KISDI publishes its Premium Report (21-07) on ‘Regulation of Digital Platforms in the Age of the Metaverse’
“Paradigm Change from Mobile to Metaverse ··· the Need to Establish Future-Oriented Principles of Regulation”
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Stronger regulations on OS platforms, currently considered the gatekeepers of the mobile era, must be focused on encouraging the growth of metaverse platforms. At the same time, however, such regulations must be drafted carefully because service platforms operating at the OS/device level could enable multi-homing.
Recommendations on the principles of regulating platforms
▲ Regulations on service platforms should take into account factors that affect competition in platform markets, such as multi-homing. ▲ In the case of OS/device platforms, where multi-homing is practically impossible, the popularization of new service platforms must be supported with regulations that lower the entry barrier. ▲ New regulatory issues must be understood and addressed, e.g. securing the safety/reliability of the crypto economy and establishing regulations on metaverse platforms and contents.
KISDI (President Kwon Ho-Yeol) recently published its KISDI Premium Report (21-07) on ‘Regulation of Digital Platforms in the Age of the Metaverse.’
Generally speaking, the conversion to digital platforms is happening in the vertical direction across all industries from finance to mobility, while in the vertical direction, we are witnessing the advent of the metaverse, which will provide users with an immersive experience.
This report recognizes the emergence of the metaverse as a paradigm change that could be as significant as the transition from PCs to mobile devices. This paper suggests ten key principles for regulating digital platforms to address this paradigm change.
As a new paradigm, the metaverse is an economy characterized by multiple factors including devices that enable users to enjoy prolonged immersive experiences; live streaming networks with minimal delays; large data processing clouds produced by widespread participation and interaction; AI computer chip innovation; the expansion of virtual/mirror worlds centered on entertainment/media and the creation of contents IPs (story, character, digital items); asset conversion (e.g. NFT); distribution; consumption and incentive systems for promoting consumption. Importantly, the metaverse is predicted to become an engine of innovation (virtual/augmented reality platform, protocols/standards for setting the connection level among metaverse platforms) across the entire computing stack.
This paradigm change across computing platforms will be accompanied by changes in the rules of the game, the competitive structure, and the major player throughout the entire ICT ecosystem. A regulatory system for platforms introduced during this period of paradigm shift is bound to have a significant impact on the future development path of the platform.
Accordingly, this report summarizes the discussions about platform regulation that are currently taking place in the EU, the US, and South Korea, and presents the following ten principles for regulation of the platforms.
<10 Principles for Regulation of the Platforms>
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1
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It is necessary to approach all platforms (including metaverse) on a case-by-case basis, based on evaluations of the market competition situation: the scope and level of regulations could differ for each platform market and competition by stepping into the business domain of competing platform players, i.e. the existence of a multi-homing environment is critical.
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2
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Strong regulations such as prohibiting entry into adjacent markets (being pursued in the USA and the EU), restricting M&As, and structural breakups could at least hinder competition among platform companies in new markets (the metaverse) or in each other’s domains. Therefore, a comprehensive cost/benefit analysis is needed. It should be noted, however, that South Korea is not a country where M&A activities take place frequently.
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3
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If there is a strong concentration of first-movers in a multi-homing market due to the advantages exercised by the first movers, multi-homing must be promoted through disintermediation or by guaranteeing some form of bypass.
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4
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Especially, if data is deemed to be a key factor that hinders competition, lowering the conversion cost through data mobility (moving the social graph) must be considered.
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5
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If several services (OS, app store, payment service) are strongly tied based on OS, multi-homing is prohibited in principle (Apple) or prohibited in practice (Alphabet). In this case, the need for regulations is relatively strong. Especially, the market dominance of OS-based platforms is likely to disrupt the emergence of new platforms such as the metaverse. For this reason, there is a need to promote the use of general-purpose services that provide metaverse digital contents through measures (such as a forced ban on in-app payment) that make bypassing the gatekeeper realistically meaningful. Also, there is a need to restrict OS gatekeepers from controlling ‘platform above platform’.
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6
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It is necessary to clarify the ambiguities and obscurities in all platform regulations/contracts, including future metaverse platforms.
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7
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It would be prudent to permit, in principle, the introduction of platforms with innovative effects/competition into the offline space. Because most service platforms (including media/content platforms) could evolve into metaverse platforms in the long run, innovation and consumer welfare should be pursued with forward-looking policies.
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8
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It is necessary to establish a participatory regulation regime that is based on communication and cooperation among the relevant regulatory authorities and stakeholders.
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9
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It is necessary to study and respond to new regulatory issues, including the regulations on metaverse platform contents, and exchanges aimed at promoting the growth of the cryptocurrency (e.g. stablecoin) economy and securing the safety and credibility of coins.
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10
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It is necessary to join the global efforts to harmonize regulations for minimizing the issue of reverse discrimination/jurisdiction.
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Senior Research Fellow Choi Gye-iyong explained, “The platform's existence by itself creates value, such as increasing welfare through network effects and reducing customer acquisition costs for businesses registered on the platform.” He added, “It would be more sensible to have a different set of regulations for each platform, rather than enforcing a universal set of regulations on all platforms, and totally disregarding the diversity of business models, their variability, and their potential for changes in the future.“ He went on to stress that: “It is not easy to prove the competition restrictiveness of the various prohibitive acts currently being discussed. A cautious approach based on market monitoring is needed, rather than strong ‘regulations’ (taking the strict dictionary definition of the word). With this approach, the positive aspects of platforms would not have to be sacrificed.”
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