Mobile games made over $116B in revenue worldwide last year – an absolutely astounding number for a 15-year-old industry. But disruption and innovation are currently rocking the industry’s astronomical growth.
Between the development and popularization of Web3 technology, the disruption caused by expanding consumer privacy concerns, and changes in data availability due to policy and technical updates from distribution platforms (like Apple and Google), the industry is at a crossroads rife with disruption and opportunity.
As we explore this emerging technology, understanding the recent past helps us predict how to capitalize on this disruption and take advantage of the opportunities that emerge (hint: we can help).
- Traditional Monetization in Mobile Games
- Web3 Gaming Foundational Tenants
- Web3 Games: Potential vs. Reality
- Disruption in mobile marketing leads to opportunity
- How to grow your game
Mobile games monetization prior to Web3 can be bucketed into two distinct categories: Premium and freemium / free-to-play (F2P) games.
Premium games are bought through a one-time purchase – unlocking full access to an entire game. The premium monetization model has long been the de-facto way to sell games and is still common among console and PC games.
Early in the app store’s lifecycle, premium games were the predominant form of game monetization. However, the advent of the freemium or free-to-play (F2P) business model dramatically expanded the gaming audience, becoming the de-facto method for mobile monetization.
Free-to-Play (F2P) Games
F2P games allow users to download and play the game for free. Allowing developers to earn revenue through alternative means of monetization. The main ways to monetize a F2P game are in-game ads or microtransactions (allowing users to purchase upgrades, shortcuts, or extra content).
Today, F2P games continue to be one of the best-selling game models on mobile and beyond – making up roughly 78% of digital games revenue.
Hybrid Game Economies
The efficacy of microtransactions and alternate non-premium monetization models have become so pronounced, the de-facto monetization strategy for many successful games businesses are hybrid economies, blending components of premium, in-app purchases (IAP), advertising and subscription based monetization.
Understanding the existing games monetization paradigm is critical to appreciating the tectonic upheaval web3 gaming presents.
Web3 is the era of technology defined by being built upon decentralized blockchain technology, underpinned by token-based economies. This decentralized, trustless version of the internet is substantially more transparent and, in theory, allows users to partake in the governance of the systems in which they transact – instead of relying on opaque companies working in their own self-interest.
Where Web2 required intermediaries such as Google, Apple, and Facebook, to engage with the worldwide web, Web3 can replace these with open-source cryptographically-verified tools that allow people to monitor and understand the underpinnings of the digital economies on which they transact. Instead of trusting companies to abide by their own terms and conditions, those terms and conditions can be baked into the internet’s infrastructure for all to see.
Play-to-Earn vs. Play-and-Own
The advent and adoption of web3 technology in the context of gaming is a major change in the way games are built, run, and played. While Web3 games are still quite new, there’s already a major emerging trend for Web3 games: Play-to-Earn (P2E) games.
At their core, P2E games offer gamers with rewards that have real-world value. Often coming in the form of in-game NFT assets, these rewards can be traded for other assets or sold for actual money in an open marketplace. Since these assets are owned by the player, they have an ownership stake in the game itself.
Play-and-Own (P&O) is an emerging philosophy in Web3 games. P&O games aren’t so much a different category of game as an evolution in game and economy design. P&O games still retain elements of P2E mechanics, but put a larger focus on fun, community and long term economic sustainability rather than profitability of play.
Instead of having real-world rewards as the major selling point of the game, P2O focuses on instilling players with an emotional connection to the game by providing them with meaningful ways to use their in-game assets through narratives, character development, digital “flexing” and community interaction.
Web3 games are defined by their communities. The need to sell or exchange in-game assets requires players to regularly interact and engage with each other. But more than that, players often help develop or guide the direction of these games. They’re staking out digital land, building assets, trading rewards, and creating engaged communities in the process.
These communities are entrenched in Web3 ideals and, therefore, shun traditional platforms like Facebook for more communal and decentralized platforms like Discord.
Because web3 games offer engaged marketplaces and the potential to earn real-world assets, they’re often touted as the most tangible current instantiation of a metaverse – places where the real and virtual worlds blur together.
These metaverses provide additional opportunities for gamers to earn revenue as well. In The Sandbox, for instance, people can create and sell games. People can also create and sell in-game assets for games that already exist.
There’s even the possibility of building entire libraries of games with cross-game assets – which would allow people who get something from one game to use it in other games.
In the Web2 era, we saw games become more accessible and more social. Web3 games can run with these established trends and take them to new heights with baked-in communities, marketplaces, and real-world rewards.
While Web3 promises many opportunities for the games industry, potential isn’t always the same as reality.
What is the current state of Web3 gaming?
There is certainly interest in the core technology – gauged from several factors such as the rise of crypto, NFT, and DAO usage by both consumers and corporations. P2E games, such as Upptic partner Axie Infinity, have millions of monthly active players.
There have also been massive amounts of capital thrown at crypto and Web3. Over $17B of venture capital was invested in crypto in the first half of 2021 – more than the entirety of 2020 – and companies like Andreessen Horowitz are creating funds dedicated to building the next generation of gaming.
Work to be Done for Blockchain Games
However, despite the incredible interest and growing funding, Web3 is still very nascent. There are few best practices or standards – and not even any definitive architecture. Additionally, as Arrivant CEO Cedric Gamelin notes, many people are simply using NFTs as microtransactions 2.0 – rather than in more innovative and unique ways.
Given that many gamers still have reservations about microtransactions, their expectation of how game developers will implement NFTs have understandably been met with hostility. And that taste gets worse for people who find that Web3 games are released in a poor state, give uneven power to those with more capital, and exploit players to build assets.
There are also ethical concerns from people in the industry about paying people to play games. Some consider P2E, or crypto in general, to essentially be ponzi schemes. Additionally some game developers have voiced concerns about fun and enjoyment becoming secondary or even tertiary in game design, instead of front-and-center.
So, there are technical hurdles that Web3 must still overcome as well as institutional and cultural problems that must be addressed.
Compounding the impact Web3 is having on the games industry are privacy concerns, new regulations, and changes in how major companies like Google and Apple allow others to track users.
A whopping 68% of mobile game developers are finding it more difficult to market their games following Apple’s release of ATT. And, in an informal webinar survey, 89% of mobile marketers attested to the fact that measuring and optimizing iOS app install campaigns using SKAN data was extremely challenging.
The decreased efficacy of mobile marketing due to ecosystem changes related to privacy is tangibly impacting the ability of game developers to operate profitably. Broadly, this causes a drawdown in advertising budgets on the long tail of game developers, as marketers lose their ability to justify marketing spend. Struggling game developers are therefore much more likely to look for novel monetization and growth models, feeding the Web3 investment boom.
Changes in Gaming Communities: Players to Owners
As Web3 is changing how games are made – with marketplaces and communities becoming more central to games from inception. Developers of Web3 games are utilizing these communities more than ever in the development and growth process.
Not only do players often crowdfund these games through NFT or coin purchases, but they are also building in-game assets or even entire games – with publishers simply providing the platform and tools.
Savvy game developers have to contend with the fact that Web3 gamers are very different from traditional mobile game users – abhorring tracking and targeting and avoiding mainstream marketing channels and social platforms.
Opportunities for Marketers
The simple truth is that marketing on traditional channels is an uphill battle right now for many marketers – and will be for some time to come. Tracking efficacy is decreasing, channel optimization algorithms are increasingly black boxes, and privacy is only going to become more important to users – which will require novel and nuanced analytics capabilities.
Companies that expand their marketing efforts beyond traditional mobile tactics will be best positioned to capitalize on the next era of gaming. Specifically, companies who are able to bridge traditional marketing tactics and audiences with emerging tactics and audiences will be the outsized winners of the next generation of games companies.
Engaging communities on Discord and other communal platforms, and learning to leverage partner communities to drive growth will become increasingly important for user acquisition in the years ahead.
This isn’t to say marketers should stop spending money on traditional channels. However, developing a robust understanding of how to integrate communities as a marketing channel will drive outsized success for the years to come. Early adopters will especially benefit because these online communities are largely blue oceans right now, while traditional channels are highly saturated red oceans.
Opportunities for Game Developers
For game developers, newer studios that have been raised up in Web3 tech and culture, who can iterate quickly to capture the shifting zeitgeist, will be especially likely to succeed. Developers who nurture communities and engage them from concept to development through launch and live operations will cultivate an army of advocates and evangelists willing and ready to help drive their game’s growth.
Developers who seek to become leaders in web3 gaming should bake community into their games along with open marketplaces and other mechanical hooks which drive player allegiance. Simultaneously, they must deliver an engaging gameplay experience expected by traditional gamers.
The game developers that can capture the confluence of incredible gameplay and engaged player-owner communities will be the industry leaders of the next era of gaming
If you have an early stage web3 game, our community growth service can grow your community through our scaled partnership outreach program.