Blockchain games and the play-to-earn business model are two of the next major steps for the video games industry. It will introduce new business and audience retention models not yet seen in modern gaming. Business models will never destroy older ones, but consumers will prioritize a certain model based on their personal and market needs.
Blockchain is the next major step for the games industry, because consumers will demand more control. Consumer is king, and those who empower consumers will reap the benefits. This will come with completely new business models, revenue streams and in-game economies. These virtual economies will have empower consumers by adding real world value to their online entertainment. But first, let’s take a few steps back.
Games business in a nutshell
Business models around video games have evolved as technology became more accessible to the audience. In the late seventies and early eighties we played our games on arcade machines in local game centers. With a pocket full of quarters gamers would compete to get the high score.
Nowadays we play games on our smartphone when we’re in public transit or taking a moment for ourselves. When we want a deeper experience, we launch a game on our personal computer or home console. No matter the platform, there are business models that suit every player.
Consumers need to purchase the right to play a premium game. Gamers do this by buying a license from a digital store, or by buying a physical copy of a game for an online or local shop. Free-to-play or freemium games give a certain chunk of the game for free, but all kinds of extras need to be paid for. For example, users need to pay for in-game currencies, extra content or special cosmetics for their game characters.
Free-to-play no longer equals crap
Free-to-play games have an image problem that has been improving a lot in recent years. In the early days of downloadable content and micro-transactions there have been plenty questionable examples. The $2.50 Horse Armor from The Elver Scrolls IV: Oblivion is a school book example. Critics and consumers have slammed Candy Crush in the past for its restrictions on play time and forcing users to pay, if they want to continue. In addition Clash of Clans, even though commercially very successful, puts money over gameplay. Game designer at Electronic Arts made Dungeon Keeper in such a way that users need to pay for everything.
However, some of the biggest games on the market are actually available for free. Last year Fortnite alone was responsible for 1.8 billion dollars in revenue, even though the battle royale game is available for free. Selling cosmetics to allow more personalized customization is big business.
Think about games like Fortnite, League of Legends, Dota 2 and Hearthstone. This games have made hundreds of millions or even billions of dollars. This just shows that the free-to-play business model has matured, and developers have learned the art of free-to-play monetization. The same can be said about League of Legends, which brought in 1.5 billion dollars. In addition there are games like Team Fortress 2, Apex Legends, and Dota 2 which all generate millions of dollars in revenue for its parent companies.
It’s safe to say that the free-to-play business model is booming right now. Games like League of Legends and Dota 2 are often mentioned in mainstream media as a part of their esports tournaments and the million dollars business that’s involved. Fortnite really got everybody talking, and is often compared as a social platform for younger gaming communities. The biggest game in the industry is free. Free!
Why play-to-earn makes sense
Over the past few years we’ve seen plenty of free-to-play games shutting down their servers. When player numbers dwindle and the costs for operating the servers is more than what the company can make, servers are often taken offline. Cosmetics bought by players, items acquired, everything they ‘owned’ is gone as soon as the server goes offline. Think about games like Evolve, Orcs Must Die! Unchained, Blacklight Retribution, Marvel Heroes, Paragon, and The Mighty Quest For Epic Loot.
The idea of ownership in the games industry is an illusion. Consumers only buy a license to use digitally distributed games, downloadable content and digital items. The lawful owner will always be the company behind the game. Games have become services, and are no longer products that consumers can own. Gamers pump money into a game, but never regain any value.
Digital distribution is a farce. Everybody is paying the full price to play a copy of game to which they have no ownership what so ever. Thankfully there’s still a hunger for physical games. The rise of independent publishers like Special Reserve Games and Limited Run Games underline this trend. The authentic feel of owning a product will never get old. Ownership is real and nobody can take it away.
With blockchain technology we can apply the same rules to digital assets. Gamers can truly own digital items. Developers can tokenize each digital asset on the blockchain, which means that everybody is capable of tracking the available amount, its rarity and ownership history. Based on its usability it will most definitely have a certain value that will decrease or increase over time.
For example, developers can tokenize a sword from an action game or an awesome car from a racing game and players can store these ownership contracts in their player-owned wallets. In addition players are free to sell their items, or give them away to a friend. On top of that users can transfer digital ownership freely, but there’s always just one person with true ownership over a certain item.
Free to play to earn
Not all play-to-earn blockchain games are also free-to-play. At the moment Axie Infinity, which is often described as a true play-to-earn game, still requires players to first buy three Axies before they start playing. This means that gamers interested in the game first need to pay a couple of dollars, before they can try it. Players who don’t like Axie Infinity (you heathens!) will still be able to sell their Axies on the marketplace, perhaps even with a profit. Who knows? This could change soon though. Because Sky Mavis is looking into the options of giving every new users basic Axies.
That most successful blockchain games will be the ones that merge the boarding process of free-to-play with the monetization of the play-to-earn business model. New players shouldn’t need to pay to try a game. Only once they get involved in the community and learn more about the game, they should have the ability to make some good investments and increase their gameplay fun and experience. Let’s call this “Free-to-Play-to-Earn”, or F2P2E.
An example of this business model would be the trading card game Gods Unchained. Players are free to get their hands on the game and have some fun. While playing they will unlock ‘plain cards’. They can create value once they have two plain cards and some flux, an in-game currency earned by winning competitive games. Players can merge these two cards into one player-owned, tradeable card stored in their blockchain wallet. Yes, they can also sell these tokenized cards on a public marketplace.
What if the servers go offline?
One of the easiest questions to ask, is what will happen when the game company shuts down the servers of their game. Suddenly you have these tokens in your wallet that are no longer tied to an actual item. Yes, this is a danger. However, there are solutions for that.
The first would be that blockchain tokens can be tied to multiple assets from multiple games. Blockchain gaming startup Enjin is even building its entire business around this concept. A token for a gun in one game, can be a card or a sports car in the other. This means that gamers can use one game item in multiple games. It’s a form of interoperability. Even though one game shuts down, tokens still remain usable in other games.
The second solution also has something to do with blockchain technology. What if we don’t need centralized servers, but run games entirely on a bunch of local files and a blockchain. This would mean that the blockchain verifies all transactions, movements and the ownership over assets. For example, Nine Chronicles is an upcoming idle role playing game build around this concept.
Another example would be Xaya. This is a blockchain solution for games build on blockchain technology. The blockchain stores every move, action and trade. The Xaya blockchain is much cheaper for transactions, and allows for so-called ‘Game Channels’ to enable fast-paced gameplay on the blockchain. This could be something favorable for action games for example. Isles of War, Taurion and Soccer Manager Elite are just some of the examples of games coming to the Xaya blockchain. In these examples there are no centralized servers. It’s the users who keep the network running. As long as there are at least three users, the network will be able to operate.
What about Ethereum
Currently Ethereum is the most popular blockchain for gaming. But most of the blockchain games using Ethereum require centralized servers. In most cases only digital ownership over tokenized digital game assets is stored on the blockchain. The game itself run on centralized servers. This doesn’t mean something similar to Xaya and Nine Chronicles isn’t possible on the Ethereum blockchain. However, transaction fees and blockchain speed do hold Ethereum back for true decentralized gameplay build on the blockchain. Side chains could provide a solution for cheaper and faster transactions. Think about the Loom Network.
Keep in mind, none of these projects has had to work with one million gamers at the same time yet. Right now blockchain games attract a few thousand players per day at max, while the play-to-earn business model is still extremely niche. Scalability is the biggest challenge for the current blockchain gaming products. The first blockchain-powered game that attracts one million gamers still needs to be invented, optimized or properly marketed.
The elephant in the room
Blockchain games and the play-to-earn business model haven’t hit the mainstream yet. With only a few thousand players per day this market is still very niche. Gaming businesses are seeing potential though. For example, Ubisoft is investing research and resources into blockchain projects like Sorare, Nine Chronicles and much more. In addition Atari is going to launch its own cryptocurrency token, while Square Enix invested in the virtual world of The Sandbox.
Obviously we don’t know what’s happening in board rooms at companies like Electronic Arts, Nintendo, Microsoft, Activision Blizzard and PlayStation. But it’s safe to assume that each of these gaming companies is keeping an eye on the blockchain space. Imagine one of these companies launching a commercially successful game using blockchain-powered economies.
The mobile gaming space wasn’t discovered by Electronic Arts and Ubisoft. Companies like Rovio, Popcap Games and Zeptolab made multimillion dollars hits with Angry Birds, Plants vs Zombies and Cut the Rope. It’s very likely that the first hit for blockchain games and the play-to-earn business model will also come from an independent game studio. Currently there are plenty games with potential, which one would you support?
Also published on Medium.