Metaverse Land: Why is digital real estate valuable?

People have been accustomed to "hanging out" in digital spaces since the early days of internet chat rooms and MUDs (multi-user virtual space games). But today, the digital world accounts for an increasing share of our daily lives and time - and has become more "real" than ever before.

A powerful recent example is Zoom’s video backgrounds, which can separate participants in a video call from the physical space around them, effectively giving us the ability to create private digital spaces that people are beginning to personalize — from vistas of Africa’s Serengeti National Park to the backgrounds of various Studio Ghibli films, you can embed them all.

Now, the Metaverse platform can make our digital spaces feel physically and geographically structured, creating new ways to explore and interact. For example, I attended several meetings hosted on the Gather.town platform, where the Zoom rooms used for presentation meetings were connected via 8bit/pixel, allowing participants to truly feel “face to face.”

How should we think about what to build for the Metaverse? The framework is pretty simple, almost a repetitive use of synonyms: things that can’t be done in “external options” in the physical world can be done in digital spaces, which means that the value of these spaces depends on the activities people want to engage in, and how digital spaces support those activities.

Likewise, in the case of Zoom: you’re more likely to video call your faraway friends and relatives than you are to chat with your neighbors (at least pre-COVID). Likewise, a person is more likely to go to a Metaverse concert with friends when it’s difficult for them or the musical artist (or both) to meet in person. While many people will soon be meeting in virtual conference room spaces, no one wants to have a long, boring “commute” in a virtual world when they can “teleport” and move between digital locations instantly. At the same time, the Metaverse will always be preferred when it offers experiences that don’t exist in the physical world—like exploring distant galaxies.

All of this is still in its early stages, so it’s hard to predict exactly what will create the greatest and most lasting value. Still, we can infer what might bring value to users in the ever-expanding digital landscape.

Metaverse Land and Real Estate

For decades, people have been talking about the concept of “digital real estate.” Historically, the phrase referred to scarce space on a specific publisher’s website — often dedicated to advertising — like the headlines in the New York Times. Today, people are used to centralized media and aggregators — like Facebook and Google — owning many of these digital real estate spaces to rent.

Digital real estate has always had value. What’s different about Web3 is that digital asset paradigms like non-fungible tokens (NFTs) enable individuals to uniquely own — not just rent — specific digital real estate and virtual space land and locations for private or shared use. Blockchain, a core web3 technology, enables this by providing a decentralized, tamper-proof, and publicly accessible record of who owns which digital assets.

Given that digital space is theoretically infinitely extensible, skeptics may still question whether the concept of “owning” digital land or buildings makes sense.

But Metaverse platforms have their own forms of scarcity: for example, the wall space of a digital building is limited; proximity to amenities like a virtual concert hall or resource repositories like the Vespene Geyser is also limited due to geography.

But at the same time, distance may not be a factor due to the possibility of fast travel or teleportation. Therefore, when considering the value of land and real estate in a given virtual world, what matters is how people's activities affect its use.

People (or, more precisely, their avatars) might walk out of a virtual concert together and then wander along an adjacent virtual shopping district, and just like in the real world, the stores closest to the virtual convention hall will receive the most "traffic."

This means that even in virtual space, proximity still matters.

Indeed, in some senses, proximity to activities and amenities in the virtual world can sometimes be more valuable than in the real world: for example, the audience for a virtual concert is global, which could in principle draw a lot of attention to a nearby digital merchant.

Over medium and long distances, however, virtual distance matters much less. In the real world, owning a home in the suburbs has significant value because it provides more space while still being able to work in a nearby city. But when you can "commute" by teleporting, it doesn't matter if your virtual "home" is near your "work" in the virtual world.

More generally, people are less likely to take time-consuming long journeys in virtual worlds when teleportation is an option. An exception is when the long journey is a valuable or interesting activity in itself — such as taking a virtual ferry where people can explore and play games along the way.

All of this means that the value of virtual world land and real estate to users may be determined by local proximity rather than the complete geography of that virtual world. We can expect to see thriving shopping malls, micro-cities, and even entire virtual worlds that are a bit like islands in digital space - filled with activities that lead people to take short trips within them - but with enough "distance" between them that people will just "teleport" between them.

It doesn’t even matter if these different activities are on the same platform. Just like we use Zoom for meetings at work and Messenger or Snapchat for socializing, someone might be working in Meta’s Horizon Workrooms; hanging out with friends in The Sandbox; and curating their own private art gallery in Voxels.

The Metaverse platform market is unlikely to be winner-take-all. Furthermore, even within a given platform, there are likely to be many successful clusters of activity — entrepreneurs can try to start their own clusters of activity by developing new amenities or resources that can serve as hubs for others to build around. That’s the beauty of composability, a core feature of web3 that allows people to build on and adapt existing frameworks to create new experiences.

Metaverse Land Zoning and Planning

In the digital world, the potential for construction is limitless, which means we might want to eliminate the frustrations of zoning policies and other forms of structured geographic planning. But as with local proximity, planning can sometimes take on greater importance in the virtual world.

People may not want to open a store next to something that distracts them — and the power of digital architecture can create something that dazzles. If a virtual space becomes unattractive, users can immediately move elsewhere; this places a particularly high burden on Metaverse platform architects and builders to manage their spaces based on user preferences and intended use cases.

By the same token, advanced rules are often needed to prevent obscenity, harassment, and other digital experiences that demean participants. Given the importance of local proximity discussed above, grouping together complementary types of events (e.g., various forms of commerce) may also help maximize the user experience.

At the same time, the ability to create beyond the boundaries of classical design (or even physics) is one of the greatest benefits of digital space. The main benefit of some metaverse worlds is that they offer users the freedom to build whatever they want.

A middle ground is to focus only on the high-level layout and visual plan that guides the space. This is what the White Sands metaverse project did with their recent series of luxury villas: restricting people from changing the exterior of the villas while empowering creators to redesign the interior. This mirrors regulations in many places in the physical world, which attempt to maintain the external visual identity of a community while allowing for the reconstruction of spaces inside the building.

In particular, the importance of micro-level planning varies from context to context. Meticulous zoning might be essential for creating an upscale digital streetscape, but might not be as important in a game world where people fight orcs or play as goblins. Similarly, certain types of development restrictions we see in the physical world—height limits on roller coasters, for example—might be completely unnecessary in a virtual world, because digital spaces are not bound by the traditional rules of Earth physics.

But overall, there will be significant value in creating digital spaces that feel intuitive and consistent to users – which means a certain level of planning is often essential.

Digital asset and platform selection

Beyond the question of where digital and virtual worlds are most valuable geographically, there’s also the question of which platforms are most valuable. This is where the chicken and egg theory comes into play: it’s best to build for platforms that have an established user base; but at the same time, users are most likely to join a platform that has an active ecosystem.

This means that digital land is especially valuable to users when it sits on top of an already popular platform architecture — like NFT Worlds running on the Minecraft engine. Similarly, landing in a virtual world that integrates many existing digital communities, as The Sandbox and Otherside are already doing or hinting at, could also be hugely appealing to users and builders.

These sources of value again depend on the expected user activities: some virtual world platforms will be built to support digital versions of everyday tasks; others will be fantastical game worlds; and still others will simply invite us to explore and interact in infinite expanses of space.

If the Metaverse platform wants to encourage users to customize their own spaces and launch business initiatives, it needs to provide tools to make this happen. In contrast, if the digital space is only used for business meetings or medical consultations, it may be more important to focus more on platform stability, security, and privacy.

At the same time, it may be particularly valuable for creators of digital assets such as artists, game studios, and NFT communities to build in a way that is interoperable and portable across platforms. One of the biggest benefits of web3 is the opportunity for users to carry the digital assets they own with them wherever they go, accumulating personal identity, status, and other attributes. As users become more familiar with this model, they may demand it more and more.

Portable, decentralized identities apply to everything: For example, someone might want to take a weapon or amulet that they use in a video game world and use it as a decoration for their virtual office. (For example, a writer decorates his real office with physical versions of his favorite virtual artifacts, such as a map of Hyrule and a mysterious "linking book" - his digital office can do the same!)

But in the Metaverse, even buildings can be taken from one place to another. Individuals with digital buildings can create a space that truly “belongs to them,” fill it with their favorite art, furniture, or decor, and then take it with them as they travel across platforms. This is the thesis behind Far’s creation of SOLIDS, for example: a generative architectural framework that can be flexibly used in different Metaverse environments. As a result, digital land in a specific Metaverse may eventually be able to capture value created in dozens of other Metaverses.

The framework described here suggests that thinking about what drives the value of digital land to users is not as difficult as it may seem at first. What matters is how people will use the various spaces of the Metaverse; how well the digital spaces fit with those activities; and the overall value of those activities to users.

The discussion here has focused on use cases that are intuitive and already available on various Metaverse platforms. However, many of the big opportunities will be ones we cannot foresee, as digital spaces increasingly enable experiences that have no analog in the physical world. As the Metaverse expands beyond what we can easily imagine, it is important to remember that sources of value for entirely new applications may be harder to identify and explain at first—even if the same basic principles apply. However, the concepts of digital and virtual worlds are clearly more numerous and complex than before, as more virtual spaces are still being created.