Part 1: In-game items are a $50 Billion market, why am I missing out?

As Transactions for In-Game Items Grow, Why are So Few Reaping the Rewards?

*This is the first of a 3 part series about the challenges and opportunities associated with in-game items.

In-game items (skins, gear, consumables, animations, etc.) have grown to become a massive revenue stream for the $150B gaming market. Depending on which estimates you use, roughly one third of that revenue comes from the sale and resale of these items. Large publishers have used these items to expand game longevity and engage gamers on a deeper level — while creating a highly profitable revenue stream — with Epic/Fortnite being the clearest and most frequently cited example.

In the next few posts, we’ll break down the dynamics associated with in-game items, and the way they are sold, in both the primary and secondary markets. We’ll talk about the challenges facing the game developer and how they can start to address these challenges.

Challenge #1: Are In-game Items the Exclusive Domain of Large Publishers?

Since the late 2000s, in-game items (and the micro-transactions that deliver them) have grown to become a mainstay of the modern gaming economy. Whether it’s a power-up or additional life in a causal mobile game, or the deep library of skin collections in CS:GO, DOTA or Fortnite, publishers have found unique ways to integrate these items into their titles and keep gamers coming back for more (and carrying their wallets with them). As clear evidence, according to Juniper Research, the buying and selling of in-game items has grown into a $50B market unto itself, and is growing at nearly 14% per year versus the 10% growth in the overall gaming market. These items have become a revenue gold mine for large publishers.

In addition to the revenue potential, in-game items offer publishers and indie devs alike the opportunity to keep games fresh and interesting, and provide a chance to breathe new life into titles potentially waning in popularity. Equally important, for the gamer, they provide a vehicle that enhances their game experience with new challenges and achievements while allowing for individuality/personality in a world that is becoming THE place to meet and interact with friends.

The challenge is that setting up and managing the “micro-economies” that evolve around in-game items is hard. Substantial investment in technology infrastructure, such as user management systems, inventory management systems, user authentication platforms, payment processing, and a whole host of other solutions are required to integrate them into the game. They also require substantial marketing capital to surface new collections & series, and intricate economic/game-theory modeling to really ensure the items enhance gameplay and don’t alienate the core gamer audience.

Large publishers can support all of these things (and sometimes they still don’t get it right… e.g. Battlefront 2). However, mid-size and small indie developers typically don’t have these resources, nor do they have the timelines available to build all of these extra features. Game development is challenging enough without having to also become a systems integrator, an e-commerce company, a college economics department, and marketing juggernaut to make all these other things happen. How do you accomplish this when you’re a 30-person shop and you’re, rightfully, spending all of your energy building a kick-ass game?

So, where does that leave the developer? Most often, in-game items get deprioritized on their roadmap. They’re typically on the radar in early stages of game design, but get eliminated as deadlines approach and other features have to take priority. As a result, developers miss the opportunity to engage their users and build a sustaining revenue stream to support future game development.

This needs to change. Developers need the tools to help them fully capitalize on this market.

Click HERE for Part 2 where we explore the risks and challenges associated with the secondary market for in-game items.

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Raleigh Harbour is CEO of Contact Systems in Manhattan Beach, CA.

Raleigh has +15 years of startup experience in gaming, SaaS software, online media, digital advertising, and ecommerce. In 2012, he advised a game streaming company called GxStream and has had a passion for the industry ever since. He’s currently playing Call of Duty Modern Warfare, Gears 5, Pokeworld, and taking turns on Agar.io and Angry Birds with his 6-year old son.

Learn more about Contact Systems at ContactSystems.io