It exemplifies a trend from the EU that fears missing out on the next big revolution and its desire to boost EU competitiveness in the world of tech.
Mere months after the publication of its Virtual Worlds strategy in July 2023, the European Commission (“Commission”) investigates the sector again, this time with a dual consultation on the state of competition in virtual worlds and in generative AI. As it looks to focus on competitiveness in its next term, it faces a pivotal question: how to navigate the uncertainties of the early emergence of a market and determine the necessity and shape of future regulatory action?
This strategic focus comes at a critical time as the Commission defines 'Virtual World' to encompass what is commonly referred to as the metaverse, including augmented and virtual realities (“AR/VR”), and mixed reality (“XR”). Projected to grow to EUR 800 billion by 2023, these technologies are poised to revolutionise sectors such as healthcare, industry, education, and entertainment. Recognising the transformative potential of virtual worlds, the Commission intends on ensuring that EU companies are not only participants but leaders in this journey.
A Multifaceted Consultation in a Complex Landscape
The current focus on competition builds upon ongoing work conducted by the Commission on virtual worlds and aims to support European innovation in this new technology. The Commission is seeking to gather early insights into the market and different aspects affecting its dynamics. The consultation questionnaire, which was open to all stakeholders, puts an emphasis on both enabling technologies and services expected to support development and uptake of virtual worlds.
As it recognises that innovation will require significant reliance on multiple technologies, such as processing power, cloud computing, and data, the Commission is concerned about the space left for new market entrants. It notably wants to make sure that the presence of a few major international players on these upstream markets does not hinder the development of smaller European companies.
Furthermore, the adoption of virtual worlds by end-users will depend on the development of user-side services and solutions. These could include audio-visual content, NFT technologies, operating systems, or payment solutions. In turn, end-user solutions will allow companies to monetize their products. The Commission is therefore looking into the development of such services, and at regulatory frameworks that may affect them, such as, intellectual property rights or data protection rules.
Finally, it is impossible to discuss the consultation on virtual worlds without mentioning generative AI (“GenAI”). The linking of the two topics in the same consultation is not a coincidence as they raise similar questions and concerns. However, a main difference is that AI is already under considerable scrutiny and is soon-to-be regulated. Additionally, the technologies are intertwined, as it is expected that virtual worlds would rely on GenAI for user-side applications, for instance with AI-powered assistants.
A Consultation Indicative of Wider Trends
Following the changes brought by social media in the 2000’s, the EU was widely criticised for its reactiveness to such major technological developments which has allowed international players to dominate the market and left Europe lagging behind. It is therefore not surprising to see the Commission trying to put itself ahead of new transformative technologies.
However, new dedicated legislation is unlikely. In fact, the consultation is in line with previous initiatives, all of which have so far focused on soft law and sectoral actions. Both industry and policymakers have been calling on the Commission to focus its next mandate on implementing recently adopted tech legislations rather than developing new legislative proposals.
Additionally, with the Digital Markets Act (“DMA”) coming into application on 7 March 2024, competition in virtual worlds technologies might already be regulated. For gatekeepers that are active in the sector, DMA rules will impact some of their current and future practices, such as on app stores, or data access. The DMA was also thought of as a future-proof regulation and the Commission can designate new gatekeepers if it believes it to be necessary as technologies and markets evolve.
It is worth noting that the DMA does not replace antitrust rules, and it is not far-fetched to imagine that the Commission’s DG Competition might be putting a stronger emphasis on large players on upstream markets of virtual worlds moving forward. The Commission has taken such an approach when it comes to AI, having started investigations into OpenAI and Mistral AI’s partnerships with Microsoft. This could be an example of the direction it intends to go towards with virtual worlds.
Overall, this trend fits into the EU’s renewed emphasis on competitiveness, as it seeks to strengthen its industries amidst global competition. Prioritising the early development and adoption of new technologies is a key strategy for the Commission to ensure Europe gains a competitive edge on the world stage. With numerous global companies currently leading the digital arena, the EU aims to secure opportunities for European start-ups to thrive and compete effectively.
Conclusion
The Commission is aware that Europe lagged behind in the past on many aspects of technological developments and is now trying to counterbalance this. While it has been successful in exporting its regulatory model to other parts of the world in many instances, the EU is now looking to focus on boosting its industry’s competitiveness. If done right, virtual worlds could show enormous potential for Europe to grow its industry. It remains to be seen how the Commission will move forward from here.