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Web3 and the Metaverse are two of the hottest buzzwords in tech circles right now. Investor appetite has sparked a “cascade” of investments in blockchain platforms, according to Crunchbase, which is leading recent funding rounds for Polygon Technologies and Alchemy totaling $650 million. One industry that’s garnering more attention than most is gaming. In early March, a group of heavyweight investors including billionaire Bill Ackman and gaming giant Animoca Brands announced a new Web3 venture fund focused on metaverse, gaming and social applications. Around the same time, Griffin Gaming Partners, a gaming-focused VC fund, announced that it had successfully raised $750 million.
But this wave of investments isn’t just about making more, bigger, and better games. Web3 is changing the way games are designed and built, motivating and engaging users and developers with the promise of token-based rewards. The departure from the established gaming model is so fundamental that in a few years we will no longer refer to gaming as an industry but as an economy.
Development of crowdsourced games
This shift is already underway, as we can see from the way game studios are evolving their development process. In the established industry model, a small handful of game studios account for the lion’s share of revenue from the carefully managed release of large game titles like Call of Duty or Player Unknown: Battlegrounds.
These games are generally developed in a black box and intellectual property is understandably carefully protected as it is the studio’s greatest intangible asset. Studios invest significant sums in marketing games through online campaigns. It is also difficult to hire game developers as there is a relatively small pool of people to fill the huge demand for new game content.
However, things are changing. Games like Roblox are pioneering a new model of user-generated content (UGC) that effectively distributes development to legions of eager players and supporters. There are also vibrant communities of “modders” who create modified versions of games or in-game scenarios, often hosted on private servers.
For game studios that adopt this model, it’s a win-win scenario. New content is constantly being added to keep players happy without the company having to keep developers on the payroll. Those who create game content are paid for their efforts, creating a new revenue stream. Such an approach encourages more organic marketing through word of mouth and viral content.
UGC: A natural fit for Web3
The UGC model is particularly well suited to the Web3 space based on decentralized blockchain networks. The Web3 model cements economics at the heart of the game, creating open, decentralized worlds where anyone can join and help build or be encouraged to play.
Thanks to this model, Web3 games don’t necessarily have to captivate users with CGI-like graphics and complicated plot developments. Instead, the focus is on asset ownership, community building and engagement through interaction.
Additionally, Web3 is increasingly blurring the lines between gaming and finance. In traditional games, assets only exist within the game and are not portable. In contrast, assets in Web3 games can be transferred to other environments where they also have value and traded on the open market via decentralized exchanges. Players can also use these assets in DeFi apps by using them as collateral for loans.
Gaming in the gig economy
We’re only at the very beginning of this shift, but ultimately it seems highly likely that gaming will become part of the gig economy model that now dominates almost every other sector online. Freelance game development will evolve into a monetized revenue stream much like the influencer economy has evolved. Instead of earning a salary or being paid for a specific freelance job, developers are rewarded based on the level of gameplay and other engagement their creations receive.
From this environment will emerge a world of different marketing and branding opportunities. Right now, luxury brands are teaming up with gaming studios, such as Balenciaga’s collaboration with Fortnite. In the new gaming economy, brands are courting the new generation of gaming influencers who can attract the largest audiences for their gaming assets in decentralized metaverses and web3 applications.
From eSports to P2E
If this seems too far fetched, we just have to look at what’s happened on the player side over the last decade or so and what’s happening today. The emergence of the MOBA (Multiplayer Online Battle Arena) genre, which pits teams against each other, led to the emergence of the esports industry. What is esports if not a way for top players to monetize their game through tournaments and sponsorships? As of 2019, esports was worth nearly $1 billion and is expected to reach $1.6 billion by 2024. Last year, esports players took home over $200 million in prizes.
Now we are also seeing the emergence of the play-to-earn (P2E) trend from the blockchain space, popularized by games like Axie Infinity, The Sandbox, and Splinterlands. Play-to-earn offers players another way to generate revenue and during the pandemic it proved extremely popular in Asian countries as a way to replace lost revenue. In 2021, investments in the gaming sector hit new highs – and Forbes attributes this surge to an influx of funding for blockchain-based games.
One of the best things about the transition from gaming industry to gaming economy is that it is not trying to surpass or replace the existing gaming industry model. Game studios will continue to release their flagship titles for eager fans who want the shiny gameplay. In parallel, the same fans and many other players and developers can also participate and benefit from the Web3 play-to-earn and create-to-earn game economy. Ultimately, the switch will bring benefits to everyone who loves to gamble.
Roy Liu is co-founder of Mobland.
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