EACCNY “Digitalization” Series | VR = Virtual Risks? Understanding the risks – and opportunities – in the metaverse

With the help of our members, this thought-leadership series explores the acceleration of “digitalization” due to COVID-19 on both sides of the Atlantic, and across various industries. Today, we present Tim Roberts, Managing Director & UK Country Co-Head at ALIXPARTNERS, and based in London. He will address: “VR = Virtual Risks? Understanding the risks – and opportunities – in the metaverse”.

Many people are trying to get their heads around the metaverse and figure out whether it will be life-changing, an anticlimax, or somewhere in between. Here, we explore the nature of the risks and issues that this burgeoning digital ecosystem raises for users and firms, considering:

• What is the metaverse (briefly)?
• What are its implications, in terms of opportunities and risks?
• How should firms respond to minimize the risks and capture the opportunities?

What – and where – is the metaverse?

The metaverse does not have a fixed or universally agreed definition – the word is used in a variety of contexts to convey the notion of a virtual universe, realized through virtual reality (VR), which creates a fully immersive experience for users. The metaverse is built from a number of components that already exist today (see below), but the seamless connection of these components creates something new as it gradually emerges.

The attributes of the metaverse, as currently being developed, generally include the following features:

• An immersive 360-degree experience, not delivered via a flat screen or some other kind of partial engagement.
• Multiple domains, environments, or ‘worlds’ available to the user, where they can engage in different experiences, some potentially behind paywalls or with restricted access according to age of the user (whether these domains can or will join up to form a single seamless universe is currently one of the significant topics for debate).
• Through Augmented Reality (AR), these worlds might also overlap with the real world, providing hybrid experiences
• The opportunity to explore a wide range of user experiences – including retail, gaming, and entertainment. These are offered by many different providers, likely to include some that are familiar from shopping malls and high streets, as well as some that are native to the internet; there are also applications relevant to professional users – in healthcare, law enforcement, and military settings.
• Both working and socializing or play environments, so it is relevant to individuals’ professional pursuits as well as leisure time – enabling the ‘immersive’ experience of the user to transcend traditional work/life boundaries.
• The ability for users to define their digital representation and engage in self-expression; for example by adorning themselves with online fashion items through the selection and adaptation of their personal avatar, blurring the boundaries between physical and digital personas.

There have been many ‘mock-ups’ of the metaverse, visible in the realm of science fiction; for example, movies and TV series such as Ready Player One, Star Trek, and BladeRunner, as well as in marketing materials released by tech companies to date. Moreover, there has been a real example of a metaverse (or at least, one metaverse world) in the form of Second Life, created in the 2000s.

Through these fictitious or real examples, consumers may feel they are already familiar with the concept, and are eager to sample new experiences. Equally, they may also feel, post-COVID lockdowns, that they have reached a point where they wish to reduce their level of digital immersion, and spend more leisure time engaging in real-world, physical pastimes, either because of the physical and mental benefits that these activities bring them or because they wish to limit the data that they voluntarily submit to the adtech industry online.

We will soon see – and in some cases are already seeing – separate environments offering some or all of these experiences, delivered via various channels, including familiar desktop or mobile devices, popular gaming platforms, or through newer innovations such as VR headsets. The metaverse – at least for now – relies on tailored hardware, to deliver the immersive user experience it promises.

There is quite some debate around whether users will tolerate wearing a bulky headset for prolonged periods, or whether they would prefer to use something more like a pair of glasses, which augment reality rather than provide an enclosed and more immersive experience (at the price of weight and discomfort). We are also starting to see the creation of new devices – some specifically for gaming – which mimic aspects of an immersive experience such as racing car seats, tools, weapons, and even musical instruments, all working as connected devices.

There are also other elements developing in parallel that will support a metaverse-based economy:

• Crypto-based wallet and payment propositions to facilitate payments.
• Retail offerings tailored to the metaverse, embedded in gaming platforms such as Roblox, from a variety of familiar consumer brands. These offer a mixture of virtual products (such as NFTs), real products for delivery in the real world, and hybrids of the two.
• Increasing numbers of familiar internet sites adapted to virtual reality, such as YouTube and Google Earth.
• Increasing numbers of ‘exclusive’ experiences (e.g. concerts and live sporting events) available only in the metaverse.

What opportunities are created by the metaverse?

By its nature, the metaverse creates a range of opportunities for providers and potential benefits to consumers. These include:

• New types of interaction. It will allow new ways for users to meet, interact, socialise, and form interest groups across geographic (and potentially linguistic) boundaries, in ways that feel more natural and/or easier than two-dimensional chatrooms or social media pages.
• Enhanced scope for creativity. It offers a platform for creativity by designers, developers, and creators more broadly, in ways that cannot yet be fully predicted, to offer all-new experiences to users.
• Opportunities for more compelling and emotionally significant social connections. The metaverse will allow people in diverse communities the opportunity to build their networks and socialise with like-minded people, regardless of geography.
• Richer data capture. It facilitates richer and more detailed data capture from individual users. Given how much more content and activity there is for users to react to, this will augment the number of data points that could be garnered during sessions spent during the time spent in the metaverse, including more sensitive data around personal desires, preferences, and emotional reactions. It will allow for richer and more continuous observation of users, across different experiences and in response to different stimuli in different settings. This aspect of the metaverse starts to reveal some of the new risks that we must consider…

What are the risks and compliance issues created by the metaverse?

Significant changes to technology and user experiences also mean that there will inevitably be different – and potentially greater – impacts upon end users and society more broadly, potentially creating or exacerbating a number of challenges for the wellbeing of society and individuals. These include:

• Greater scope for influencing or even manipulation of individuals through the experiences they take part in, including the possibility of creating false experiences through the use of ‘deep fakes’. This is attractive to unscrupulous advertisers, political activists, foreign governments and others seeking to influence elections (for example), or simply to influence consumer preferences and purchasing behaviour.
• A heightened risk of creating addictive behaviour, due to a more immersive user experience in relation to stimuli such as gambling, gaming, graphic violence, adult content, or other forms of gratification. These addictive behaviours might perpetuate desensitization to extreme content, such as violence.
• Greater scope for the emergence of mental health issues, for example as a result of highly emotional and/or realistic experiences and the more powerful triggers that could be experienced. When combined with highly efficient algorithms designed to maximize user engagement, this creates the risk of rapidly spiralling negative mental states and the risk of misdirecting individuals who are seeking help towards harmful content or overwhelming exposure to distressing content. These phenomena may be exacerbated by the algorithms found in social media apps that serve content to users.
• Linked to this, there is greater scope for more severe and more harmful bullying, victimization, or trolling of individuals, either on a targeted basis or at random. This behaviour may also be more damaging due to its enhanced realism and more overwhelming due to the volume or frequency of exposure.
• There will be more opportunities for cybercrime and fraud, including cat-fishing[1], identity theft, payment fraud, data theft, and misrepresentation. There will also be scope for the merging of real and fictitious data with metaverse personas – all potentially leading to theft of real or digital assets, and associated distress to users.
  • The metaverse provides an unfamiliar, experimental environment – and this novelty creates vulnerability among users.
  • The metaverse also creates a tempting environment to impersonate individuals and gather the data required to impersonate them, whether for ‘fun’ (e.g. practical jokes) or fraudulent activity.
• Conversely, there may also be scope for greater social exclusion, due to the high cost of equipment required to access and fully participate in the metaverse. Those who cannot make use of the internet and online services today may find themselves increasingly excluded from the rich experiences within the metaverse.

Thinking of solutions

The metaverse is still very much taking shape, which creates an opportunity for firms and lawmakers to ensure that certain problems from older, more mature digital environments do not automatically carry over this new frontier.

There is an opportunity, at the point when consumers are being encouraged to adopt and become comfortable with a new technology, for them also to be given greater choice and control over their data. This would be very similar to how users had the opportunity to make choices about access to their data with the first incarnation of the internet, although they almost certainly lacked the risk awareness to make the most of those choices back then.

There are already applications that are designed to give users greater control over their personal data, allowing new controls or safeguards to be introduced and adopted during the metaverse’s opening chapter. There is also the possibility to establish a different form of permission or control, exercised by users in their interaction with providers; perhaps there may also be scope to introduce the notion of a social contract, a commitment – or set of commitments – that a user must make to gain access to different metaverse ‘worlds’, akin to those that come with a passport.

• Each domain or environment would have a contract, or might recognize one or more standard contracts, which users must sign to enter and move between environments.
• Users may become unwelcome in some but not other environments; they may also feel more comfortable in some rather than others, depending on their identity, values, preferences and risk appetite.

Such a scheme would hopefully embed secure identity management that allows age verification; portability across different domains; privacy and security for the user; identifiability – or at least excludability – in the event of a verified breach of the rules. Even more powerful – as a tool for consumer protection – would be a monitoring regime that can detect harm, receive and action alerts and distress signals, and escalate crimes or other harms to the appropriate authorities.

As an industry, if we can realize and enforce this kind of control environment, in a way that provides user mobility and interoperability, while also ensuring users are incentivized to observe a code of conduct, could well see the metaverse being better governed and protected than the internet as we know it today.

Author:

• Tim Roberts, Managing Director – UK Country Co-Head, ALIXPARTNERS

Compliments of AlixPartners – a Platinum member of the EACCNY.

[1] Cat-fishing is passing oneself off as a different persona than the reality, for example, for romantic or fraudulent purposes.