NFTs, metaverses and ‘play-to-earn’ are upending gaming’s traditional revenue model. Shreyansh Singh of Polygon explains blockchain gaming’s business potential.
In recent years, various forms of in-game purchases and microtransactions have become the norm for many games. Free-to-play games that generate income from these revenue sources have also grown in popularity, but many gamers remain unconvinced. Now, thanks to developments in blockchain and novel software development kits (SDKs), developers can bring NFT-powered items and transactions into their games — even existing ones — for the first time. This stands to bring in a new era of gaming that benefits both developers and players alike.
Legacy video game revenue models
Once upon a time, video games companies generated revenue simply by selling their titles as a product. The total return on a given game was based solely on how many physical units were sold. Bigger franchises could maybe work in additional merchandise or similar income streams, but for most, once the game was shipped, it was up to sales to determine their fate.
Then came a new model, one that involved downloadable (DLC) and microtransactions. Generally referred to as the Web 2.0 model, this saw a continued revenue stream come from add-ons that could be as elaborate as new characters and campaigns or as trivial as in-game currency or accessories. Gamers have responded to this model differently, but many titles have found an equilibrium between the value added by in-game purchases and what they actually cost.
This new revenue stream also gave rise to free-to-play (F2P) gaming. This is where developers create a game that is inherently free for anyone to play with its basic features but offers a wide variety of ways to expand and monetize the game at the player’s option. This has generally proven enticing to many gamers. They can access the game for free, with no risk, and if it suits them, they can decide to enhance their experience with whatever additional content they choose.
There is, however, a bit of a snag here. Despite the genre’s immense popularity, a mere 2.2% of F2P gamers are actually spending money on these platforms. Despite this, the F2P field of gaming still generated US$88 billion in global revenue in 2018 alone, and that number has likely risen. But it begs the question: What could be possible if even more gamers started getting in on the action?
Gaming is entering Web 3.0
Fortunately, an even newer monetization model is emerging. In recent years, the rise of what is being termed Web 3.0 is beginning to change the landscape of the internet — and now gaming. Web 3.0 introduces blockchains, cryptocurrency and non-fungible tokens (NFTs) into the mix.
Blockchains act as immutable ledgers that cryptographically record all transactions on the network, and in doing so, allow for the generation of NFTs. NFTs, In their most basic form, represent data that can be verified as unique from all other data and can be tied to nearly anything — including in-game items. As such, every costume, avatar, plots of virtual land, or anything else in-game can be created as an NFT, which means they would be effectively unique, tangible, and retain value. They could be moved across multiple titles and even resold to other players on secondary markets. This makes all these transactions less like throwing money into a black hole and a lot more like investments.
Gamers don’t need to sink a load of money into game items that are effectively gone once the player loses interest or the game becomes defunct. The developers of the game can still offer a similar array of potential in-game purchases — maybe even more variety — but they could serve them up at an even lower price, a price they probably wouldn’t even consider in the current model, and then bring in additional revenue by running in-game markets and P2P trading, simply taking a small fee on each transaction.
Allowing for much lower upfront costs could encourage a notably larger percentage of gamers to get involved in purchasing in-game assets. Consequently, by offering markets upon which to trade, gamers can feel comfortable they haven’t really “lost” that value, just converted it into the game world, and they can retrieve it at any time if they so choose — potentially even making a profit on top. The activity in these markets then would supply an endless stream of income for the developers as long as they are still active. Additionally, by continually releasing new assets into the game as it evolves, developers can enhance the possibilities for revenue and trading among players.
This stands as a win-win for both gamers and the companies behind these games. The model builds upon what has already been established in Web 2.0 games but expands on it to provide players more control and increase monetization options for game companies. What’s even better is that we don’t need to wait for a whole new generation of Web 3.0 games that embrace this (though they are coming). Even now, 2.0 games can begin implementing these systems into their current platforms with just a modest amount of effort.
New technology brings the power of Web 3.0 Into Web 2.0 games
New scaling technologies have arrived for blockchains that allow for cheaper and faster transactions than ever before, bringing the true promise of decentralized technology to life.
This means that soon, titles that everyone is already familiar with and playing can simply upgrade to include this new model of in-game buying and selling. In turn, this could breathe new life into already beloved virtual worlds. The recent buzz around the rise of the metaverse — the idea of a “meta-platform” or extension of the internet that can connect all of these unique products — demonstrates that this technology will be vital in bringing this grandiose vision to life.
There’s nothing wrong with current gaming, but new technology stands to raise today’s landscape to an entirely new level. Furthermore, the coming wave of blockchain native games stands to be much more warmly received by consumers if they are already used to the new NFT model, thanks to it having been implemented in the titles they already love. The bottom line is that while evolution is coming, there’s no reason it can’t be integrated into existing products, and developers who don’t jump on this bandwagon now may find themselves struggling to catch up very soon.