Have it all in the metaverse: Developer and User incentives align.
The Rise of the Metaverse as a Social Space
Warcraft is celebrating its 30th anniversary and over 20 years for the World of Warcraft. While there are other earlier examples of MMORPGs (Massive Multiplayer Online Role Playing Game), this one really set the tone for a lot of what we consider staples in the genre. However, even with its ability to endure, the developers needed to adapt over the decades. Game developers are no longer creating games solely for competition, but are creating metaverses, virtual gathering spaces.
This shift is critical for the success of developers everywhere. As AAA games take longer to produce, lasting power will be necessary to remain profitable. And this stickiness rests in the metaverse’s ability to distinguish itself from traditional gaming by creating a place where users can compete and also socialize, shop, create, and express their identities. These digital worlds blur the lines between the physical and digital realms, especially for younger generations and more adaptive millennials.
For Generation Z, the distinction between IRL (in real life) and digital life is less important. According to Roblox’s 2023 Annual Review, Gen Z is willing to spend just as much on digital clothing for their avatars as they do their own physical clothes. Just look to designer like Nike, Louis Vuitton, and Prada, who already picked up on this. These brands already use blockchain to collaborate and create virtual assets that carry real-world profits.
The idea of giving users what they want to keep them in-game hasn’t been any easier than now. The convergence of digital and physical economies isn’t seen as an upsell, but an expectation and this is great news. Developers want users to stay engaged as long as possible, and users want immersive, exciting opportunities to personalize their experience. This creates a mutually beneficial cycle where everyone profits from collaboration, as long developers are willing to give more control over to the users.
How Incentives Align Between Users and Developers
Developers and users share a common goal, creating a vibrant and engaging metaverse.
Developers benefit when users spend more time in their game, while users gain value through enjoyable experiences, creative expression, and ownership opportunities.
Aligning incentives takes place in several ways:
1. Long-Term Engagement Creates Value:
• For Developers: The longer users remain engaged, the more revenue is generated through subscriptions, in-game purchases, or advertising.
• For Users: Users benefit from sustained entertainment and the ability to build lasting digital identities, relationships, and assets within the metaverse.
2. User-Generated Content (UGC) Enhances Both Experiences:
• For Developers: UGC reduces the overhead of continuous content creation while ideally having creators that understand the local market and in-game experience. It also allows developers and creators to profit through revenue-sharing models.
• For Users: Players enjoy creating and sharing their own content fostering creativity and ownership of the metaverse.
3. Digital Ownership Drives Investment:
• For Developers: Digital ownership leads to higher purchase prices and royalties for developers and content creators as users value permanence and transferability of their assets.
• For Users: Ownership allows users to feel secure in their investments, whether that’s in digital clothing, land, or rare items, encouraging long-term participation.
Legal Considerations for Aligning Incentives
While the alignment of incentives creates significant opportunities, developers must navigate several legal areas to ensure compliance and trust. In future articles, I will discuss how allowing UGC (User Generated Content) creates more profits for both the developer and the creator, without the need for massive overhead. I will also suggest that blockchain allows creators and players to truly own their assets, creating situations where players are willing to put more time into the games than they might otherwise. However, for this article, I want to start with some legal basics that all developers (and really creators) should consider.
1. Terms of Service (TOS):
Developers must craft clear, enforceable TOS agreements that define user rights, developer responsibilities, and the use of digital assets. Spelling out what can and cannot be done with digital assets will mitigate disputes over digital asset ownership. The worst situation is where a user believes they “own” an asset when they actually hold a license.
The TOS are the foundation of any metaverse’s legal framework, setting clear rules for the relationship between developers, players, and users that generate content. The most common question attorneys hear is, can I get a template version, but the easiest resolutions I’ve seen between a customer and the developer have come from a well drafted TOS. Take the time to spell out the rights and obligations of both parties, particularly around digital assets and user-generated content (UGC). For example, in traditional game developers often clarify that users hold a license for virtual goods rather than outright ownership, but in blockchain based games, explaining what ownership means has been more nuanced and even more important for protecting developers from legal battles if a user’s access is revoked or the developer changes the platform. Additionally, TOS agreements outline acceptable behavior, intellectual property (IP) rights, dispute resolution mechanisms, and limitations of liability. Developers who glaze over this step and implement shallow TOS risk expensive or publicly damaging legal disputes over digital asset ownership, refund policies, or unauthorized uses of their platform that could be easily avoided. Regular updates and compliance with regional legal standards, such as GDPR (General Data Protection Regulation) or COPPA (Children’s Online Privacy Protection Act), are also important for preventing unnecessary headaches when the product goes live.
2. Consumer Protection Laws:
Along the same lines of ownership and selling UGC, developers must comply with consumer protection laws, especially in the context of marketing and selling digital goods. These laws ensure that users, particularly younger ones, are not misled about what they are purchasing or the functionality of virtual assets. For example, the Federal Trade Commission (FTC) requires transparency in advertisements, especially for loot boxes or randomized items (think airdrops or randomized minting for blockchain), which are always viewed more strictly and with an eye towards gambling. Developers need the TOS to spell out the costs, odds of certain outcomes, and all the potential outcomes to prevent accusations of unfair or deceptive practices. Additionally, it is prudent to provide easy to understand pricing models which state whether they are paying for permanent digital ownership or limited licenses. This is good business practices and failing to do so could lead to fines, litigation, and damage to the company’s reputation. If you’re global, remember that some jurisdictions are more strict than others, like the European Union under the Unfair Commercial Practices Directive.
3. Copyright and IP:
Copyright and IP management in the metaverse is a delicate balance, particularly with the rise of UGC. Developers must ensure that users retain ownership of their original content while granting the platform sufficient rights to host, modify, distribute it, and in the case of blockchain potentially sell it to others and recover royalties for the developers and the creator. This often requires agreements explicitly stating the scope of permissions, which can get pretty detailed. Fortnite’s Creative Mode does a good job of granting Epic Games a non-exclusive, royalty-free license to use any content created within the game, ensuring the company can monetize or promote the platform without infringing on user rights. That part is easy, until you factor in developers needing to protect their own IP from unauthorized use in the process. As a developer, you don’t want to give away too much and accidentally allow reverse engineering or recreating your assets on third-party platforms. IP disputes are particularly complex in the metaverse because assets and content can cross borders and jurisdictions, make agreements clear and enforceable to avoiding litigation.
4. Privacy and Data Protection:
Finally, privacy laws must be mentioned as another agreement for metaverse developers, especially when collecting user data to enhance engagement and optimize experiences. Developers must comply with laws like the GDPR in Europe and COPPA in the U.S., which impose strict rules on data collection, storage, and usage. For example, if a metaverse platform collects behavioral data to personalize user experiences or to monetize ads, developers must obtain explicit consent and ensure data is stored securely. Minors are protected at a higher level, so age verification systems and parental consent mechanisms can be useful tools to protect against the heavy fines tied to non-compliance. Look no further than Google and Meta’s slip up that lead to miserable PR for both companies and major enforcement actions. This is another agreement where asking for at template won’t adequately reduce legal risk. Take the time and build a policy that not only protects the project but builds trust with users, creating the comfort that leads to long-term engagement and loyalty.
A Collaborative Future for the Metaverse
Built properly these metaverses could present an exciting convergence of user creativity and developer innovation. Aligning incentives, developers and users have the potential to build expansive, immersive worlds that no one wants to leave. A place where developers and creative users can profit from longer engagement and user-generated content sold on primary and secondary markets. A place where users gain meaningful experiences, creative opportunities, and ownership of assets they can feel good about investing time and money into.
By addressing key legal considerations, developers can foster trust and ensure the long term viability of their metaverse. These worlds are already forming and these collaboration between developers and users promise to unlock endless possibilities, but let’s take the time to build it properly.
Reference:
https://corp.roblox.com/newsroom/2023/12/2023-year-review-letter-ceo
https://auraconsortium.com
https://about.nike.com/en/newsroom/releases/nike-launches-swoosh-a-new-digital-community-and-experience
https://www.irishtimes.com/business/2024/12/10/brussels-looks-into-google-and-meta-secret-ads-deal-to-target-teens/