment infrastructure to risk management. There is also room for development of secure and transparent infrastructure to facilitate the sale and exchange of virtual goods.

Also, gaming is increasingly emerging as a viable economic activity for some of its user base. We are seeing new categories of jobs offering either supplementary or full-time income – anything between $40,000 and $10 million annually – either directly within virtual environments or as a derivative of them: esports pro players, video game streamers, content producers, for example. What specific financial and other services might these people need?

Apart from being virtual, what else is different about these economies?
These economies bear many similarities to the real world, but also exhibit some idiosyncrasies. Despite their size, they do not always behave rationally. One example is the emergence of digital assets such as virtual property: we see examples of people investing significant amounts of money – sometimes hundreds of thousands of dollars – into such "property". Many of these operations are currently unstructured, and as a bank, we are asking ourselves how we might insure, collateralise or facilitate the trading of virtual assets.

On a broader level, virtual economies also create opportunities for people to be something they can't be in the real world and do things they can't do there. This could open the door to the emergence of new industries like virtual reality tourism, for instance.

How far do you think these virtual economies could go? What's the limit?
The limit to these virtual economies will depend on the level of utility that they are able to create and how they capture societal, technological and regulatory shifts. It will also depend on the level of market liquidity, and whether these economies remain closed or open up: will we see platform models emerge which are akin to the biggest internet companies, which successfully facilitate supply and demand?

It will also depend on the ecosystem that forms around these economies. There is a range of possibilities – will they be a new form of entertainment or a new platform for people to live virtual lives? We are particularly excited about the potential of these virtual worlds to lead to an evolution of the internet into a truly immersive space. That's incredibly powerful from both an economic and a cultural perspective.



Nadya Ivanova
COO of L'Atelier at BNP Paribas
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