Jonathan Pan

Retailers, e-commerce platforms, and game companies are competing and working together to explore the next frontiers for commerce

Meta deprecated live shopping in Facebook last year and in Instagram this March due to poor results. Instead, Meta has pivoted to shoppable ads and has partnered with Amazon to enable customers to purchase directly from Amazon ads in Facebook and Instagram.

While the war over live shopping is front page news, a lesser known battle over immersive commerce is happening behind the scenes. Immersive commerce is the buying and selling of physical products in virtual 3D environments like games and virtual stores.

Coresight Research estimates $1.5 billion in immersive commerce sales in the US this year. Even though this figure represents less than 5% of live shopping sales, retailers, e-commerce platforms, and game companies are competing and working together to explore this emerging frontier of commerce.

Selling Physical Goods in Games

Shopify proclaimed that gaming is a “new frontier for commerce” when it announced its Unity Buy SDK at the Unite 2017 conference. Shopify detailed how the the indie mobile game Alto’s Adventure “made 60% of its annual merch revenue in 30 days.” The Shopify Unity Buy SDK did not gain traction and it was deprecated this July.

Amazon entered the fray this May with Amazon Anywhere, an offering that “enables immersive shopping experiences for video games, virtual worlds, and mobile apps.” Amazon’s launch partner was Niantic’s Peridot. Merch was again the category of physical products being sold in the game. Both Shopify and Amazon chose smaller games to test in. Sensor Tower estimates that Peridot had 10k downloads in the past month vs. millions of downloads for Niantic’s other games like Monster Hunter and Pokémon Go. Alto’s Adventure also has a smaller audience as self-described indie game.

• Purchase curated physical goods found on Walmart.com like the Better Homes & Gardens 14" Artificial Pampas in White Rounded Ceramic Vase, Better Homes & Gardens 50 inch Brookbury Gas Burning Fire Pit Table, Better Homes & Gardens 15-Count Shatterproof Edison Bulb Outdoor String Lights with Black Wire, and more. This is a departure from focusing on merch.
• Claim virtual versions of these physical goods through in-game activity like weekly login bonus and checking in at the Walmart Landmark.

Physical commerce in games culminated during Roblox’s 2023 Investor Day this month. Roblox CEO David Baszucki announced dates for real-world commerce²: tests in 2023 leading to full launch in 2025. Real-world commerce is phase three of the evolution of Roblox’s economy. The first phase was the virtual economy, which is the buying and selling of virtual goods through their digital currency, Robux. The sale of Robux resulted in $839.5 million of revenue in Q2 2023. The second phase is what he calls the ad economy, which has rapidly developed this year. Ads offerings include immersive ads, video ads, sponsored experiences, and more.

Baszucki makes the bull case for the shopping economy, which he describes as a “wonderful closed loop of walking with a friend, going to a brand store, buying virtual items, watching videos, trying things on, and arguably buying [physical goods] right there.”

The bear case is that players primarily play games for fun, to hang out with friends, to gain mastery, and for many other reasons that don’t include buying physical goods. Gamers are notorious for vehemently rejecting any monetization that appears to be “money-grubby.” Ubisoft learned this the hard way when they tested NFTs and when they “accidentally” displayed ads in game.

Player behavior and perception may change and it has a higher chance of changing on a social UGC platform like Roblox. While we wait for that future to play out, there are customers buying physical goods in a lesser known category of virtual 3D environments: virtual stores.

Virtual Stores

Virtual stores, which are immersive web-based e-commerce shops, have been largely under the radar for the past few years. The leaders in the market are Obsess and Emperia. Obsess has launched over 300 virtual stores since it’s founding in 2017 and Emperia has launched over 45 virtual stores. Notable launches over the past few months include Crate and Barrel (by Obsess), L’Occitane (by Emperia), Macy’s (by Journee), and Amazon Prime Video launched its first-ever virtual store (called Godolkin University), as a companion to it’s show Gen V.

Coresight Research surveyed 150 decision-makers at US-based brands and retailers and found the following:

• 88% of brands and retailers that have invested in virtual stores have seen significant or moderate increases in total sales as a result.
• 91% of brands and retailers that have invested in virtual stores have seen significant or moderate increases in online sales as a result.
• Only a tiny proportion (1%) of respondents indicated that virtual stores had no measurable impact on sales — both in total and online.
• No surveyed brands or retailers that have invested in virtual stores reported a decrease in sales as a result.
• 77% of surveyed companies have seen an increase in click-through rate as a result of investing in virtual stores, making product and category discovery the most widespread benefit of this type of immersive experience.

In a separate survey by Obsess, they found that 70% of all consumers who have visited a virtual store have made a purchase. The hype around virtual stores have been muted because many people don’t think 3D virtual stores in browsers are something to get excited about. However, physical commerce in virtual stores and games are just two sides of the same coin. Recall Baszucki’s description of physical commerce as a “wonderful closed loop of walking with a friend, going to a brand store, buying virtual items, watching videos, trying things on, and arguably buying [physical goods] right there.”

Customers in virtual stores have purchase intent and the immersive experience provides a different way to discover and experience e-commerce. Video can be added; social is harder but possible. Players in games are learning about brands through immersive experiences but likely have very low purchase intent. Video and social is already there. Either way, brands and retailers can win even without the direct purchase on the spot — these experiences can serve the broader omnichannel experience. One personal example is me purchasing a pair of yoga pants at Alo Yoga, a brand I discovered first through Roblox and ZEPETO. This is why more than 200 brands (100+ in 2022 alone) have built experiences or partnered with creators to create virtual items on Roblox.

New virtual store competitors like Journee and Xsolla Metasites feel more like games and Roblox as they are built in Unreal. There is an avatar that users control to engage with the experience. Technically, my best guess is that the Unreal project (5.2 seems optimal) is uploaded and played at a server and streamed to a link accessed by browsers. So in other words, a form of cloud gaming.

Meanwhile, established virtual store providers like Obsess and Emperia still feel more like a website than a game. There is no avatar, so users have to click to move to different areas or angles. But this doesn’t seem to be holding them back for now. In a recent conversation with Neha Singh, CEO of Obsess, I asked about the notable amount of brands gravitating towards her platform. Her response:

The reason Obsess has been able to work with the largest global brands across fashion, beauty, CPG/FMCG, media & entertainment and more to create virtual stores, is because of our focus on user experience — which includes frictionless access on mobile (i.e. not having to download an app), fast loading times across all kinds of network conditions and on all devices (which is not currently possible with streaming via gaming engines on web), intuitive navigation (that even non-gamers can understand), photorealism (which was very important for brands to enter this space, especially in luxury) and lastly, a focus on shopping vs. gaming (as users are coming to our experiences with a purchase intent). Brands can choose the level of immersion they want to have in their Obsess virtual stores — ranging from recreating physical stores to creating fantastical branded environments to letting users navigate as avatars and invite their friends to shop together with them.

Web-Based UGC Platforms

Are virtual 3D worlds like games becoming the next frontier for commerce or are immersive commerce experiences like virtual stores the next form of e-commerce? Web-based UGC platforms straddle both of these paths. Companies like dot big bang have “built a complete game engine and a revolutionary multiplayer game editor that runs on *every* modern OS and device directly in your web browser and crammed it all into 4MB. Create with friends across Windows, macOS, Linux, ChromeOS, iOS and Android with cross-play.”

These web-based UGC platforms enable creators to make games directly on their websites and then publish their games for others to play through most devices. Web-based UGC platforms share some similarities with Instant Games, which are web games that players can play without downloads or onboarding flows.

Social media companies like Facebook, Snap, and TikTok have launched and then deprecated or massively decreased investment in instant games in recent years. Facebook was the OG of Flash games during the Zynga era. Zynga’s FarmVille peaked at 32 million daily active users and the game had nearly 85 million players over all in 2010. Flash games worked well on the web, but was terrible on mobile. In 2016, Facebook started testing instant games built in HTML5 in a closed beta. Facebook opened up the instant games platform to all developers in 2018. 350 million people play instant games on Facebook each month.

Snap quietly acquired PlayCanvas, a HTML5 game engine, in 2018 and launched their first games by April 2019. At it’s peak, 30 million of Snap’s 500 million monthly active users played Snap Games (2021). One key innovation was allowing users to use their own Bitmoji avatar in certain in Snap games. One year later, Snap shut down their gaming efforts as part of a broader layoff.

TikTok is the latest social media company to take a crack at instant games given that 82% of TikTok users play games (anywhere) at least once a week. It launched its first instant game in September 2021. TikTok confirmed via TechCrunch in July 2022 that, “Currently, we’re exploring bringing HTML5 games to TikTok through integrations with third-party game developers and studios.” Meanwhile, a small group of hackers are building their own games that work on TikTok Live.

According to Rob Anderberg, CEO of ControlZee, his dot big bang platform boasts a more advanced engine compared to traditional 2D instant game platforms, leading to immersive and captivating gameplay.

dot big bang has an extremely capable game engine written using TypeScript and Web Assembly and provides excellent tools for creators which enable them to build richer and deeper experiences than competing platforms. While other platforms are successful with simple graphics, an older audience expects something more refined, which dot big bang can deliver. Combined with a social layer, creators can have players jump directly into a multiplayer experience from a QR code without needing an account, then seamlessly upgrade to an account where they can purchase virtual items.

The historical and current audience size of instant games, coupled with an estimated estimated 3.2B active 3D-capable browsers, indicates a substantial demand for web-based gaming experiences. Enabling creators to easily create 3D web games on platforms such as dot big bang and HiberWorld has the potential to significantly expand this segment.

These platforms have two main growth strategies: 1) compete for creators and developers who will make compelling games against dominant UGC game platforms that are paying out hundreds of millions to developers like Roblox (Fortnite is paying out a billion dollars to its creators), or 2) compete for brands interested in virtual stores and use brand-paid development and affiliate fees to jump start a developer ecosystem, hoping that some of them will believe in the platform enough to develop games on top of “work-for-hire” virtual stores.

Winner Sells All

In 1997, Amazon generated $148 million in e-commerce sales while Walmart celebrated it’s first $100 billion in physical sales. The question arises: will immersive commerce reach the same significance as e-commerce or live shopping, or will it remain a niche channel for commerce? The answer hinges on consumer interest in shopping for physical goods within immersive experiences.

Baszucki has a grand vision for immersive commerce, “[a] wonderful closed loop of walking with a friend, going to a brand store, buying virtual items, watching videos, trying things on, and arguably buying [physical goods] right there.” If he’s right, immersive commerce could emerge as a battleground not only for commerce giants like Walmart and Amazon but also for other retailers, e-commerce platforms, and gaming companies.

1. Note that I’m sharing only publicly announced or launched initiatives and that my commentary may not reflect Walmart’s views.
2. Baszucki uses a few phrases interchangeably to describe selling physical goods in games: real-world commerce, physical shopping, and shopping economy.