This vision of the future may not be that far away. The virtual world of products and services offers great opportunities for brands, but there are potential bumps in the road ahead, not least regulation and asset protection.
A new dawn for NFT technology?
It’s fair to say the NFT market experienced a dark end to 2022, with freefalling cryptocurrency prices playing a significant role in the sharp drop-off in NFT transaction volume (a 97% nosedive since the dizzying heights of January 2022 Bloomberg reported, citing data from Dune Analytics).
Whilst some sceptics may question whether the NFT market will ever recover, others posit that the 2022 crash was simply a much-needed shake-up to the system (akin to a financial or real-estate cycle) that will usher in a new dawn for NFTs in 2023. The development of blockchain applications remains strong and the core technological propositions behind NFTs (i.e. as digital authentications of ownership, with attached rights and economical efficiencies) still present exciting potential use cases for brands as we head into the new year.
Innovation of NFTs
We are likely to see a shift away from the ‘bubble’ of expensive collectible jpegs in favour of truly innovative deployment of NFTs across the worlds of fashion, gaming, music, sport, ESG, food and entertainment. Take for example:
- The rise of ‘phygital’ NFT projects in the fashion industry – meaning physical goods that are tied to NFTs – such as Prada’s Timecapsule drops or Spatial Lab’s LNQ. The convergence between NFTs and wearable items will see clothing and apparel serve as points of experience or access to exclusive events for owners.
- Increased integration of NFTs in the video games space – affording players greater ‘ownership’ over their avatars, skins and in-game items and entrenching brand loyalty for the new generation of avid gamers.
- Philanthropic NFTs – big brands in the food industry such as McDonalds and Campbells, and luxury houses such as Louis Vuitton, Nike and Gucci, that are releasing limited-edition NFTs to raise money for charity.
- The expansion in the NFT real estate market – whether to acquire a house, an island, or a piece of land, we are likely to see more opportunities to invest and buy living spaces in the metaverse using NFTs.
Brands like Tiffany & Co. (founded in 1837), Louis Vuitton (founded in 1854), and Gucci (founded in 1921) have managed to stay relevant for over 100 years because they know the biggest risk is taking no risk. Whilst brands in 2023 would be advised to approach NFTs with careful thought and some degree of caution, it may well be that those which are least afraid to experiment and meet the expectations of the new insatiable generation of the digital age will prosper most.
How are brands evolving and taking advantage of the metaverse?
Interest in the metaverse is growing at an exponential rate; less than five years ago, no one was talking about it. Then Facebook rebranded to ‘Meta’, adding weight to the next new phenomena in the digital media tech world. Now, businesses and brands are clamouring to be one of the first to engage and be ‘trend setters’ within this new hyper-interactive, digital environment. The likes of Disney, Nike, Warner Bros., Gucci, Coca-Cola, Louis Vuitton are all getting in on the action.
The potential economic value of the metaverse could generate up to $5 trillion by 2030.
McKinsey
What does the metaverse mean for brands?
The metaverse as a digital space is largely influenced by gaming culture and values community, playfulness, and user empowerment. This shift in the dynamic between brands and consumers can offer opportunities for more creative brand positioning.
The metaverse also offers brands opportunities to engage with a larger and more varied audience (in particular Gen Z) who might not have engaged with them in the real world. According to McKinsey, Gen Z average eight hours per day on screens. The metaverse is a virtual domain open to all.
With the metaverse emphasising a new level of importance on brand image, brands must more clearly define their personality, core values and stance on social issues (if they choose to do so) more than ever.
Advertising Week
The value of communities
Developing communities in the metaverse enables users to create an avatar to represent themselves which can meet fellow avatars to collaborate and interact in 3D environments, participating in and building communities together. The metaverse becomes valuable for businesses at this intersection – of tech, creativity and community – by capitalising on a deeper connection with their customers, brands can fulfil desire for value, community and experiences.
“Understanding your community's needs, engaging them with content they want and nurturing their interactions are all practices rooted in video game culture. As a brand or business, you can adopt these methods. Instead of creating one-off activations, build longer-term experiences that engage your community, foster loyalty and scaffold the journey.” – Forbes / Alexander Fernandez, CEO – Streamline Media.
Safer, like-minded communities and micro-communities
The future of the metaverse is also embedded in the unique opportunity it affords to build safer micro-communities – featuring inclusive and open engagement for their users, meaningful relationships, all guided by rules and responsibilities. This is a brand win, and a consumer win.
Safe and like-minded micro-communities open opportunities for brands to reach all customers. Given that consumers are willing to speak their minds in such collectives, companies stand a greater chance of receiving more authentic data and feedback on their products, services and experiences.
Accenture Research
IP and the metaverse – enforcement issues
As use of the metaverse continues to become more widespread in 2023, brands must remain alert to the issues that can arise in relation to their intellectual property (“IP”) rights.
As brands enter the metaverse, they should ensure any trade marks used are registered specifically for products/services in the virtual world; this is not usually covered by existing registrations. It is equally important for brands to register their design rights if they intend to reproduce digital versions of their products. As with physical use, these measures will provide brands with the necessary protections to enforce their rights against third parties who reproduce their marks and designs in the metaverse.
For brands who don’t intend to venture into the metaverse this year, they should continue to monitor infringements. In 2022, we saw brands issuing claims for trade mark infringements in the metaverse; for example Hermes issued a claim in the US for NFT versions of their iconic Birkin bag. 2023 may see whether such a claim would be successful in the UK. We also saw OpenSea cooperating with brands in taking down NFTs that infringed IP rights. However, OpenSea is a centralised platform, with policies on IP infringement. Many metaverses are decentralised and non-territorial – this means no one entity has control over the digital space and can make take downs more difficult.
In 2023, as IP infringement issues are likely to become more widespread in the metaverse, hopefully we will see more platforms following OpenSea’s lead and providing brands with quick and simple recourse against infringements
Nicholas Buckland, Managing Associate – Lewis Silkin
Beauty is a key industry player in the metaverse
Skincare and cosmetics – a sector where customers usually sample in store before purchasing, is being transformed and reinvented, and is truly flourishing in the metaverse.
Beauty has been built on commodification; now it’s about more immersive experiences and education – adding to the touch element rather than replacing it. As the technology and insights evolve, so will the sophistication of the experience.
Harpers Bazaar
Nars, Estée Lauder, YSL, Charlotte Tilbury, and Laura Mercier are just some of the cosmetic brands that are all invested in the digital world of beauty. Some have even filed numerous trade marks to ensure their brand is protected in this new and emerging virtual world. L’Oreal reportedly filed 17 trade mark applications related to the metaverse, linked to NFTs, virtual perfume, cosmetics and styling for avatars.
Laura Mercier’s Global Brand President Diane Kim commented on the brand’s emergence in the metaverse, stating:
This is an exciting time for our consumers to explore Laura Mercier through a new, digitalised lens that offers an immersion into the brand and its history, The dynamic shopping experience provides consumers with the opportunity to play, discover, test and trial products, while telling the rich story of this iconic brand.
Beyond the hype – financial services regulation is catching up so don’t get caught out
Regulation always plays catchup with technological innovation, and financial services regulation is no exception. In financial services regulation, the accepted mantra is ‘same risk, same regulatory outcome’. Gradually, as regulators and governments gain better understanding of the new technologies and products and how they are being used and impacting markets, regulation is being introduced incrementally.
In the UK, in relation to cryptoassets, it started with FCA guidance on whether they are regulated, and a three-pronged categorisation was introduced – security tokens, e-money tokens and unregulated tokens. Subsequently, implementing a European directive, UK money laundering legislation was extended to capture cryptoasset exchange providers and custodian wallet providers who, when carrying on such business in the UK, are required to be registered with the FCA. Given that such FCA registration is very difficult to obtain, a number of such businesses decided to target the UK market by establishing offshore.
So where are we headed next?
Making the UK a global cryptoasset technology hub
Back in April 2022 the UK HM Treasury announced that the government planned to make the UK a global cryptoasset technology hub. But what does this mean in practice? Draft legislation has been introduced that would set the framework for regulation of stablecoins used as a means of payment, however the fuller detail of this is not yet known and we are quite a way off from knowing what the authorisation environment for this will look like.
Extending the scope of financial promotion regime
The scope of the financial promotion regime will be expanded to capture unregulated cryptoassets. The fuller detail is not yet available, but it is currently understood that non-fungible tokens, or NFTs, will remain outside scope of the regime. Whilst businesses publishing crypto ads currently need to comply with content requirements of the Advertising Standards Authority, the changes will mean that businesses will need to get crypto ads for in scope crypto assets approved by an appropriate FCA authorised firm, and due to additional knowledge and expertise requirements being imposed on such FCA authorised firms it could be harder and more expensive for businesses to get crypto ads approved.
There has been discussion of further regulatory developments in relation to cryptoassets, although these are further off. They include bringing a wider range of cryptoassets, that are currently unregulated, within the scope of financial services regulation as well as potentially altering the scope of the overseas person exclusion which could impact businesses targeting the UK from offshore. There are a large number of moving parts, and a watchful eye needs to be kept so that business models remain compliant.
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