The experience economy is booming, especially in a world of AI

In our overpopulated world, stuffed with an ever-growing stockpile of products, offline experiences have become key to personal fulfilment. While 78% of millennials choose to spend money on a desirable experience over something material, the trend extends beyond just young people, to every age bracket and socioeconomic class.

This tidal wave is already having extreme effects on the global economy and traditional business models. It requires a fundamental shift in how we look at everything, from revenue growth to personal happiness. Ultimately, the shift to an experience economy has the power not only to change how we spend our time and money but also to promote inclusion and democratize happiness.

Products from every corner of the globe are easier to acquire than ever before – and many of them are even shipped for free. This ubiquity leads to commoditization, which drives down the perceived value of these objects.

One company that has continued to thrive is Lego, even as many households have reached saturation point, stuffed with toy building blocks. The company has launched in-store experiences and conventions accessible to all socioeconomic groups, designed to encourage collaboration and help build children’s cognitive skills.

While many commoditized toy companies have faded in the digital age, Lego has doubled down on creating offline experiences that create connection and brand affinity.

When diamonds are no longer rare and the world’s increasing number of urban residents are no longer interested in owning a car, rare experiences become the new social capital. Nowadays, the world’s biggest celebrities tend to post far more Instagram “humble brags” in exotic destinations than photos of new fur coats. The means and time to create unique experiences are this era’s luxury goods.

Many would argue that this trend toward an experiential economy is not a trend at all but rather a realization of the longevity of human happiness. Professors Thomas Gilovich and Amit Kumar of Cornell University study the relationship between wealth and happiness, and conclude that “experiential purchases, such as vacations, concerts and meals out, tend to bring consumers more enduring happiness than material purchases, such as high-end clothing, jewellery and electronic gadgets.”

According to the researchers, experiences create more lasting happiness because they are more open to positive reinterpretation; they tend to become more meaningful parts of one’s identity; and they do more to foster social relationships. Experiences help us learn, grow and connect with each other, so it’s no surprise we choose to spend our money and time on them.

Since 1987, the share of consumer spending on live experiences and events has increased by 70%, relative to total US consumer spending. The importance of human experience is not new but this massive shift has been waiting for the perfect moment – rampant overconsumption and the social platforms to amplify it.

Physical retail is dead. Its extinction is accelerating as malls close, chains go bankrupt and next-day delivery makes a trip to the store seem pointless. Many of the brands that we grew up with – Toys ‘R’ Us, RadioShack, Rite Aid, Sears, Sports Authority and Claire’s – are closing their shutters.

The stores that kept malls expanding through the 1990s have become business school case studies of the impact of digital disruption. Why take hours to visit a toy store when Amazon gives better customer service, lower prices, informative reviews and fast delivery, with no need to wait in line?

The only companies that will exist in 10 years’ time are those that create and nurture human experiences. This learning and growth will come from maximizing opportunities, including the reinvention of retail spaces, new models of engagement and an understanding of experiences as perhaps the most important form of marketing.

Red Bull built its global empire on allowing people to experience the personality of its brand. Lululemon builds community by offering free yoga classes in its stores. Patagonia and REI both focus on experiences – trips, hikes and classes – as core parts of their business.

These experiential initiatives create emotional bonds between consumers and brands, frequently having 10 times the return on investment compared to digital marketing and building measurable loyalty. The brands that embrace the experience economy – and the data that powers it – are the only ones who will thrive.

As artificial intelligence (AI) races ahead, the experience economy is not a quaint side story; it is the counterweight. Imagine an algorithm curating the perfect evening for you: a flawless private virtual concert for you. The algorithm knows your favourite songs, your mood and even your availability. You watch alone on your couch while a virtual crowd cheers.

It is frictionless, optimized and instantly forgettable.

Now contrast that with an authentic event in the real world. You’re backstage at an F1 race, and it smells like burnt tyres, motor oil and car polish. It’s too loud and you have to wear industrial-grade noise-cancelling headphones.

The crew meticulously optimizes the wheel alignment and the energy in the pit feels like the precursor to a rocket launch. You could have watched the race on a screen but instead, the experience makes you feel alive.

This is the power of the experience economy in the age of AI. As content becomes infinitely cheaper and more abundant, the physical experience of being in a room together becomes infinitely more valuable. Humans are social; we do not thrive on infinite personalization in isolation.

The more digital our lives become, the more people crave concerts, tastings, festivals, activations and shared moments that feel unscalable and a little unpredictable. Live experiences are, by definition, scarce. There is a hard cap on seats and ticketing capacity and a premium on status, memory and emotion.

Some people believe that as AI automates more of our work, we’ll have even more free time to spend chasing these experiences.

AI will be brilliant at finding the right people and measuring impact. The smartest organizations will use it to fill the room, then focus their real creativity on what happens once people are actually there together.