Franchising in the metaverse

Many franchise brands are excited about the metaverse and the opportunities it holds, but franchisors should place themselves on certain grounds with expert partners before making the plunge

In 2022, we find that clients are frequently approaching us about the opportunity to franchise and operate their franchise companies in the metaverse. For clarity, the metaverse is essentially a digital environment in which users can interact with others in a virtual environment. It represents the next anticipated iteration of the internet (and is sometimes referred to globally as web 3.0). Simply put, it is a 3D virtual world focused on social connection among users.

Imaginative franchisors are recognising that expanding their brands, businesses, intellectual property, and ability to deliver goods, products or services in this emerging dimension is an imperative business strategy. Web 3.0 is where our digital and physical lives will soon come together.

Considerations in moving into the metaverse

For franchisors that have developed a digital strategy, whether it is an e-commerce platform for products or services or a restaurant that uses digital ordering, moving to the metaverse is likely the next step on this digital journey.

However, it is a mistake for franchisors to think formulating a strategy to make this transition is simple or easy. A franchisor’s move into a digital world must incorporate payment mechanisms such as accepting ‘non-fungible tokens’ (or NFTs) or cryptocurrency for payment. In addition, franchisors need to act today to defend their businesses and brand in the metaverse tomorrow.

Developing an operating model

Once an appropriate business strategy has been developed, including identifying technology partners that assist with the most challenging aspects of building a virtual presence in the metaverse, important decisions must be made around the role of the franchise.

Who is the owner of that digital space? What is the potential for franchisees to participate? What services should be delivered to support customers and clients? How do the franchisors protect their brand and intellectual property? How does the franchisor monetise this opportunity?

Developing a financial model

With franchise companies like McDonald’s and Panera to global brands such as Walmart, Disney, Nike, and Coca-Cola having announced initiatives to move into the metaverse, there are opportunities to generate market share, brand awareness, income, and equity. It is necessary to evaluate how NFTs, blockchains, and various forms of cryptocurrency are integrated into financial analysis. Most brands shouldn’t (and won’t) be able to abandon their real-world businesses and move completely onto the metaverse, but clearly, the transition to a blend of real world and digital presence has begun. Giving the customers what they want in the manner that they want it is important to every successful business. The transition to a digital world will take time and it’s critical that franchisors of all sizes begin to position their company to take full advantage of this new marketplace.

Using a consultant

There are great organisations that provide technology consulting to begin to build a franchise brand’s presence in the metaverse. However, many of them do not have a well-developed understanding of how to integrate the unique characteristics of a franchise company into the metaverse.

It is important to work with a franchising consultant that both understands franchising and how franchising operates, along with providing both experience and expertise that helps the franchisor bring the digital and real world together.

Protecting digital intellectual property

It’s critically important to develop a legal strategy in parallel to the business strategy when considering a move into the metaverse. This is uncharted territory and protecting the company’s trademarks and intellectual property in this new world is imperative.

While franchisors may have federally-registered trademarks, not all the international class(es) in which those trademarks are registered will apply in web 3.0. This includes protecting the brand’s unique NFTs. Franchisors should consider whether they should file for international protection of their trademarks where, unlike the “first to use” standard in the US, the protection standards in other countries are given to the first who files their marks. It is less expensive for franchisors to file for registration of their marks in the pertinent classes than it is to enforce their rights against a squatter or infringer.

Web 3.0 is based on an open and decentralised platform (unlike web 2.0 where everything posted belongs to the company that owns the platform, such as Instagram or Facebook) where company and personal data is not saved on a centralised platform. While web 3.0 provides autonomy to the user, it makes it almost impossible to recover assets in the event of fraud or misuse. It will be critical for franchisors to work with technology consultants who have firsthand knowledge of data security issues.

Legal strategy

It’s important to work with a law firm comprised of lawyers who understand both franchising and the digital space to ensure that the efforts and investment that the franchisor makes to expand its business into the metaverse is done in a manner that both allows the company to build its brand and run it properly as a digital enterprise.

Offering franchises for sale in the metaverse does not necessarily void the need to comply with franchise regulatory requirements, particularly if the franchisor also delivers services or products in the real world. Agreement terms to consider include whether national marketing funds could be used for an expansion to the metaverse, how will territories be determined, how will locations be selected, what support from the franchisor will be provided and in what currency will royalties be paid.

Implementation

In best practice, developing and implementing your metaverse presence works best when the franchisor builds a partnership: the franchisor, its legal counsel, its franchise consulting partner and its technology partner as they work together as an integrated team to develop a plan to bring that franchise business to the metaverse.

Ultimately, it will take resources for companies to begin to build this as a separate and distinct business opportunity that fully integrates into the real-world business. Franchise companies will be well served to consider making this part of their planning today to take advantage of new opportunities in the metaverse tomorrow.

Brands are embracing the metaverse

Franchise companies are already moving to integrate their franchise brand, business operations and franchise opportunities into the metaverse. Franchise brands entering the metaverse currently range from franchising mega-brands such as Arby’s, Jimmy John’s, McDonald’s, Buffalo Wild Wings to smaller brands like TRIB3 (a boutique fitness concept).

It’s interesting to note that the businesses – franchised or not – entering the metaverse are a mix of restaurants, services, and retail brands – the type of business and the type of customer (B2B or B2C) don’t seem to matter.

Visionary leaders and management in companies are moving rapidly to position their brands as leaders in the metaverse. Our opinion is that first-mover advantage will matter to capture opportunity in this new marketplace.

These forward-looking franchisors are following leading global brands such as Gucci, Shopify, Walmart, Nike, Meta, Selfridges, and Disney. Each of these companies has gone as far as to file trademarks, patents and in some cases, have even created their own business units dedicated to building their businesses in the metaverse.

The authors

Robert Stidham is the founder and CEO of Summa Franchise Consultants and Trish Macaskill is special counsel at Akerman.