As the metaverse’s popularity continues to grow, organizations are exploring new business models, ranging from play-to-earn games to virtual world customization. With these innovative technologies come unique legal and regulatory considerations that must be considered when deciding on an appropriate model for your organization. This article provides a comprehensive overview of the different types of available business models, as well as their associated legal and regulatory hurdles.
This article provides guidance to emerging technologies companies foraying into the metaverse space as to prevailing business models. It is not in-depth legal guidance, and anyone contemplating setting up shop in the metaverse should seek the advice of a lawyer before implementing a business model. Here is an overview of several key models:
Virtual Real Estate
This recent metaverse business model casts the entrepreneur in the role of landlord or realtor. As with real estate in the physical world, businesses can offer for sale or rent “digital real estate” or “digital land” in the metaverse. In fact, digital real estate has become so popular that it is estimated that, as of June 2022, nearly 3% of Americans own digital real estate in the metaverse. However, offering digital space for rent or purchase comes with a range of legal and regulatory considerations. Importantly, legislation has yet to be passed, and courts have not yet ruled on whether current real estate law is applicable to “unreal” estate in the metaverse and other digital contexts. Should physical-world property law prevail, buyers and sellers would need signed deeds, commercial lease agreements, waivers, and other contracts to buy, sell, rent, and use metaverse properties. Issues regarding ownership of digital real estate would also need to be explicitly provided for in terms of service and in end-user license agreements.
Immersive experiences in the metaverse offer organizations new and exciting ways to grow their businesses by harnessing virtual, augmented, and mixed reality, computer vision, artificial intelligence, and other interactive technologies. There are various legal and regulatory challenges associated with immersive experiences, including questions of liability, ownership, user data privacy, intellectual property rights, and taxation. It is important for companies to understand these potential risks before making significant decisions about their business model in order to ensure compliance with applicable laws and regulations.
The creation and customization of avatars, or digital representations of real people, are becoming increasingly popular in the metaverse as a form of business model. By some accounts, avatars will become the “next big thing in the metaverse,” used to sell clothing and befriend visitors. Elon Musk and others are working on technologies that could lead to avatars controlled by users’ thoughts rather than joysticks and haptic wearables. While the exact use and implementation of avatars will vary from company to company, there are specific legal issues that all organizations need to be aware of before proceeding with this model. These issues include incorporation techniques for granting legal personhood to avatars in the metaverse, as well as potential tort and criminal law liabilities.
Tech giants such as Apple, Microsoft, Google, and Meta are investing heavily in metaverse hardware, especially AR/VR devices. In May 2022, Meta opened its first hardware store in California to give consumers a first-hand experience of its VR headsets, AR goggles and glasses, and other devices. While these devices offer an unprecedented level of immersion and engagement, several important legal considerations need to be considered when using them. For example, questions of liability may arise if accidents or injuries occur while using the device, depending on the level of innovation involved, intellectual property (especially design rights, patents, and mask works rights) is likely to be one of the most important legal issues related to hardware as a business model for a metaverse company, as too are the methods used to collect and store personal information.
Marketing and Advertising
Advertising and marketing rank among the most promising business models in the metaverse but also present unique sets of legal challenges. These challenges are due in part to their presence directly on the metaverse platform, which gives developers a readily available revenue stream. Metaverse advertising also is similar to current, real-world techniques, helping to clarify best practices and legal remedies. Metaverse marketing may be used like banner ads and TV commercials simply to promote physical goods and services, or they could be employed to sell exclusively digital products. Still, brands and metaverse businesses should be aware that they likely will have to follow both established and metaverse-specific rules when purveying their goods in cyberspace. While digital advertising laws vary from state to state, the Federal Trade Commission is likely to disapprove of deceptive claims in metaverse ads as much as it does in the physical world (particularly when influencer advertising is employed).
The play-to-earn business model is one of the earliest monetization strategies employed in the metaverse. Borrowed from the video game industry, where it remains popular despite opposition from a vocal minority, play-to-earn enables players to collect cryptocurrencies or NFTs produced in blockchain-based games. In the metaverse, companies can create gaming or social platforms that allow users to complete tasks or participate in activities like competitions and quests rewarding them with digital assets. The most important legal and regulatory hurdle is determining the legal status of any in-game or digital assets players earn and players’ rights to sell or create them on the platform and third-party sites. Metaverse platforms should ensure the assets they sell do not fall into the securities category, which would subject them to rigid regulation by financial authorities such as the SEC.
It is important to understand that each metaverse business model comes with its own unique legal and regulatory challenges. Consequently, businesses intending to implement a metaverse business model need to be extremely careful and seek the advice of an expert lawyer for legal guidance. A consultation with a lawyer well-versed in the metaverse can minimize legal risk, avoid potentially damaging pitfalls, and ensure a smooth entry into this new and dynamic business context.
Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.