Changes in Consumer Behavior
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Changes in Consumer Behavior
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The metaverse is a trending topic among consumers, gamers, content creators, investors, the developer ecosystem, and more. In today’s newsletter, Drawing Capital will share ideas and insights related to changes in online consumer behavior, differences in “physical worlds” versus “virtual worlds”, and the directional arrow of communication.
Changes in Consumer Behavior
The consumer shift towards online activities is a long-term trend and was accelerated by the coronavirus crisis. As more consumers spend more of their lives online via computers, phones, and other connected devices, more content consumption and production will occur online.
In the past 2 decades, the percentage of American adults who say they use the internet has jumped from about half to about 93%. Additional survey statistics on this slide from BLS and App Annie highlight daily levels of American TV consumption and mobile phone usage.
COVID-19 Changed Consumer Behavior
During the pandemic, many people become accustomed to staying connected via friends and family via virtual environments. Ranging from work-related Zoom meetings to FaceTime calls with family members to kids playing Roblox games for staying connected with their friends, digital connectivity became normalized and ubiquitous. While many people continue to prefer physical in-person interactions and live experiences, a level of digital connectivity will remain for millions of Americans.
In a covid-adjusted world, many knowledge workers will spend more time working online, especially with some level of persistence in hybrid & remote work.
Virtual worlds increasingly have become a method for human expression in a digital format.
Virtually building a metaverse has some similarities to discovering new land in physical real estate, with the metaverse having a largely blank canvas that will be filled with creativity, new forms of expression, and new communities.
The metaverse’s ability to make experiences more immersive has a natural affinity with the human condition. Especially among the millennial and Gen Z generations, the seeking of experiences and independent content creation increasingly matter.
3 Versions of Real Life: Physical, Virtual, and Hybrid Worlds
Obviously, the coronavirus pandemic altered humanity, and changes occurred in the lives of billions of people around the world in the past 27 months. From a work environment, there has been a tremendous increase in hybrid work and remote work environments. During a coronavirus-induced lockdown environment, many people relied on digital technologies to remain connected and manage various aspects of their lives, giving rise to topics such as food delivery apps, e-commerce, video conferencing, gaming, telehealth, cloud software companies, RNA development, and so much more.
Increasingly, it seems like people will live in 2 separate or interconnected worlds: living in real/physical life and living a digital life. 1 person may have a similar or different persona and identity as they traverse between real life and digital life. Augmented reality and the intersection of the physical and virtual worlds represent the hybrid world.
In the professional workplace setting, an example of a hybrid world is being in a Zoom meeting that takes place in a conference room, and as a result, some meeting attendees are attending physically in the conference room while others are attending virtually via video conferencing.
Additionally, it’s likely to see further experimentation and changing cost structures between physical and digital assets. Digital files like JPEGs or digital skins in video games don’t necessarily suffer from wear-and-tear, while physical clothing and houses certainly require maintenance and endure wear-and-tear over time.
Mobile Phones as Personal Remote Controls
This illustration highlights that the iPhone essentially has become a person’s personal remote control that connects with other devices, such as the Apple Airpods for headphones or the Apple Watch for fitness tracking, or Continuity and Handoff to connect with MacBook computers, all within the Apple ecosystem.
The key takeaway is that our mobile phones are digital extensions of ourselves. Via mobile apps from the iOS App Store, individuals can enable productivity, use digital interfaces to manage things in the physical world (such as ordering an Uber or receiving package deliveries from Amazon), or express themselves virtually through social media apps like Instagram, Pinterest, Tik Tok, and Twitter.
Directional Arrow of Communication
The directional arrow of communication is more online, more immersive, and more volume.
More Online: More online communication can be measured as more time spent communicating online instead of physically in person.
More Immersive: Different communication styles have different levels of immersive experiences. From a device perspective, we have traversed from desktop computers to laptops & tablets to mobile phones and connected devices, such as the Apple Watch. Ranging from the least to most immersive online experiences, one can rank levels of communication as text messaging, then audio calls, then video meetings, then AR/VR, and now, the metaverse.
More Volume: Greater volume implies more volume in aggregate across all forms of online communication.
Consumer Behavior: Mimetic, Validation, Status Signals
There are understandably many ways of describing consumer behavior. As displayed in this illustration above, these consumer behavior traits are present in both the physical and digital worlds.
Online Experiences Translate Into Tangible Value
Categories in Converting Online Experiences into Tangible Value:
Advertising
Content Consumption
Creator Economy
Digital Communication
E-Commerce
Gaming
Information Search
Productivity Tools
Social Media
Subscription Software
Telehealth
In translating online experiences into real value, the key takeaway is that online experience management and perception matter, and having a high number of online social media followers can directly translate into commercial sales. For example for commercial purposes, Chinese influencer & livestreamer Li Jiaqi sold $1.9B in products via livestream shopping on Alibaba’s Taobao online marketplace during Singles Day in 2021.
Methods of Establishing & Managing Trust
Notably, there will be both similarities and some differences between establishing and managing “Digital Trust” versus “Physical Trust”.
A changing circumstance is that changing human behavior is leading to consumer trust increasingly being made across digital channels. For example, millions of Americans believe that they can establish trust digitally with a financial institution without the need to visit a physical banking branch (thereby creating a distinguishing feature of “physical trust” vs “digital trust”), and fintech examples include SoFi, Affirm, Square, and Venmo by PayPal.
Many forms of trust in the virtual world will carry over from physical worlds. Simultaneously, there will be new forms of establishing digital trust. For example, 2-factor authentication exists for online accounts.
Additionally, another question emerges, which is how does one establish trust digitally, or should the zero-trust cybersecurity framework be used?
Conclusion
We believe that the significant consumer shift towards digitally-enabled life is a product of both pandemic-adaptation and the impact of technological advancement in frictionless services that utilize mobile devices as a gateway.
These changes in consumer behavior have given rise to three different worlds: physical, virtual, and hybrid. The prevailing trend, especially given the preferences of Millennials and Gen-Z, is that the future of work, socialization, and interpersonal connections will take place in hybrid and virtual environments.
While some public commentators express these views as a far-off destination for our population, many of these experiences are translating into tangible value today. We can see examples of this in markets such as e-commerce, gaming, content creation, productivity tools, social media, and the creator economy.
Experience management matters, and closing the “experience gap” leads to value creation for both companies and consumers. In order to remain competitive over the long-term, companies are increasingly allocating resources to establishing digital trust with users. We believe that businesses which under-allocate towards digital trust will likely see increases in customer churn and pressure on their existing market share as virtually-enabled environments continue to take hold and rise in consumer adoption.
References:
(1) Pew Research Center, https://www.pewresearch.org/internet/fact-sheet/internet-broadband/
(2) American Time Use Survey by BLS, https://www.bls.gov/news.release/pdf/atus.pdf
(3) State of Mobile 2022 Report by App Annie Intelligence, https://www.appannie.com/en/go/state-of-mobile-2022/
(4) Bloomberg, https://www.bloomberg.com/news/articles/2021-10-21/china-s-lipstick-brother-livestream-has-record-2-billion-day
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