BCG Henderson Institute

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If the combination of Covid-19 and remote work technologies like Zoom have undercut the role of cities in economic life, what might an even more robust technology like the metaverse do? Will it finally be the big upheaval that obliterates the role of cities and density? To paraphrase Airbnb CEO Brian Chesky: The place to be was Silicon Valley. It feels like now the place to be is the internet.

The simple answer is no, and for a basic reason. Wave after wave of technological innovation — the telegraph, the streetcar, the telephone, the car, the airplane, the internet, and more — have brought predictions of the demise of physical location and the death of cities. Time and time again, such prognostications have been proven wrong. And while the pandemic has changed where and how people work, the trend of talented people, innovation, and economic activity becoming increasingly concentrated in fewer and larger superstar locations has consistently proven durable. Cities aren’t going anywhere.

Still, the metaverse feels different. Its combination of technologies driven by virtual and augmented reality promises to make the virtual world a far more realistic substitute for the physical one. New remote work and virtual collaboration tools like Meta’s Horizon Workrooms, Microsoft’s Mesh, and Arthur are huge advances beyond Zoom and will enable workers to brainstorm, discuss, and interact with one another’s avatars. They will create a much more realistic consumer experience for shopping for everything from fashion and luxury goods to art. It’s easy to see why such an advanced technology might render cities and physical locations obsolete.

But the reality is that this metaverse, like each major previous wave of innovation before it, is less a substitute for location and more a complement to it. Even as the metaverse enables a far more realistic experience of the digital world and enables us to do many more things online — expanding access to rich content and wider pools of talent, lowering switching costs between locations and transaction costs in general, and vastly augmenting data-based decision making and personalization — it will still be unable to replicate the emotional cues, body language, serendipity, and diversity that happen when human beings cluster and collaborate in real places.

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