Cofounder at zblocks and at Mergeflo. Globally recognized business builder, thought leader and entrepreneur.
As the fashion industry continues to evolve, the emergence of Web3 and its integration with Web 2.0 technologies is creating a paradigm shift for digital fashion business models. According to a report from Allied Analytics, the global market for digital fashion is expected to grow from $498.7 million in 2021 to $4.8 billion by 2031 at a CAGR of 26.4%. Blockchain and Web3 comprised 33% of this market size and are expected to lead through 2031. Digital fashion is catalyzed by several technologies like 3-D printing, artificial intelligence and augmented and virtual reality, as well as blockchains.
The convergence of these technologies and demographic shifts have laid the foundation for several new business models and opportunities within a large and growing market. Let us examine a few.
The most talked about part of the digital fashion value chain involves the creation of virtual clothing and sales to customers. These clothes are worn in virtual environments, such as online games, social media or augmented reality apps. Customers can create their own avatars or use virtual models to try on clothes and buy digital outfits from online marketplaces. They have been an integral part of virtual events, gaming appearances and crowdsourced designs today.
Digital Fashion Rental
People in the physical world often rent outfits like tuxedos, and the NFT rental standards have created opportunities for renting digital clothing. Consumers can rent and use these for a limited time, and smart contract automation returns them to the owner after use.
Digital Styling And Hyper-Personalization
Artificial intelligence has created hyper-personalization in the design of digital clothing that goes beyond the generic sizes of “medium,” “large” and so on. Consumers have a desire for the perfect fit, and AI-enabled design software can execute this through uploaded photos, avatar creation and predictive styling based on body types. Improved customer experience and the elimination of physical fittings are drivers for the business model.
Augmented Reality Shopping
Augmented reality enables customers to try clothes on virtually and see how they will look on them. Smartphones and AR headsets can provide real-time fitting experiences, and the AR model can also eliminate the need for physical stores, thereby improving capital and carbon efficiency for brands.
Digital Fashion NFTs
This business model involves selling digital fashion items as nonfungible tokens (NFTs) on blockchain platforms. Customers can buy and sell digital fashion items as unique digital assets, and the value of these assets can appreciate. This model can enable creators to monetize their digital fashion designs and provide customers with unique and exclusive digital fashion items.
Digital Fashion Marketplaces
Customers can buy and sell digital clothes and fashion accessories on marketplaces, which can also provide reach and consumer access for independent designers and niche players. Marketplaces can provide great network effects and scale rapidly based on Metcalfe’s Law.
Digital Fashion Gaming Collaborations
This business model involves partnering with video game companies to create digital fashion collaborations worn by characters or avatars in games or offered as in-game purchases. Brands can reach new audiences and communities that are not email-native and build digital clothes and accessories targeted at the gaming community.
Digital Fashion Influencer Sponsorships
Social media influencers and brands can partner to unlock new value through digital fashion content (e.g., try-ons, styling tips or voting on new designs). Web3 can also drive direct relationships between brands, influencers and audiences through NFTs, powering decentralized commerce.
Barriers To Adoption
While gaming and the metaverse serve as catalysts for digital fashion growth, the high cost of these garments and lack of interoperability and portability hinders the pace of adoption.
Web3 is still nascent, and nontechnical users like fashion designers and influencers may struggle with things such as wallet creation, NFT minting and asset transfers. As new technologies like decentralized platforms and low code or no code interfaces scale, they can lower the barriers to adoption.
In addition, many countries lack regulatory clarity on NFTs as a new asset class, and some brands are tentatively entering this new area with large investments.
Key Considerations For Brands
Here are the top three considerations for brands to lay the foundation for scaling their digital fashion ambitions by leveraging the power of Web 2.0 and Web3.
Brands must build technical knowledge of Web3 and Web 2.0 to understand key points of integration, community engagement and activation to create compelling experiences. This could involve expertise spanning multiple technologies like AR, VR, blockchain, AI and 3-D printing.
The key to adoption is always rooted in ease of use and user experience. Digital fashion experiences need to be engaging, intuitive and accessible to a wide range of consumers. Brands may need to invest in user research and testing to make sure their digital fashion offerings meet the needs and preferences of their target demographics. Custom interfaces, easier designs and democratized access tailored to the specific needs of consumers are key.
Regulatory And IP Awareness
Digital fashion entails creating and selling virtual garments, which has set off legal, regulatory and ethical issues surrounding NFTs, ownership and copyrights and the proliferation of AI complicates this further. Country-specific regulatory and IP law awareness, as well as working with legal experts to outline clear policies, contracts and governance, must drive value creation at scale.
The convergence of several technologies, especially Web 2.0 brands adopting Web3, is creating a paradigm shift for digital fashion and spawning new business models. Everything from production and consumption to interaction and distribution of fashion is undergoing a change and causing businesses to focus more on sustainability. Many Web 2.0 brands that have embraced Web3-enabled digital fashion will continue to grow in the years to come.
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