PW Nike Metaverse Case

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May 26, 2022
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M O H A N B I R S AW H N E Y A N D P A L L AV I G O O D M A N
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Nike:
Tiptoeing into the Metaverse
In January 2022, Nike’s chief digital information officer, Ratnakar Lavu, was planning the
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year’s digital strategy for Nike. The leadership team at Nike had requested a presentation regarding
company strategy in the rapidly evolving metaverse. Nike had already made several forays into the
metaverse and related digital products. These included an in-game collaboration with the online
video game Fortnite, trademarked blockchain-based digital sneakers called CryptoKicks, a virtual
3-D showroom called Nikeland in the Roblox environment, trademark applications related to
the creation and sales of virtual sneakers and apparel, and the acquisition of RTFKT, a creative
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company that made digital sneakers and NFTs (non-fungible tokens) for the metaverse.
Nike’s leadership team wanted to move aggressively into the metaverse, in keeping with the
company’s reputation for pioneering design and innovative marketing. However, the leadership
team wanted evidence that Nike’s digital team was placing the right bets at the right time in
a very dynamic and confusing space. To prepare his digital strategy, Lavu needed to assess the
experiments that Nike was participating in, evaluate trends in the evolution of the metaverse, and
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benchmark the strategic moves of competitors such as Adidas. It was time to take stock of the
various experiments that Nike had conducted between 2019 and 2021, so the company could
chart a more strategic and cohesive path forward. Lavu and his team would have to tread the
narrow path between being carried away by the hype and getting left behind by competitors in the
brave new world of the metaverse.
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©2022 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor
Mohanbir Sawhney and Pallavi Goodman based solely on public information. Cases are developed solely as the basis
for class discussion and are not intended to serve as endorsements, sources of primary data, or illustrations of effective
or ineffective management. For pedagogical purposes, the strategies and opinions in the case have been fictionalized
and are not intended to represent the actual strategies of Nike. Likewise, the authors might also have fictionalized
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Nike: Tiptoeing i nt o t h e M e tav e r s e KE1213
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The History of Nike: 1964 to 2019
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Nike was founded by University of Oregon student athlete Phil Knight and his coach Bill
Bowerman at Eugene, Oregon, in 1964. Knight had met Bowerman when he ran for the university’s
track and field team. Bowerman was always tinkering with the athletes’ shoes, and Knight was one
of the first to try one of Bowerman’s alterations. Knight went on to Stanford for his MBA. After
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graduating from Stanford in 1962, he went on a trip to Japan, where he struck a deal with some
Japanese businessmen to export their popular Tiger shoes to the United States. Knight reached out
to Bowerman for support, and the two entered a 50-50 partnership deal with the Japanese for their
new company, Blue Ribbon Sports.
Knight started selling the Tiger athletic shoes out of his car and quickly realized they presented
an attractive market opportunity as an alternative to the popular Adidas and Puma shoes of the
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time. In 1967, Knight and Bowerman came up with a new shoe design, called the Tiger Cortez,
at once stylish and comfortable, that became an instant hit. This led to complications with Tiger
in Japan; the two companies split in 1971. Tiger sued Blue Ribbon Sports, and a judge ruled that
each company could sell its version of the shoes, which resulted in the shoes becoming a bestseller
for both companies. Tiger eventually became known as ASICS. Blue Ribbon sports rebranded
itself as Nike, after the Greek goddess of victory.
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Nike continued its success story, innovating on shoes, including the “waffle” sole design,
which resulted in the “Waffle Trainer.” The company’s growth culminated in an IPO in 1980. Nike
continued from strength to strength through the 1980s with the help of innovative advertising
campaigns, including the iconic “Just Do It” campaign in 1988. Nike also negotiated path-
breaking celebrity endorsements. The most famous was its tie-up with basketball legend Michael
Jordan, and the launch of a shoe line called Air Jordans brought in revenues of $100 million by
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1985. Air Jordans continued to garner huge revenues for Nike as Jordan rose to superstardom.
In 1990, the first Niketown store opened in Portland, Oregon. Despite some bad press about
low wages and poor conditions in Indonesian Nike factories, Nike signed golfer Tiger Woods
in 1996 and basketball kings LeBron James and Kobe Bryant in 2003. Meanwhile, protests had
broken out over the treatment of overseas workers, and Nike responded by raising the minimum
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employment age, increasing factory monitoring, and adopting USA-OSHA standards for clean air
in overseas factories. In 2004, Nike acquired the shoe company Converse for $309 million. That
same year, Knight stepped down as CEO and president, handing over the reins to William Perez.
Nike continued to grow revenues and profits in the 2010s, becoming the official supplier of
NFL apparel in 2012 and of the NBA in 2018. In October 2019, Nike announced the appointment
of John Donahoe as its next CEO. Donahoe had previously served as the CEO at eBay and the
consulting firm Bain & Company. Under Donahoe, Nike continued to do well, a circumstance
reflected in an increase in its stock price rise from about $96 at the time he took over as CEO to
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about $166 at the end of December 2021, despite the global COVID-19 pandemic.
2 Kellogg School of M a n a g e m e nt
KE1213 Nike: Tiptoeing i nt o t h e M e tav e r s e
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Nike Digital
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In 2017, Nike revealed its Consumer Direct Offense strategy, aimed at connecting directly
with consumers via direct selling and digital innovation. In 2020, the pandemic forced the
company to close 900 stores worldwide. However, the negative effect of store closures was more
than compensated for by the growth in digital sales. In December 2020, Nike announced that it
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had recorded three consecutive quarters of 80 percent digital growth.1 As the pandemic continued
worldwide, the company enjoyed double-digit growth in markets around the world: Europe, Asia-
Pacific, Latin America, and China. It added 70 million digital members during the pandemic.2
In 2018, Nike had announced a goal to achieve 30 percent digital penetration by 2023. Spurred
on by the pandemic, it achieved this goal by June 2020 and raised its digital revenue goal to 50
percent by 2022.
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In 2021, Nike’s Consumer Direct Acceleration aimed to increase digital sales with consumers,
innovation, and investments in technology to enhance digital touchpoints. To that end, Nike
acquired data platform Datalogue, to continue its quest for consumer-led digital transformation.
Donahoe said that it “builds on our digital momentum by enhancing our ability to transform
raw data into actionable insights in real-time and across the enterprise.”3 A trio of Nike apps—
SNKRS, Nike Training Club, and Nike Run Club—drove tremendous value. The SNKRS app
had been downloaded nearly 500 million times globally. “Digital is now woven into everything we
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do as a company,” Donahoe said in an earnings call. “It’s how we operate and prioritize, from how
we engage with members, to how we operate our supply chain, to how we serve consumers in the
marketplace.…We are using digital to connect product to consumers like never before.”4
Nike’s App Ecosystem

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Nike’s e-commerce app was the main platform through which customers purchased Nike
shoes and apparel. Nike saw more than 150 percent growth in mobile sales in 2021, powered by its
commerce app. However, the company’s SNKRS, Training Club, and Run Club apps also played
a key role in Nike’s digital strategy.
The SNKRS app offered exclusive, highly desirable footwear to customers in the US, China,
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and Japan. In 2020, Nike reported $1 billion in revenue for the first time from this app. Whereas
SNKRS was designed for Nike shoppers, Training Club and Run Club were designed for Nike
fans, an important distinction in the company’s eyes. Users could plan workouts and runs and
compete with friends to earn rewards through these two apps. In March 2020, in a bid to attract
more users, Nike dropped the premium subscription fee for the Training Club app. The next
month, Nike reported 20 million workouts on Training Club, a huge increase from 1.6 million per
month in 2016. With the Training Club and Run Club apps, Nike focused on a direct connection
and consistent digital engagement, which the company perceived as more valuable than the purely
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shopping experience on SNKRS. Through rewards and gamification, the user was continually
invited into the world of Nike. Indeed, with these augmented experiences, the company hoped to
blur the line between shopper and user. “The key was to offer services that naturally fit within the
consumer’s daily activities,” said Matthew Boss, head of JPMorgan’s US retailing.5
Kellogg School of M a n a g e m e nt 3
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The Metaverse
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The term metaverse was coined by Neal Stephenson in his dystopian sci-fi novel, “Snow Crash”
(1992), in which characters used digital avatars to explore a fully digital world. The metaverse
allowed one to have a second life, or a second (digital) version of the physical life. This was possible
by leveraging technology and using virtual reality and augmented reality headsets. In this universal
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virtual world, one could not only spend time interacting with friends and associates in a virtual
space but also play, attend concerts, purchase virtual property, and shop for a digital avatar.
The metaverse promised a new generation of the internet, one that was based on activities and
experiences, not just on information and content. (See this video introduction to the metaverse:
vimeo.com/686463863.)
Elements of the metaverse already existed in online video games such as Roblox and Fortnite.
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In these games, avatars interacted with others, playing, competing, and fighting for virtual money
to adorn and decorate their virtual selves or virtual spaces. Many of the big technology companies,
startups, and venture capitalist (VC) funds were signaling their interest in investing large amounts
in the metaverse. Leading brands such as Nike were actively participating in the metaverse, as it
promised to be the next-generation paradigm for digital customer engagement.
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Precedents of the Metaverse
S e co nd L i fe
The metaverse was not a completely new development. In some ways, it was the second
coming of a 1999 social platform called Second Life. Created by Linden Lab, Second Life enabled
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people to use digital representations of themselves to socialize and connect with others and even
to shop and build property to enhance their digital lives. (See this video for an introduction to the
Second Life platform: vimeo.com/686467144.) Second Life was created long before Facebook was
founded, and it predated even further the popular social networking platforms Instagram, TikTok,
and Snapchat. However, compared to Facebook’s roughly 3.5 billion monthly users, Second Life
had stagnated at about 1 million users since 2008.
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Later, Second Life prepared for the second coming of itself by reimagining the social and
economic aspects of the game and giving users a better experience. At the end of 2021, Second Life
had about 200,000 daily active users, compared with 43 million daily active users for Roblox, the
biggest metaverse-like platform. The Second Life economy reported a $600 million annual gross
domestic product, with more than two billion user-generated assets. The platform processed 345
million transactions annually and paid about $80 million annually to creators.
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M i ne c r af t
Another metaverse-like platform wherein millions of users immersed themselves for hours
every day was Minecraft, a wildly popular gaming platform owned by Microsoft. Minecraft
sold more than 200 million units in 2020, and it boasted a total of 141 million active players
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in 2021. Minecraft reported between 2.8 million and 3.6 million daily active users that year.
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Like the newer metaverse platforms, Minecraft was decentralized, customizable, and immersive.
Minecraft encouraged creativity by allowing users to build worlds and to participate in those they
liked. Minecraft was exceptionally immersive without requiring expensive hardware and new
digital media such as augmented reality (AR) and virtual reality (VR). However, like Second Life,
Minecraft was glitch-filled and prone to hacking.
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The experience of precedents of the metaverse, including Second Life and Minecraft, offered
some important lessons for the developers of metaverse platforms:
• A metaverse needed to provide an easy-to-use toolkit for users to be creative and to be able
to express themselves.
• Very few creators would make enough money in a metaverse to earn a living by selling
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digital goods or NFTs.
• Ease of use, reliability, and security were crucial to attracting and retaining users.
• A metaverse was not likely to appeal to all demographics or to become a universal platform.
Its initial appeal was expected to be to younger, gaming-centric audiences.
• Metaverse platforms inevitably would spawn nefarious activities, such as fraud, money
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laundering, sex trafficking, and intellectual property violations.
• To avoid becoming obsolete, a metaverse platform needed to adapt as hardware and
networks evolve.
Metaverse Platforms and Players

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Various platforms and players were jostling for mind share in the metaverse. The watershed
event was Facebook’s announcement (see this video: vimeo.com/686467992), on October 28,
2021, that it was changing its name to Meta and that it would spend $10 billion over the next year
to build its metaverse. Mark Zuckerberg, the CEO of Facebook, laid out an expansive vision that
involved using new and improved AR and VR hardware to experience the metaverse. AR allowed
users to embed virtual objects into the physical world, whereas VR used 3D computer modeling
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to let users immerse themselves into a 3D virtual environment. However, these headsets were still
expensive, clunky, and uncomfortable. Although the metaverse did not require users to wear these
headsets, it was widely believed that they were important enablers of the immersive metaverse
experience.
F ace b o ok H or izo n Wor ld s

In December 2021, Facebook took a step toward its much-publicized goal of “working
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and playing” in the metaverse by announcing that it was opening Horizon Worlds, its virtual
reality world, to anyone 18 and older in the US and Canada. Previously, only Oculus VR users
were invited to join the virtual world. Facebook had acquired Oculus in 2014 for $2 billion.
In Horizon Worlds, users could create a legless avatar to traverse the animated virtual world.
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The Horizon Workroom app offered virtual meeting rooms and video call integration for up to
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50 people at a time. Meta CEO Zuckerberg wrote that he anticipated that one billion people
would participate in the metaverse, spend hundreds of billions of dollars in digital commerce
and create millions of jobs for creators and developers. However, critics called Horizon Worlds
a “strange” experience that mimicked a virtual office more than a digital playground. TheGamer
publication described Horizon Worlds as “less of a virtual utopia, and more of a glitchy, incomplete
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cluster of experiences.”6
De ce n t r a l a nd
Developed on the Ethereum blockchain, this was the most popular metaverse platform in 2021.
Decentraland allowed users to purchase virtual land where they could monetize their assets and
content. Decentraland had more than 90,000 parcels, which included individual parcels, estates
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(multiple parcels), districts (parcels with similar themes), and plazas (owned by the community).
Decentraland offered three types of tokens: MANA, the native currency; WEAR (for wearables and
articles); and LAND (for owning a virtual plot of land). To attract others, Decentraland wanted to
bring in creators, celebrities, and others to build content and advertisements and drop NFTs.* (See
this video for an introduction to NFTs: vimeo.com/686468088.) Decentraland was backed by
more than 20 investors, including Digital Currency Group, Kenetic Capital, and Coin Fund, and
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had built partnerships with brands such as Samsung, Atari, Polygon, and even the South Korean
government.
T he S a nd b ox
The Sandbox permitted users to tour virtual space, purchase virtual land, and interact with
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other players. Like Decentraland, The Sandbox was developed on the Ethereum blockchain.
However, The Sandbox had four types of tokens†: SAND (the native currency); ASSETS (content
created by users); GAMES (created by users); and LAND (the virtual land). The Sandbox also
had more than 166,000 plots of land that were grouped into estates (owned by one person) and
districts (owned by two or more people). The Sandbox managers had a clear strategy for the
future: to bring the platform to mobile devices before the end of 2022 and launch it on consoles
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such as PlayStation and Xbox. The Sandbox company also wanted to create in-game jobs that
would allow them to work as in the physical world. The company was backed with a $93 million
funding round by Softbank, one of the largest investors in the world. It had also partnered with
* NFT stands for non-fungible token, a unique unit of data stored on a blockchain, which was a form of digital
ledger. NFTs could be owned and thus bought and sold. An NFT could be in the form of a photo, visual art, audio,
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video — even an in-game digital parcel of land. Unlike bitcoins, which were fungible and thus interchangeable,
each NFT was unique and thus not interchangeable.
† Players earned SAND tokens for completing activities in the world so they could buy virtual objects in the
Metaverse. One SAND was equal to $6.55. Land made up The Sandbox Metaverse, where players could purchase
parcels and monetize them by hosting games or creating housing and other experiences. Assets, such as games
designed on lands, could be sold or traded on The Sandbox marketplace.
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brands such as Adidas, Atari, the rapper Snoop Dog, and NFT company CryptoKitties.* The
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Sandbox, with more investors, partnerships, and a clear roadmap for the future, appeared to be
gaining on Decentraland.
Ro b lox
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Roblox was an online gaming platform that allowed users to play and program games created
by other users. It was developed and released in 2006 by Roblox Corporation. The video game
platform emulated aspects of a social media network. For many years, the platform was relatively
small, but its growth accelerated after 2015. Roblox was free to play, but in-game purchases were
available through a virtual currency called Robux. By 2020, it had 164 million monthly active
users; most of them in the US were younger than 16. Roblox users could create their own games
with Roblox Studio; these games could then be played by other users. Roblox allowed users to buy,
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sell, and create virtual items to decorate their avatars. The platform also occasionally hosted real-
life (e.g., birthday parties) and virtual events. Roblox was an older platform but considered one of
the furthest ahead (along with Epic Games, creator of Fortnite) in building metaverses because it
had already built a virtual world in which millions of people (mostly kids and teenagers) already
socialized, spent digital money, and played digital games. See Exhibit 1 for a list of top metaverse
platforms.
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Metaverse Use Cases and Applications
The metaverse promised immersive digital experiences for consumers in domains such as
gaming, digital commerce, retail, real estate, live concerts, sports, and learning. The metaverse
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would also allow businesses to engage with customers, design new products, hold meetings, and
train employees in an immersive environment. Although it was difficult to identify which use cases
had the most potential and would attract early adopters, a few promising candidates had emerged:
E - Co m me rce
Shopping and commerce played a key role in the metaverse. People bought and sold things in
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a virtual world just as in the physical world. Anything from shoes to candles to food to clothes (all
digital, of course) were sold in the metaverse. Creators and sellers could have an exclusive launch
party, and people anywhere in the world could attend in the digital world; users could have a
seamless channel-to-channel experience, cardless payments, hyper-personalization, among other
benefits. The metaverse held the promise of merging physical and virtual experiences. For example,
when sneakers were sold in the physical space, the virtual version could be unlocked, as well.
Conversely, a digital currency or NFT could be traded for physical goods.
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* CryptoKitties was a blockchain game on Ethereum that allowed users to purchase, breed, and collect virtual
cats. Each cat was unique and could not be replicated or destroyed. This was one of the first uses of blockchain
technology for entertainment.
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G a ming
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Games like Roblox and Fortnite already include many elements of the metaverse. Hundreds
of millions played these games. Games created billions of play sessions. People had the ability
to engage at a yet-unseen level, not just with a few but with all games in the metaverse. The
combination of technology, NFTs, e-commerce, and engagement resulted in increased virality and
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better monetization for games. The metaverse would promote the growth of play-to-earn games,
where people earned third-party revenue by playing games. Gaming was expected to disrupt the
system, and gamers could even become crypto investors. It wasn’t just Big Tech that was interested
in gaming. For example, VR startup Aldin Dynamics, based in Iceland, was building a virtual
world based on the game Waltz of the Wizards.
Ed u c at io n / Le ar ni ng
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The metaverse’s value in learning was to provide an immersive learning experience. The
possibilities were promising because VR and AR allowed users to explore and experience other
worlds. Virtual- and augmented-reality solutions allowed users to receive high-quality and
immersive content, not simply read about it. Students could use their avatars and VR headsets to
experience museums, participate in shared environments, engage with instructors, and collaborate
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with other students. Three-dimensional learning content promised to make education more
engaging and satisfying. Several educational virtual experiences had already been created, such as
Britain at War, Fossil Museum (an immersive exhibit), and Nautilus (about the Great Barrier Reef,
which included a 180-degree viewing observatory).
Re a l E s t at e
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Using cryptocurrency, people could buy and sell properties in the virtual world, as in the
real world. Even though real estate dealings in the metaverse were considered highly speculative,
some experts believed the metaverse would expand to host its own fully functioning economy.
Digital real estate was already selling for millions of dollars. In Decentraland, a plot of virtual
land had sold for $2.4 million worth of crypto, and one sold for $4.2 million at The Sandbox.
The popularity of digital land was spurring other companies to create digital worlds and digital
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properties. An example was SuperWorld, where a player could collect, buy, and sell plots of virtual
land. It had unique plots valued at a total of $64 billion, including Mount Rushmore in the US,
the Eiffel Tower in France, and the Taj Mahal in India.
Re t ail
The metaverse facilitated the creation of shopping venues such as e-stores and malls. However,
the retail experience in the metaverse was much more than simply replicating the physical world.
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It was much more immersive, designed to be above and beyond anything ever possible in the
real world. Consider the experience of buying a car. Instead of simply buying from a showroom,
people could take an immersive and adrenaline-fueled test drive in a racetrack of their choice in
the metaverse and then have the car delivered in the real world. Similarly, the beauty experience
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could be revolutionized by allowing a buyer, with the flip of a switch, to access a beauty adviser in
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the metaverse and ask for a personalized recommendation of products. Therefore, store designers
and marketers would need to rethink and reimagine what a “store” could be in the metaverse. The
goal was to create a hyper-personalized and immersive experience that far exceeded anything that
existed in the physical world. Status symbols such as the virtual car, virtual jewelry, virtual houses,
and other virtual belongings could become every bit as important and prestigious as they were in
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the physical world. Brands such as L’Oréal had already built a line of virtual cosmetics, and Gucci
was already selling virtual clothing.
E - S p or t s
The metaverse promised to revolutionize and lift fan engagement to an unprecedented level.
In the virtual sports arena, fans would be able to create their own sports avatars, purchase sports
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equipment and souvenirs, socialize, co-watch events, party, train, work, and participate in gaming.7
Sports in the metaverse was immersive and creative, with people joining leagues, interacting, buying
products, taking photos and chatting with sports stars, and even meeting up in a virtual bar to
socialize with other fans. Physical and geographical boundaries would melt away. Fans of American
football, for example, could create sports avatars, sit with their friends and watch the sport (even
though in the real world, these friends were many miles away), and socialize with other fans. They
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could watch from a variety of vantage points, zoom in on any play, and even run with the players
on the virtual field with multi-view camera technology. Fans could also purchase a seat in a virtual
VIP box without the restrictions of availability that plagued the physical world. They could browse
virtual stores for physical and digital offerings. Organizations such as the International Cricket
Council were already partnering with advocates of the metaverse.
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Brands in the Metaverse

Fashion brands quickly jumped on the metaverse trend and the burgeoning passion for the
virtual world. Gucci, Adidas, Ralph Lauren, and Balenciaga, among others, quickly realized
the potential of the metaverse and the promise of increased engagement and immersion from
fans and customers.
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G u cc i
Gucci started selling a virtual fashion collection on the platform ZEPETO. On the Roblox
platform, Gucci launched a two-week version of Gucci Garden in December 2020. Players could
choose and customize their avatars and purchase exclusive digital items from Gucci. A Gucci
Dionysus bag on Roblox sold for 350,000 Robux (roughly $4,115). In the real world, the same
bag cost $3,450.8 Because it wasn’t an NFT, and Robux wasn’t a cryptocurrency, it was invalid
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outside of Roblox. What was notable was that the virtual bag sold for a higher price than that of a
physical retail version.
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Va n s
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In September 2021, shoe brand Vans created a skateboard-themed virtual world on Roblox. In
“Vans World,” players could purchase skateboards and shoes, go skateboarding with friends, and
win exclusive Vans gear.
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R a l p h L aure n
For Christmas 2021, Ralph Lauren opened a virtual world called “Winter Escape” on Roblox
where fans could visit the Polo store, skate with friends, and decorate the Christmas tree. Earlier
that year, in August, the brand launched a 50-piece virtual clothing series partnering with ZEPETO
and added attractions such as the Ralph Lauren coffee shop and the Ralph Lauren flagship store.
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B a le n c i a g a
The Spanish fashion brand decided to leverage the power of Fortnite and designed clothing
for four characters in the game. Players could pay for the costumes using the Fortnite currency
V-Bucks. Players who made these purchases could submit photos of their avatars for placement on
the game’s town-square billboards. In the real world, people could shop the Balenciaga + Fortnite
collection in the store’s New York location in Madison Square.
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J P M or g a n Ch a se Vir t u a l B a nk B r a nc h
Even banks were getting in on the march to the metaverse. JP Morgan Chase focused on
three verticals: enabling game platform providers with bank-grade products; enabling game
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and content creators to commercialize their offerings easily; and scaling the metaverse industry
across multiple currencies and payment methods with custom solutions. The company opened a
virtual lounge in Decentraland to navigate issues such as account validation, transaction status,
and fraud prevention.
Ar tists
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In 2020, Fortnite held an in-game live concert with the rapper Travis Scott in a performance
called “Astronomical.” Some 45.8 million live viewers watched a 200-foot-tall version of Scott
perform.9 Fortnite followed that with a metaverse performance by Ariana Grande. A giant avatar of
Grande that even looked like one of the characters in Fortnite, with glowing white eyes, performed
live. Donald Mustard, the chief creative officer of Epic, called it “an opportunity to almost create
a new medium.”10 Another well-known rapper, Lil Nas, performed virtually on Roblox, an
experience that was visited nearly 37 million times.
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Risks and Challenges of the Metaverse

Amid the frothy enthusiasm and hype surrounding the metaverse and NFTs, several
circumstances tempered the excitement, including the NFT ecosystem’s weak infrastructure and
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sheer number of scams, hackers, and nefarious developers and investors. Even though “Web3”
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and “metaverse” supposedly had huge potential, these terms were still abstract, difficult to grasp
for many people, and very much still evolving. The promise of making millions had lured buyers
into the NFT ecosystem, but many NFTs were spam or stolen works. For instance, on the popular
NFT marketplace Open Sea, more than 80 percent of the NFTs were deemed to be plagiarized
works and fake collections.11 This led OpenSea to limit the number of times users could mint
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NFTs for free.
Similarly, digital art was another area where fraud and theft were so rampant that fraud alert
systems had to be deployed. Another illegal activity was “wash trading,” in which an asset’s volume
and value were artificially inflated by buying and selling to oneself or among an organized group.
NFTs were also used to raise money for questionable projects in which anonymous founders simply
took in millions of dollars and then disappeared with all the money. The scale and volume of theft
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and fraud led many critics to call the NFT ecosystem broken. Unauthorized reproductions and
trademark violations were increasing, and it was unclear how trademark law would be applied and
held up in the digital world. Moreover, the definition of the metaverse was not clear, and metaverse
platforms had no interoperability, so brand sponsors could end up stranded in a metaverse platform
that didn’t attract much traffic.
The metaverse also presented many safety problems that mirrored those in the real world.
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These included unwanted contact, racial abuse, data privacy, and violent content. In the metaverse,
an individual could get access to someone’s virtual space and get up close in a very intrusive way.
Avatars could be hacked by cybercriminals who could access extremely sensitive and private data,
and users could unwittingly end up interacting with these people instead of known and trusted
friends. Especially troubling was a 77 percent rise in child “self-generated” sexual content from
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2019 to 2020, according to the Internet Watch Foundation.12 It was also risky that platforms were
able to track and retain biometric information, as this gave them significant insights into a person’s
real identity and thinking. The rise of digital currencies likely meant a corresponding acceleration
in the metaverse of harmful graphic, 3D, and auditory content. Regulators had yet to establish
robust mechanisms to prevent fraud and abuse in metaverse platforms.
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Nike’s Forays into the Metaverse

The company had been making several moves to enter the metaverse. Stepping in seemed to
be a natural next step for a brand with such enormous reach and fan following. Nike played its
cards close to its chest but made clear that it wanted to protect its brands and trademarks for the
new metaverse era. A look at Nike’s job listings confirmed its growing interest in the metaverse.
The company had posted positions such as “Virtual Material Designer, Footwear” on its digital
product creation team.
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Nike had piloted several initiatives to explore the metaverse:
1. Fortnite/Nike in-game brand integration. In 2019, Nike launched a digital sneaker in

partnership with Fortnite. Two new characters in the game were revealed to be wearing Nike
shoes, called skins, from the Nike Jordan brand. These shoes came in various colors: red, black,
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yellow, and purple. Fortnite, released in 2017, had roughly 250 million registered users. In
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2020, Fortnight creator Epic Games struck a deal with the National Football League to bring
virtual jerseys to Fortnite (see Exhibit 2). Although the in-game integration would create
great exposure for Nike to Fortnite’s massive user base, it wasn’t clear if Nike would share in
the revenues from the skins, which cost between $13 and $18 for a pair. In December 2021,
Fortnite announced a continuation of its collaboration with the Jordan brand, focusing on the
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iconic sneaker Air Jordan XI ‘Cool Grey.’13 Fortnite invited players to participate in an online
scavenger hunt and complete quests to earn rewards, such as the Playmaker (Blue) Style of the
Hangtime Outfit, the MVP (Silver) Style of the Hangtime Outfit, and the Downtown (Silver)
Style of the Swish Outfit.
2. CryptoKicks: blockchain-based digital sneakers. Nike developed blockchain-compatible
sneakers called CryptoKicks (see Exhibits 3 and 4). The company established that a blockchain
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could be used to attach digital assets to a physical product, in this instance, shoes. Nike used
blockchain to track the ownership and verify the authenticity of the shoes. Those who bought
a pair of CryptoKicks received a digital asset attached to the shoes’ unique identifier. When
the shoes were sold to someone else, ownership was transferred by trading the digital shoes
and any related digital assets stored in a “digital locker,” a cryptocurrency wallet-type app. In
addition, if anyone on Nike had been playing CryptoKitties, as an owner of CryptoKicks, they
would be able to breed the digital shoe with another digital shoe to create a “shoe offspring”—
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an entirely new shoe design.
3. Nikeland on Roblox. Nike signed a deal with Roblox to capture a younger audience by creating
a virtual world called Nikeland on Roblox’s online gaming platform. Participants could use
Nike-branded shoes and apparel to dress up their avatars, check out product offerings, and
try out new products. Nikeland was modeled after the company’s Oregon headquarters and
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featured Nike fields and arenas for players to participate in various mini-games such as Tag and
Dodgeball and The Floor Is Lava. Nike wanted to observe and test which products appealed to
a younger audience. If kids showed a desire for certain Nike shoes and apparel, the company
would produce those in the real world. Nikeland was free for the time being, and the company
said it would work to update the virtual world with product and athlete integrations.
4. Trademarks for virtual sneakers and apparel. In late 2021, Nike filed to protect seven
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trademarks in the metaverse, signaling the company’s intention to make and sell virtual Nike
sneakers and clothes. These included its name, the Nike swoosh logo, the “Just Do It” slogan,
and the Air Jordan and “Jumpman” logos. Trademarks were a form of property that added value
to the brand. Earlier, in April 2019, Nike had filed a trademark application for CryptoKicks,
which Nike had planned to use as an NFT.
5. Acquisition of RTFKT, a virtual shoe company, and NFTs. In December 2021, Nike
announced that it was acquiring RTFKT, a leading brand that designed digital sneakers
and next-generation collectibles that blended culture and gaming. Nike CEO Donahoe said
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that it provided an opportunity “to serve athletes and creators at the intersection of sport,
creativity, gaming, and culture.”14 With this acquisition, Nike took another step in its digital
transformation and extended Nike’s digital footprint. Founded in 2020, RTFKT was a
pioneering brand created to serve the growing community of digital creators. It leveraged
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the latest technology in NFTs, blockchain, and augmented reality to grow its brand in the
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metaverse by creating “one-of-a-kind virtual products and experiences.”
Nike’s digital team hoped these forays into the metaverse would help the company gain a
first-hand understanding of the promise and the potential of the metaverse for its brand, customer
relationships, new product development, and new revenue streams. Although it had been
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important for Nike to be opportunistic and diverse in its experimentation with this new platform,
the time had come to define an integrated strategy and a cumulative logic for its initiatives that
would improve its brand equity and drive revenue growth.
Competition: Adidas Walks a Different Path
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In contrast to Nike, Adidas embarked on a community-first approach that focused on
partnerships with newer metaverse platforms and on the creation of NFTs. Adidas released a series
of NFTs that gave owners access to special physical goods, such as hoodies, and to future digital
experiences. Adidas collaborated with three partners: the Bored Ape Yacht Club, a highly sought-
after NFT collection; Punks Comic; and GMoney, a pseudonymous crypto enthusiast. A total of
30,000 units of the NFTs, priced at about 0.2 ETH (about $800) on Ethereum, were mined on
December 17, 2021. They sold out just a few hours after their release, netting almost $22 million
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in one day. Adidas also entered a partnership with the Bored Ape Yacht Club for a metaverse play
by purchasing a Bored Ape NFT avatar. Adidas shared its look on Twitter, showing a Bored Ape
avatar wearing Adidas-themed apparel. It celebrated the alliance with a trailer and called it “the
time to enter limitless possibilities.”
The newer metaverse platforms were decentralized environments where users called the shots,
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in contrast to older platforms, such as Roblox and Fortnite, with which Nike had partnered (see
Exhibit 5 for a network comparison between Web2 and Web3). The older platforms featured
centralized control, so brands could carefully curate the experiences they wanted to create. For
instance, Roblox’s proprietary platform was a “walled garden” because creators could only use tools
offered by Roblox to create content and make money. Web3 platforms such as Decentraland and
The Sandbox were decentralized. They were owned by users, so brands had to collaborate closely
with communities of passionate creators and virtual landowners to engage with their audiences.
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Some experts felt that Adidas’s approach—of partnering with newer, decentralized platforms—
was bolder than Nike’s. Adidas dove in by purchasing a Bored Apes Yacht Club NFT#8774
in September 2021. This collection of NFTs was one of the best known with celebrities; well-
heeled owners included basketball star Steph Curry and talk-show host Jimmy Fallon. Adidas also
purchased land in The Sandbox to create AdiVerse to rival Nikeland on Roblox. Players could
use the NFTs as virtual tokens to purchase virtual merchandise and dress up their avatars on The
Sandbox. Adidas’s bolder approach was also riskier because it involved investing in virtual land in
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the metaverse, creating a collection of expensive NFTs, and building a community over which it
could not exercise centralized control.
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Strategic Questions
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As Nike’s Lavu reviewed his company’s initiatives and Adidas’s strategy, he organized his
thoughts into four categories of questions for the leadership team to address:
1. Prioritization: Nike would need to prioritize the initiatives based on the following: What did
the company want to accomplish? What investments would it need? What had it learned so far?
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What risks were involved? And what advantage could it secure from the process? Lavu realized
the need for a scorecard to evaluate and prioritize the initiatives. For instance, the Nikeland
initiative was a potentially expensive investment, as it would need a dedicated software team.
It was also somewhat risky because Nike was betting on Roblox, an older platform that did not
fit into the futuristic vision of the metaverse. On the other hand, Nike’s in-game partnerships
were less expensive and more agile, but the financial payoff to Nike was unclear.
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2. Evolution roadmap: Many of Nike’s initiatives were still nascent. Lavu would need to define
a roadmap for the evolution of each of the initiatives. For instance, what should be the next
steps for the CryptoKicks and CryptoKitties project? What about the RTFKT acquisition?
What new digital sneakers and other digital products should Nike create? Should it offer NFTs
for physical sneakers/apparel also, or just digital products? Also, how would the roadmaps for
the different initiatives intersect? For instance, CryptoKicks, RTFKT, and the Fortnite in-
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game digital products seemed to have significant synergy.
3. Business outcomes: The metaverse initiatives ultimately needed to drive business outcomes
for Nike. The business outcomes could be broadly categorized into two areas: brands and
relationships; and revenues and profits. Some of the initiatives would improve Nike’s brand
equity, strengthen Nike’s customer relationships, and allow it to reach a wider audience.
For instance, people who did not consider themselves runners could now purchase digital
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shoes and participate in digital games. Other initiatives (such as sales of NFTs and physical
merchandise) would produce revenues and profits and propel Nike toward its goal of 50
percent digital revenues by 2022. Lavu needed to ensure that each initiative had a clear link
to a business goal and that the initiatives were relatively balanced between brand outcomes
and revenue outcomes.
4. Competitive stance: Should Nike emulate Adidas and bet more on NFTs/decentralized
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metaverse platforms, or should it retain control and focus on “here and now” platforms like
Roblox and Fortnite? Should Nike open virtual environments such as Nikeland in other
metaverse platforms? Should it move away from Roblox, a good starting point but one built
on legacy Web2 technology? Would Nike be comfortable with the decentralized governance
model of the metaverse platforms, and would it be able to build relationships with communities
of creators and virtual landowners to connect with its customers? In contrast to the openness
envisioned by Web3 platforms such as Decentraland, where the metaverse was built and owned
by creators, Facebook’s announcement revealed that, as a result of the company’s slow reaction
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to digital abuse on its legacy social media platform, it intended to define and control this
future internet where the potential for harassment and transgressions could be even greater
than in previous iterations. Given Facebook’s enormous power and influence and financial
commitment to creating its version of the metaverse, should Nike align itself with Facebook’s
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vision and plant its flag there? What should Nike’s approach be if such a single, controlled-by-
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one-entity metaverse was possible?
Nike had stuck several metaphorical toes in the water to learn and experiment in the brave
new world of the metaverse. But the company now needed to decide how to dive deeper into
a space that seemed promising—yet also risky. On the one hand, the metaverse platforms and
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NFTs were catching on like wildfire. On the other hand, no one could say definitively what “the
metaverse” would come to look like nor how participants would be able to move their assets and
their identities across metaverse platforms. The time for experimentation was coming to an end.
Nike needed to define a cohesive strategy to drive its brands and businesses forward.
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Exhibit 1: Top Metaverse Platforms in 2021
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NAME DESCRIPTION
1. DECENTRALAND Hosted a virtual social environment that ran on the blockchain. As in the
physical world, participants could take part in games, trade virtual goods, and
interact with other members.
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2. THE SANDBOX In this virtual world, members could buy and sell plots of virtual land, create
content, and interact with other players.
3. ROBLOX Users could create digital avatars, create virtual homes, chat with friends, play
games, and go on adventures.
4. EPIC GAMES Hosted several popular games, such as Fortnite, Unreal, and Unreal Engine 4. It
aimed to be a major metaverse player and a one-stop-shop for interested users.
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5. HYPERVERSE A collection of planets not owned by any single body. It was a cosmos with many
different universes. Those who interacted in the Hyperverse were known as
voyagers, who could connect with one another and explore together.
6. NAKAMOTO Used the NAKA cryptocurrency and was one of the first platforms to offer
an in-game economy. Users were able to purchase virtual lands and construct
buildings, among other things.
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7. METAHERO Made it possible to transform physical objects into virtual counterparts using 3D
scanning technology. These objects could then be used in applications such as
creating high-definition avatars for education and entertainment.
8. STAR ATLAS Merged blockchain technology, real-time visuals, and multiplayer video games to
create a metaverse for next-generation video games.
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9. BLOKTOPIA A 21-story virtual skyscraper that used bitcoin. Users could create avatars,
purchase virtual real estate, learn more about bitcoin, and create artwork and
games using a building tool.
10. NIKE Tested out the metaverse by partnering with Roblox to create Nikeland. Users
could play games for free and try on new footwear, replicating the experience of
the physical world.
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Source: Created by the authors.

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Exhibit 2: Fortnite Nike Sneakers
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Source: Laura Byrne, “Epic Games Launches Fortnite and Nike Air Jordans Crossover,” May 24, 2019, Esports Insider,
https://esportsinsider.com/2019/05/epic-games-launches-fortnite-and-nike-air-jordans-crossover/.
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No
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Exhibit 3: Nike Trademark Application
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Source: US Patent Office.
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Exhibit 4: CryptoKicks
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Source: “CryptoKicks by Nike on the Ethereum Blockchain,” accessed March 11, 2022,https://www.binaryx.com/blog/cryptokicks-by-
nike-on-the-ethereum-blockchain.
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No
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Source: CryptoNewsZ, accessed March 11, 2022, cryptonewsz.com.
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Exhibit 5: Web2 versus Web3 Approach to the Metaverse
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Web2 Web3
Example Virtual • Second Life • Decentraland
Worlds
• Roblox • The Sandbox
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• Fortnite • Somnium Space
• World of Warcraft • Cryptovoxels
Organizational • Centrally owned • Community governed, generally through

Structure • Decisions are based on adding a DAO (decentralized anonymous
shareholder value organization)
• Native tokens are issued and enable
participation in governance
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• Decisions are based on user consensus
Data Storage • Centralized • Decentralized (game assets)
Platform Format • PC/console • PC

• Virtual reality and augmented reality • VR/AR
hardware • Mobile/app coming soon
• Mobile/app
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Payments • Traditional payments • Crypto wallets
Infrastructure (e.g., credit/debit card)
Digital Assets • Leased within platform where purchased • Owned through NFTs
Ownership
Digital Assets • Locked within platform • Transferable

Portability
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Content Creators • Game studios and/or developers • Community

• Game studios and/or developers
Activities • Socialization • Play-to-earn games

• Multi-player games • Experiences
• Game streaming • Same activities as Web2
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• Competitive games (e.g., e-sports)
Identity • In-platform avatar • Self-sovereign and interoperable identity

• Anonymous private-key-based activities
Payments • In-platform virtual currency (e.g., Robux • Cryptocurrencies and tokens

for Roblox)
Content Revenues • Platform or app store earns 30% of every • Peer-to-peer; developers (content
game purchased; 70% goes to developer creators) directly earn revenue from sales
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• Users/gamers can earn through play or

participation in platform governance
• Royalties on secondary trades of NFTs
to creators
Source: “Opportunities in the Metaverse,” JP Morgan, accessed March 11, 2022, https://www.jpmorgan.com/content/dam/jpm/treasury-
services/documents/opportunities-in-the-metaverse.pdf.
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Endnotes
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1 Lauren Thomas, “Nike’s Online Business is Booming—‘Digital is Here to Stay,’ CEO Says,” CNBC, September
23, 2020, https://economic-news.space/2020/business/nikes-online-business-is-booming-digital-is-here-to-stay-
ceo-says.
2 Noah Barsky, “Nike’s Earnings Calls Provide a Winning Digital Transformation Playbook,” Forbes, July 27,
2021, https://www.forbes.com/sites/noahbarsky/2021/07/27/nike-earnings-calls-provide-winning-digital-
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transformation-playbook/.
3 Samantha McDonald, “Nike Continues to build on Digital Momentum with Data Platform Acquisition,”
Yahoo Finance, February 8, 2021, https://www.yahoo.com/video/nike-continues-build-digital-momentum-
220458518.html.
4 Max Greenwood, “Nike’s Digital Ecosystem Paved the Way for D2C Transformation,” BrainStation, February
23, 2021, https://brainstation.io/magazine/nikes-digital-ecosystem-paved-the-way-for-d2c-transformation.
5 Ibid.
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6 Khee Hoon Chan, “Facebook’s Horizon Worlds Is a Broken Metaverse Filled with Uninmaginative Games,”
TheGamer, January 4, 2022, https://www.thegamer.com/facebooks-horizon-worlds-broken-metaverse-
unimaginative-games/.
7 “What Does the Metaverse Mean for Sport?” SportBusiness, November 22, 2021,
https://www.sportbusiness.com/2021/11/what-does-the-metaverse-mean-for-sport/.
8 Dylan Kelly, “A Virtual Gucci Bag Sold for More Money on Roblox than the Actual Bag,” Hypebeast, May 26,
2021, https://hypebeast.com/2021/5/virtual-gucci-bag-roblox-resale.
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9 Ronke Babajide, “The Metaverse Is Becoming a Massive Revenue Stream for Artists,” Our World Tomorrow,
October 20, 2021, https://medium.com/our-world-tomorrow/how-the-metaverse-is-becoming-a-massive-
revenue-stream-for-artists-7beb6d668c04.
10 Adrian Pennington, “Ariana Grande’s Fortnite Concert Open Up the Metaverse,” NAB Amplify, accessed March
11, 2022, https://amplify.nabshow.com/articles/ariana-grandes-fortnite-concert-opens-up-the-metaverse/.
11 Jordan Pearson, “More than 80% of NFTs Created for Free on OpenSea Are Fraud or Spam, Company Says,”
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Vice, January 28, 2022, https://www.vice.com/en/article/wxdzb5/more-than-80-of-nfts-created-for-free-on-

opensea-are-fraud-or-spam-company-says.
12 Cathy Li and Farah Lalani, “How to Address Digital Safety in the Metaverse,” World Economic Forum, January
14, 2022, https://www.weforum.org/agenda/2022/01/metaverse-risks-challenges-digital-safety/.
13 “The Jumpman Zone and the Air Jordan XI ‘Cool Grey’ Come to Fortnite,” Epic Games, December 1, 2021,
https://www.epicgames.com/fortnite/en-US/news/the-jumpman-zone-and-the-air-jordan-xi-cool-grey-come-to-
fortnite.
14 “Nike Inc. Acquires RTFKT,” Nike News, December 13, 2021, https://news.nike.com/news/
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nike-acquires-rtfkt.
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KE1213

Nike’s App Ecosystem

Metaverse Platforms and Players

F ace b o ok H or izo n Wor ld s

Brands in the Metaverse

Risks and Challenges of the Metaverse

Nike’s Forays into the Metaverse

Nike had piloted several initiatives to explore the metaverse:

1. Fortnite/Nike in-game brand integration. In 2019, Nike launched a digital sneaker in

Competition: Adidas Walks a Different Path

Source: Created by the authors.

Source: CryptoNewsZ, accessed March 11, 2022, cryptonewsz.com.

Organizational • Centrally owned • Community governed, generally through

Data Storage • Centralized • Decentralized (game assets)

Platform Format • PC/console • PC

Digital Assets • Locked within platform • Transferable

Content Creators • Game studios and/or developers • Community

Activities • Socialization • Play-to-earn games

• Competitive games (e.g., e-sports)

Identity • In-platform avatar • Self-sovereign and interoperable identity

Payments • In-platform virtual currency (e.g., Robux • Cryptocurrencies and tokens

• Users/gamers can earn through play or

Vice, January 28, 2022, https://www.vice.com/en/article/wxdzb5/more-than-80-of-nfts-created-for-free-on-

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