The Web3 gaming category hasn’t gained the traction many of us expected by now. But despite the challenges, we believe that a new digital ownership paradigm is emerging that will lead to a new age of growth for gaming as a whole.
I remember June 2021. It was a sunny day in southern Sweden when I received a call from a friend who pointed me to Axie Infinity — the original P2E (Play-To-Earn) trailblazers. It was growing so fast that it overtook Candy Crush Saga’s IAP (In-App-Purchase) revenue in a few days, all with a fraction of their user base. How could that even be possible? What kind of business model can achieve that? Many of us jumped into the opportunity of defining the next chapter in gaming right away, armed with venture capital, talented colleagues and dreams. Big dreams.
Things look different now. The price of NFTs and associated coins have all but collapsed since. High profile heists, crypto collapses, wash trading and scams have only contributed to cement a negative view of crypto. Not exactly the ideal foundation for building a gaming business.
But we are optimistic. We believe that the learnings from this period are producing innovation that will change gaming forever. Much like how space exploration led to innovations that changed the lives of billions back on Earth.
The learnings from web3 gaming are about to trigger a new era of growth for all of gaming.
Which learnings are those? Let’s dig in.
Web3 Is Pioneering the Next Level Economy Design
No one knows how to make a successful game right off the bat. There are just too many factors at play. But there’s one thing we know for sure: a balanced economy is a requirement.
The game economy is at the core of F2P (Free-To-Play) game design. Some players may not even notice, but a balanced game economy is crucial to make a game fun. Earn too much virtual currency too easily, and it is not challenging anymore. Earn too little, and it becomes frustrating, leading to churn. The right balance keeps players engaged and developers funded.
For an economy to be balanced, it has to have the right design of sources and sinks as the user progresses in the game. It must consider various player behaviors to keep them engaged and to prevent abuse. But it is usually thought around the individual player, in economic isolation from other players.
The introduction of a permissionless secondary market is what makes web3 games uniquely hard to balance. Particularly if the items have game utility — as opposed to vanity items. Some of the traditional sinks in F2P games are no longer true sinks. An item sold is now an item that can be resold. These items can then flood the market, leading to the collapse in prices due to oversupply, destroying the game economy — and the fun — as a result.
Given the above, the game design needs to account for the game economy as a whole, across all players, as a unified entity. It must take the secondary market context and realities into account. All while still considering the individual player’s stage in the game. Designing for the journey of a single isolated player won’t cut it anymore.
Not only that, the game economy will evolve as players progress and produce new items. The cohorts of new users will mature and will create a completely different economy environment compared to early stages of the game lifecycle. Much like the products and prices in the seventies would make little sense in today’s real world economy.
All this will require game developers to develop robust tools and practices in order to adapt to an evolving market and to keep the economy in a healthy state, including liveops, dynamic utility, dynamic pricing, transaction fees, seasons, and new content releases.
Finally, in an economy where selling items and even consumables are no longer “true sinks”, given they eventually produce tradable items that capture the value sunk into them, the F2P business model must also evolve.
It won’t be about selling items to consumers anymore. Games will start to look a lot more like “countries”, powering a player and creator economy that plays, spends, crafts, upgrades and trades items. As a result, identifying ways to benefit from the performance of this economy will become a key challenge for developers, to generate revenue in addition to direct sales to players.
F2P will evolve and embrace the permissionless secondary market, interoperability and the creator economy.
The Motivations Behind Ownership Matter
P2E has a fundamental flaw. Games where players play “to earn” have an unsustainable economy, because they lack the most important part of it: consumers. That is, players that are willing to spend for the entertainment value, without expecting a financial return. If everyone wants to make money out of a game, it just doesn’t work.
The reasons why players buy digital items matter. It’s different when someone buys tickets to attend a concert than buying them to resell them for a higher price — a scalper. The first one adds value. The latter extracts.
A game economy based on items valued primarily from a financial perspective tends to attract speculators. Not consumers. As a result, the growing supply of items that no-one really wants can only lead to a price crash and a downward spiral which in fact, will hurt speculators the most, since they are the ones who value those items financially to begin with.
That’s not a bad thing in itself. Speculators exiting a secondary market is actually one of the best things that can happen to a game economy. That’s why the “market crash” of web3 gaming may be hiding the real transformation that’s happening within: valuing game items for their intrinsic value. Entertainment, utility, access, community membership, achievements, status, identity building.
In the physical world, people buy cars not to sell them for a higher price, but to use them (and for status too). Likewise, no-one is tracking the floor price of used running shoes. You can’t resell the feeling of running in the forest. That’s what they enable. That’s their utility.
Understanding the motivation behind digital ownership and designing experiences around that can catapult gaming to new heights. GameFi was just a stage. A new era in gaming, driven by digital goods utility and personal value — not by financial speculation — is upon us.
Tradable gaming items are becoming products in their own right. They are already part of the player’s identity. Of their status. Their value will soon transcend beyond gaming, across apps and into the real world. We’ll expand more on this subject later.
Dynamic Content Utility to Access New Experiences
When a collection of game items is released before the game itself (e.g. when an NFT collection is launched before the game), the game items have attributes designed for the gameplay envisioned at the time.
But as the game is developed and tested, and new information comes in, the game design evolves. That’s completely normal and in fact a requirement for building a game that can have a chance to be successful. It’s an iterative process.
How to reconcile that with an existing collection of game items with already set attributes? It’s a challenge. But the right answer is that any released content shouldn’t restrict the evolution of the game design. Doing so will only harm the chances for the game to be successful.
Instead, an abstraction is a better solution. Those tradable items can rather grant the benefit of in-game items that are actually in use in a game. It can even grant benefits to claim in-game items in other games. It can grant benefits of claiming anything anywhere for that matter — even in the real world. The power of digital ownership is still in its infancy.
An abstraction between ownership and utility is important. It extends the value of owning digital items, while allowing access to new experiences in a way that doesn’t constrain the game design.
Technology Should Follow the User Experience
Just recently I tried a new web3 project that has gained some interesting traction. It asked me to connect my wallet — but to deactivate the others. It didn’t work. I used the mobile app instead, and it asked for the seed phrase. I entered it. Eventually I managed to sign up, but the welcoming items offer was lost. Not the ideal first time UX.
It shouldn’t need to be like that. Games are supposed to be fun. A one tap magical experience to play on your favorite platform. But with wallets and browser extensions getting in the way, it seems that we’re still far from that.
I don’t believe that the issue is with wallets, browser extensions, or even blockchain. They are fine technologies. The issue is that web3 is defined by a technology. Blockchain to be clear. A technology that doesn’t help improve the UX, quite the opposite.
The original web3 gaming challenge was: how can we make games that use blockchain? While it should have been: How can we build amazing gaming experiences that take the player digital ownership to the next level? The technology selected or developed should then be the best suited to enable that experience.
Technology should follow the experience, not the other way around. So we have to feel comfortable that blockchain might not be what players crave.
The Best, Globally Scalable Experiences Win
Crypto has become toxic. Most players don’t have much appreciation for it. Influencers don’t want to touch it anymore. Most marketing platforms won’t let crypto be advertised. Growth is virtually impossible, unless it is via empty Twitter shilling, which is one of the reasons it became toxic in the first place.
And I think that’s fair. Crypto earned this reputation for good reasons. A decentralized (and thus, unaccountable), anonymous network to transfer money-like assets worldwide can easily attract fraud and abuse.
Some people see regulation and compliance as a problem, but I think it’s an important part of the solution. It means clear rules for everyone. It means scale. Global business reach, platform distribution, performance marketing. Crypto currently is more of a liability than an asset when attempting to reach a global audience.
Some may still remember torrents — an older decentralized technology — and Napster. It was a revolution. You could download any song, any movie, over the internet right from your PC. No more movie renting or buying CDs.
The UX was terrible though. Very techie. You’d have to be familiar with bitrates and codecs. Some downloads would never finish. You’d have to download the subtitles and metadata from separate sites and try each one manually to see if they work.
But there was a bigger problem: it was illegal. Many people thought that it was OK to have “some small parts of a song” stored in your PC. But it was not. Long story short, Napster collapsed under legal pressure, but the need for accessing music and movies over the internet didn’t die with it.
Eventually it was rather Spotify and Netflix who delivered on those use cases with a simple, user friendly, almost magical UX that completely hid the tech from the user. All with a straightforward, sustainable and compliant business model. Spotify and Netflix still rule our media world today.
I believe that our industry should aim to create the Spotify and Netflix of web3 gaming. Not Napster. We must envision valuable experiences first and then develop the best possible technology to enable it. Blockchain may be part of the solution. Or maybe it won’t. It doesn’t matter. It shouldn’t matter.
Web2 Gaming Is Poised for Disruption
Web2 gaming is a 300B USD market (2022). Mobile gaming alone was 153B USD (50% of gaming) for that same period and is expected to grow 13% in 2023 to 173B.
While it is hard to estimate the revenue from web3 games, once we consider only games that are actually live, and discount the projects affected by wash trading, we may be looking at revenue coming from mints and royalties in the low tens of millions of revenue per year — for the whole web3 games category. That’d be equivalent to around 0.01% of web2 gaming. Which in itself wouldn’t be a problem for an emerging category, if it would be growing. But it’s not.
However, Web2 is a very mature market with formidable barriers of entry. It is a big, red ocean, where companies in a dominant position are able to outspend others in user acquisition (UA) which has led to increasing consolidation during the past few years.
On mobile in particular, the introduction of App Tracking Transparency (ATT) by Apple in 2020 has increased the cost of user acquisition as ad targeting becomes less effective than before. Succeeding on mobile is becoming highly correlated with how deep the publisher marketing pockets are.
The squeeze is real. Even Unity, the favorite game engine for mobile games (until a few days ago), changed their business model dramatically to try to get out of the red. The pushback from developers is generating tectonic movements in the industry. We don’t know yet how this will end.
On the other hand, app store policies are evolving and becoming gradually more friendly to crypto. And while they may be at odds with some practices in crypto, that may not necessarily be a bad thing. These rules can help web3 games grow in a more honest and sustainable way.
To illustrate this point, here are some examples from the Apple Developer Guidelines:
“Cryptocurrency apps may not offer currency for completing tasks, such as downloading other apps, encouraging other users to download, posting to social networks, etc.”
This encourages honest information sharing from players, avoiding hyping and “shilling”.
“Apps that operate across multiple platforms may allow users to access content, subscriptions, or features they have acquired in your app on other platforms or your web site, including consumable items in multi-platform games, provided those items are also available as in-app purchases within the app.”
This encourages fair treatment of new players. They can access the same content as existing players. Game content can either be exclusive or have game utility. Not both.
Web2 gaming has the reach, it has robust and proven best practices for gaming. It has a global scale. But UA is still its biggest challenge. Can web2 benefit from web3 gaming learnings, to innovate and potentially disrupt UA in web2 gaming? We believe so.
While reflecting on what is the true innovation behind web3 gaming, we concluded that it all comes down to true digital ownership. The ability of owning and trading your digital assets with freedom.
With true ownership, a new paradigm emerges, where the content and the content owner is at the center. Applications, including games simply make use of them. Content will have applications. Content will give benefits and utility. Content will capture the player’s achievements and help build their identity. Content will give access to experiences only bound by our imagination.
In gaming, some of these experiences may include access to entertainment (e.g. unlocking game modes), claiming in-game items (units, equipment, resources), access to tournaments, membership in a community or clan. Or reflecting the player’s status through special items, building their identity through personalization, displaying achievements that are only earned in game, etc.
It doesn’t have to stop there. These benefits can be given across games. Across applications. These benefits don’t even need to be bound to the digital realm and become part of our very real lives, with discounts and exclusive offers for digital content owners. Digital ownership can have a real, positive impact in our lives.
We believe that players will appreciate the value of digital ownership based on their intrinsic value. The experiences and emotions they bring. Not by financial speculation. Which in return will lead to greater engagement and stronger organic growth. In essence we believe that:
Content owners will engage more deeply and will retain longer
with the products that enable the best experiences for the content they own.
As a result, our goal is to deliver those content-driven experiences to our players. Make a reality the promise of true digital ownership. For everyone. Globally.
When this happens. When players realize the value of these experiences, a new age of growth will begin. On mobile and beyond.
During the initial year of Eternal Dragons, we have been able to bring together a strong, engaged and supportive community, that has given us honest and valuable feedback. We have learned a lot since the alpha launch — that was the goal. Our product is far from perfect in the current stage. Yet, for all the lacking, the engagement of the cohort of owners has been extraordinary.
Eternal Dragons content owners compared to not owners:
- Convert 4.3X more from visitor to player
- Retain 1.8X more D1
- Retain 7.2X more D7
- Retain 8.3X more M1
- Retain 10.1X more M3
- Play 1.8X more games per active day
While these results are encouraging, and very much aligned with our thesis, we know there’s a long road ahead of us. We don’t yet know if this signal will still be there at scale.
But we do know that in order to achieve that, it’ll require a fresh approach. One that tackles the problems and embraces the learnings from web3 gaming. One that is driven by user experience and not technology. One capable of achieving global reach and sustainable growth. One powered by intrinsic value, not speculation.
It is a tall order. But it’s high time. We need a new approach to digital ownership that brings together the best of web2 and web3, and that can help shape the next chapter of gaming.
Content With Super Powers
Armed with these learnings and insights, we came back to the design board and identified some key principles our approach should follow:
- Player experience first
- Prioritizing growth through mainstream platforms (mobile app stores in particular)
- Game design freedom
- Sustainable, balanced and dynamic game economy
- Content value driven by current utility
- True content ownership
- Interoperable content across games
- Compliant and globally scalable
The result is a new concept that we’re super excited to introduce. It’s currently only a vision, but we’re working hard to make it a reality. We call it Super Content.
Super Content is digital content with true ownership that abstracts away the underlying technology, so that owners can enjoy their utility with the best possible experience.
Super Content will be instantly tradable using the most trusted and familiar payment methods. No blockchain wallets required. No tokens involved. It will be trustable, compliant with app store policies and regulation.
Super Content will be compatible with blockchain, but it won’t depend on it. Players will be able to take their Super Content, connect a wallet and mint an NFT linked permanently to it. NFT owners will also be able to bring their NFTs into our platform, which will then instantly generate an associated piece of Super Content, with clear utility and updated in real-time.
Super Content owners will be able to play games, claim benefits and game items, across web2 and web3 games. It’ll be interoperable by design. Super Content will capture the player’s rank, guild, skills and achievements. Their community role, their identity and personal expression. Their preferences. It will adapt and represent uniquely each player. Each community member.
Content creators will become Super Content creators. We’ll provide the tools to unleash the community’s creativity, so they pour it into crafting unique items with interoperable utility, and later trade the outcome of their efforts.
Lastly, Super Content will also give their owners access to exclusive real-world offers, bringing value beyond the digital realm and into our lives. Benefits for them to enjoy personally and to share with their loved ones. We expect Super Content to positively change peoples’ lives.
Making Super Content a Reality
We are super excited. I hope you are too. We’ll continue to drive this vision forward with the goal of making it a reality. As part of that we’ll update our products and websites to align with the Super Content vision and its core principles. We’ll be sharing more details as we release these exciting updates.
Alex Arias - CEO
On behalf of the Trailblazer Games Team