The Metaverse and Virtual Asset Ownership
For gamers, we’ve all been in at least a dozen Metaverses already: what is it more than an immersive experience through an avatar, something that we’ve already been doing in beautifully-recreated cities in Grand Theft Auto, The Sims, Second Life, World of Warcraft and other titles for decades. Today, any software company can create their own “Metaverse,” but what they can’t do is let you browse real-world items in a virtual shop, order food, play multiple video games with 1 avatar, hang out in a virtual living room with your friends’ avatars, and do it all in virtual reality, before swapping to your augmented reality shades to see how the couch you’re considering purchasing in that Metaverse shop would look in your real-life living room.
A shot from a virtual event in Decentraland, one of the contenders to create what most of us would refer to as a “Metaverse”
All the Pieces are Already Here
The building blocks of a Metaverse have been here for decades; all it needs is a complicated, interconnected web of licensed or consolidated intellectual property to form the connective tissue to allow people to connect to various goods and services via their avatar. With Disney consolidating media and working towards their own Metaverse, Microsoft consolidating software companies, and Facebook making an all-out blitz toward a Metaverse, the race is on for a new style of internet (web3) that could revolutionize the online experience that already dominates American day to day life.
We all spend more time with our friends on social media than in person, displaying designer clothing, expensive cars, exotic vacations, etc., on services like Instagram. How many people will want to flex with a designer avatar, a virtual home that showcases their Instagram photos, or an avatar that resembles themselves adorned with designer items in a shared virtual space?
On top of this, the popularization of NFTs could offer an additional sense of ownership of virtual assets.
This is already done with CryptoPunks displayed as Twitter icons, and several video games are already moving to allow people to include their NFTs as avatars. The increasing value of virtual assets, combined with the popularization of NFT ownership, will likely put pressure on concepts like personal ownership of additional virtual assets. This requires industries like video games and social media to at least rethink basic concepts of Terms of Service, EULA (End User Licensing Agreement), and how to apply cybersecurity tools to new threats as we await uncertain but inevitable regulatory clarity.
Virtual Asset Ownership
Personal ownership of virtual assets is not a new concept: the simulation game Second Life was the defendant in a lawsuit in 2007 over virtual real estate. Several gamers were paying real money to own virtual land in the game to virtually develop and sell or charge tenants rent. One of them arguably violated the game’s Terms of Service by finding a way to get the land cheaper, and then was locked out of his account. The issue was whether the game was allowed to do this, or did it violate the personal property rights of said gamer when they locked him out? Ultimately, they settled out of court.
This lawsuit was followed by a class-action case when Second Life changed its licensing and marketing materials to no longer allow gamers to claim personal ownership of in-game assets. The lawsuit was built around quotes from Second Life creator Linden Research and Philip Rosedale, its founder, such as “What you have in Second Life is real and it’s yours,” and “It doesn’t belong to us. We have no claim to it,” that led their community to believe that the virtual assets were in fact their property, and not merely licensed as per usual EULA agreements. This lawsuit was also settled out of court. This wouldn’t be the last time that virtual property was the subject of a lawsuit, as last week saw a Bored Ape Yacht Club NFT be the subject of a million-dollar lawsuit that will likely be one of many as the technology continues to be adopted.
Already-Existant Multi-Billion-Dollar In-Game Economies
Considering the staggering value of in-game economies and the video game industry in general, this is a significant business issue. For example, the popular game Fortnite made $5 billion for in-game items in 2018 alone and provides an excellent example of what the entry point of a Metaverse avatar’s value could be: taking your relatively low-resolution avatar off of Fortnite would make these items far more valuable with a broader set of possible uses for said avatar. Once it has enough attention, licensing, and development, gamers could access services like purchasing on Amazon while in-game, play anything on several major AAA studios with their friends before watching media as a group, and then share photos, chats, and updates on some social media where you can have a live Zoom call; what if your zoom meeting could be projected onto your avatar’s face, and you can catch up while gunning down zombies and earning NFT items that you could then sell for real money?
Remember, that $5 billion figure came from just one year for one game with no other products or services attached and represents a fraction of the $155 billion spent yearly on video games in the United States alone. This is still a rapidly-growing sector, and Investopedia anticipates that this figure will hit $260 billion annually. Once this is connected to other products and services to gain additional utility, these figures will likely seem small in comparison as the Metaverse will potentially eat into the market share of the $132 billion yearly income of the social media industry, the $94 billion market of virtual meetings, $40 billion NFT market, and several other multi-billion dollar industries. A Metaverse can grow off of any one of these possible incubators, and several large companies that already own a bit of several of the above have been visibly positioning themselves to rapidly increase the pace of innovation.
With additional value flowing into a Metaverse where some sort of premium thing/service will be available for this new technology, it may push a sense of ownership that many blockchain companies are trying to exploit currently. If NFT game companies end up making headway and/or being bought out by the larger studios, personal ownership may make virtual items in the Metaverse not only a personal flex (your avatar’s Nike shoes, Gucci bag, or other items), but also could be seen as investments the way that CryptoPunks are today.
Difficult Questions a Metaverse Must Answer
It feels like the pieces are falling into place for at least a few of these services to start producing the synergy that’s captured a decent portion of the public imagination (and eager speculation by potential early adopters). There are a lot of essential questions to answer, however, up to and including potential anti-trust issues; how best to comply with FinCEN and the SEC; environmental issues; questions around which way the licensing will go or what will be the next big innovative change; and whether there will be one or several major Metaverse projects that will be able to adopt this model successfully. For example, should Multiverse users get avatars as NFTs that offer enough autonomy from any one in-game Terms of Service, this changes the effects of the tools of games to protect themselves from hacks, bots, and abusive players that can undermine a title’s community. Once an online community implodes, the title stops producing revenue for its owner and is typically abandoned.
Additionally, developers will need to protect their titles from the sort of black and grey markets that arise when having players in countries with weak economies but good wifi can allow for building guilds, strip-mining a title for anything of value, and selling it to wealthier gamers in an in-game market or 3rd party sites like eBay. In some places it can be more profitable than a 9-5, and I still remember a friend shocking me by flashing 10 grand after selling one of the rarest Everquest items back in ‘98.
NFTs, in the Metaverse or otherwise, will raise the stakes of familiar scams and create opportunities for new ones. They also raise novel questions like the obligations of NFT storage and how changes resulting from game updates that affect the value of NFT avatars will be handled.
As a takeaway, however, here’s a tasty way of thinking about how all the materials are available, but none are all owned under one roof or licensing agreement yet: The bacon is owned by Microsoft, the lettuce is owned by Disney, the tomato is owned by Facebook, and the bread is up for grabs: who’s going to be the first one to get the licensing agreements to sell me a BLT?
It’s like playing Clue: Microsoft in virtual reality with WoW avatars from their recent Blizzard purchase; Facebook/Meta in Decentraland with Ubisoft software and games; Disney in an upgraded Liberty City sim with licensing from Rockstar Games. This is all speculation, and I certainly do not have a crystal ball, but this is the natural, logical outcome of the quickened pace of consolidated media and services akin to the computers Microsoft sold coming bundled with their software like an internet explorer, a fact that it had to fight and beat anti-trust regulators to keep.