P2E is dying but blockchain gaming is the future
A look at the gaming industry and how blockchain is changing it for the better
I want to start by saying that this post will cover many broad concepts that I shall later dive deeper into in future posts. Blockchain gaming is still in its infancy and things could go a number of ways. The following are my own personal thoughts on the current state of blockchain gaming and how I think it needs to change.
Contents
In this post, I will cover:
- The Evolution of Gaming
- The Arrival of Blockchain Gaming
- Changing The Narrative
- The Keys to Success
- Closing Thoughts
So what is the future of blockchain gaming. Will we see the rebirth of P2E titans such as Axie Infinity, or is the market moving in a different direction. Spoiler, we will likely see both but things will never go back to the way they used to be.
Before we look at the future, we first need to understand the past. Let's go back and see how the gaming industry has changed over the years.
The Evolution of Gaming:
Gaming used to be worth something. There were little to no gaming publications, no cheat codes, and no IAPs. During the arcade era, the only option was to learn fast and keep trying until you got it right. Getting that top spot on the leaderboard after spending all of your pocket money actually meant something special.
However, technology advanced, and with it came small compact gaming consoles enjoyed from the comfort of your home. I won’t get into the console wars, but just know it was intense. Rival companies battling it out to see who could capture the most market share.
From 1970 to 2020 Nintendo, Sony, and Microsoft sold $754mil, $535mil, and $149mil in total console sales respectively. Things were simpler back then because gamers knew what they were getting into. Pay x amount of $ and receive a game that would (hopefully) keep you entertained for hours.
Make a game people love and reap the rewards. GTA5 has managed to gross $6bil in sales since its release in 2013 and Minecraft still manages to maintain 100mil+ active monthly users 11 years after its launch. No gimmicks, no hidden paywalls, just a straightforward exchange of value.
The premium model of gaming led the charge for a good 35 years but it had 2 major flaws:
Developers had to spend millions to keep up with the competition with no guarantee of success.
The relatively high cost of buying the latest console/games made it fairly inaccessible to developing markets.
However, as smartphones became more affordable and wireless internet spread around the world, would-be gamers suddenly had access to a new type of gaming.
Enter the era of mobile freemium gaming. The concept is simple, offer players a free-to-play game that is highly addictive, rewards in-game activity, and incentivizes in-app purchases (IAP). Turns out this was pretty lucrative.
Mobile gaming now accounts for ~50% of the $200bil global gaming market. Revenues come from either in-app ad spend or IAPs. Generally speaking IAPs account for the majority of revenues but they rely heavily on whales (~50% of total revenue) who only make up roughly 5% of players
Freemium games were not without their fair share of controversy. OG gamers hated how they focused on drawing players into fun but adictive experiences just to frustrate the shit out of them until they gave in and spent some money. Nonetheless, mobile gaming has become a force to be reckoned with and whales are still happy to pay thousands so the rest of the world can casually have some fun with them.
The growth of mobile gaming provided a new opportunity for companies such as King, Supercell, and Zynga to grow to new heights. However, despite it being cheaper to acquire new users year on year, the cost to convert them into paying users is rising rapidly.
Additionally, in 2021, return on ad spend (ROAS) saw a drop of as much as 7.5% and cost per install (CPI) saw a 2x increase for some genres of mobile games. As customer acquisition costs continue to rise we are seeing an influx of new teams full of passionate entrepreneurs and game designers looking at blockchain as a refreshing and attractive alternative.
The Arrival of Blockchain Gaming:
So you want to develop a game using blockchain technology but where do you start? Crypto gambling games, like Satoshi Dice, started in 2014 and got a lot of attention at the time as a new and innovative way to lose all your money. However, it wasn’t until 2017 that Crypto Kitties broke the Ethereum blockchain with its new but rudimentary NFT breeding game. Even then, we had to wait until 2021 before all eyes were on NFT gaming and P2E.
Things started heating up in 2019-2020 as Covid-19 had taken many people’s jobs and the world economy was struggling. By 2021 Axie Infinity, which largly flew under the radar since its launch in 2018, peaked at a $9bil market cap and has a total of $4bil in trading volume. Players from all around the world were able to make enough from playing the game to buy food, pay for school, and take care of the rent.
It was this desire to earn that fueled the rise of P2E games. They were treated as jobs, not games. The gameplay was repetitive, the mechanics extremely simple, and they arguably required little skill. Many only required players to stake their NFTs whilst RNG took care of the rest. The excitement around P2E didn’t last very long, the market quickly became oversaturated and in-game economies started to spring leaks.
At best, these games were gamified DeFi protocols. At worst, they were straight-up ponzi schemes and the gaming community at large hated them for it. Inflationary tokenomic structures caused the game economies to crash and as earnings quickly disappeared, so did the players. Investors were hesitant, players were cautious, and the overall market sentiment went from excitement to dismissal.
Spectators bore witness to what looked like a pump and dump scheme that lured players in with a juicy ROI and then left them high and dry less than a year later. So it is somewhat understandable why when Ubisoft revealed they would be launching an NFT series for one of their games that the community fired back in outrage.
The apparent risks associated with NFTs coupled with a lack of understanding has resulted in the negative connotation around the adoption of this new technology in gaming.
Changing The Narrative:
The real value in merging gaming with blockchain technology is not the financial incentives presented to players, although this is a plus. It is immutable asset ownership & open market economies that are facilitated in a trustless fashion.
The in-game items market is valued at more than $50bil and the black market for game items is estimated to be $5bil as of 2015. Gamers blatantly feel an emotional connection to the games they spend hours playing & now, for the first time ever, they can experience true ownership.
No more relying on black market interactions where authenticity can be in question. No more trusting that the publisher will not suddenly increase the supply of a supposedly rare asset. The transparency that blockchain facilitates truly empowers the player for the first time in history.
The intention behind play-to-earn was righteous (in most cases), but it steered the focus away from just having a good time. This will change as developers focus on fun-first and play-to-own experiences.
Yes, you will still be able to earn.
Yes, some projects will push the narrative of play-and-earn where players can enjoy the best of both worlds.
However, my hope is for a future of gaming where the concept of earning is left to the speculators, the market makers, and the investors. Let the gamers just have fun. Play-to-own perfectly describes what gamers want, an escape from reality, a way to relax and have fun with friends. All whilst knowing that the assets they buy/trade/acquire are forever theirs to hodl.
The Keys to Success:
The unfortunate truth is that many teams still don’t know how to leverage blockchain technology in a way that enhances the player experience, not take away from it. Worse still is that most gamers/investors don’t know what to look for when searching for a great project.
I believe in a 3 pillar approach to analyzing promising blockchain games. A copy/paste whitepaper and high ROI do not equate to a sustainable game. Project teams must instead focus on how they can deliver value to the players, investors, and builders within their game’s ecosystem.
Players will expect fun experiences that can compete with traditional web2 alternatives. Low onboarding ramps will encourage wider adoption. Fostering strong community-based relationships will improve long-term engagement.
Investors want sustainable value accrual from their tokens. Creating a compelling product with a solid tokenomic structure is a good place to start. It can be more tricky when also considering retail investors and NFT collectors, however, providing real value, utility, and transparency to stakeholders is simply a must.
Builders are vital to any game ecosystem. Whether it be the developers who create engaging gaming content or passionate community members who enrich the ecosystem with UGC, community events, and activities. A diverse stack of APIs, SDKs, incentives, voting mechanics, and other tools will aid in the platform’s growth.
Not all projects are the same, therefore, strategies will vary depending on the target market, value proposition, and other relevant factors. Regardless of what the project is trying to accumplish, they must understand how to deliver value to their stakeholders.
It only takes 3 strong pillars to support an empire. Without them, you could see it all crash before your eyes.
Closing Comments:
I want to be clear, in the short term, hype rules all. Quick and easy profits are what put blockchain gaming on the map and it will stay that way until we start to see more players enter the market and better games being released.
However, this is a short-term thing. Unsustainable business models and poorly thoughtout tokenomic structures will always result in lower player retention. The narrative must change in order for blockchain gaming to reach its full potential.
Player ownership was one of the main incentives behind Ubisoft’s announcement, unfortunately, the market just wasn’t ready for it. A lack of education is turning many gamers away. However, as the space matures, the waters will clear and we will see some really great games come to market.
Don’t forget that blockchain as a whole is still extremely new. It took mobile gaming more than 10 years to achieve market dominance. The continued development of blockchain gaming will only help to cement this new technology into modern-day society.
According to Josh Chapman, managing partner of Konvoy Ventures, “gaming does not need blockchain, blockchain needs gaming”. We are at the very beginning and the future is bright.
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