F2P (Free-to-Play) games have revolutionized the way everyone — from hardcore to casual gamers — thinks of gaming: with no initial economic “obstacle” to start a new digital adventure, as well as a stronger lock-in with astonishingly engaging core missions and virtual characters, these games provide users with a compelling and customized experience, and publishers with big returns on their bottom line.
Digital content is king: engagement booster and profitability driver
Look no further than FIFA Ultimate Team to make a case for digital content. Back in 2009, Electronic Arts released a Free-to-Play mode inside its FIFA series. Until today, with almost 10 years of growing success, this exciting mode essentially gives users the chance to challenge online opponents from all over the globe with their custom-made, upgradable team. To improve the overall team quality, gamers can purchase football players, coaches, stadiums, and jerseys in “packs”(kind of like Panini stickers that those of us born before 1990’s used to collect), with features fully playable in the F2P mode in a fantasy-sport fashion. What did this amount to for EA? In 2018, approximately 10 million video game copies of FIFA’s new release were sold globally accounting for about $600 million. Comparably, according to EA’s CFO Blake Jorgensen, the digital revenues stemming from the FIFA Ultimate Team mode (i.e. packs sales) alone contributed $800 million in net revenues . The incredible returns brought by the new role of this (originally) offline colossus is a clear indication of a big trend shift– and FIFA Ultimate Team is not the only game showing signs of it.
When deep-diving into financial results reported by top grossing games, it’s impossible not mention the extraordinary success achieved by Pokémon Go in 2016 and Fortnite in early 2018.
The former is a mobile-only game that uses AR technology to allow “trainers” to view and catch Pokémons in the wild (i.e. their real surroundings). While the game is free to download, gamers are offered the chance to increase their Pokémon and items storage, buy in-game items (Pokéballs, incubators, lures) and customize their trainer avatar with clothes and accessories. Although these features may appear superfluous to the core “catching and collecting activity”, the 10 million daily users of the game (absorption, February 2017) certainly didn’t think so. Users feel further engaged in a more intensified F2P experience, and demonstrate their upmost approval through clear numbers: as Pokémon Go DAUs stabilized, the data usage per device grew from 6 MB per device in July 2016, to 15 MB per device 10 months later, showing players’ growing absorption into the game. Nintendo’s franchise set a record-breaking monthly revenue of $203.5 million in August 2016 (table 1), which serves as sound evidence of the existing correlation between a high involvement and high in-game spending.
If FIFA and Pokémon Go already represent two great examples of online arenas that players cherish (and are very much willing to pay for), words aren’t sufficient to describe the astounding impact that the cross-platform video game Fortnite has had since its inception. Not only does it hold the highest one-month revenue among F2P games today, with $318.3 million (table 2), but it also has an estimated MAU of 40M MAU spending on average $8/month each. To put these figures into perspective, note that the following are the yearly ARPU (average revenue per user) of some of the largest world tech corporations:
· Snapchat: $3
· Twitter: $8
· Facebook: $19
· Google: $27
· Fortnite: $96
You’re probably wondering where I’m going with all these stats. Why is this important? Why now? Can publishers’ financial results increase further? Can end users feel even more involved and committed to online gaming? If so, how can all this be attained?
Blockchain technology might come in handy
The Ethereum ERC721 standard, first introduced by the Axiom Zen team in CryptoKitties, intends to serve as a standard API for the so called non-fungible-tokens (NFTs) within a smart contract. Here, each NFT is identified by a unique 256-bit positive unsigned integer (uint256), which together with an Ethereum address forms a unique identifier of a non-fungible asset on the blockchain that never changes and is bound to that specific asset. Put in short, an NFT is analogous to representing a collectible good on the blockchain.
Now let’s think back to the nature of in-game digital assets. Normally these assets (ranging from weapons, to clothes, characters, player cards, etc.) are issued on a “primary market” by publishers, but there’s no real concept of ownership as assets can’t be exported from the servers of the game. In a context where assets are confined like this, publishers not only fail to monetize in real-life (the in-game coins exchanged for assets are worth nothing in the real world), but they also don’t exploit the full potential of scarcity in the game. With NFTs, instead, ownership becomes decentralized, so items can never be banned, destroyed, replicated, or subjected to trade holds.
NFT implementation would allow gamers to be even more engaged as their in-game work would discover an unprecedented level of recognition: true ownership over what was conquered with hard work, skills, or in some cases luck. Assets relying on a blockchain network could be exported into dedicated crypto marketplaces (e.g. a more skewed version of Rarebits), traded or exchanged for cryptocurrencies, which could perhaps be spendable on digital copies of new releases. Publishers on the other side could focus more and more on their DLC (downloadable content) efforts and thus further increase their gross margins for each successful digital release. On top of that, since smart contracts on the blockchain reward authors (video game publishers), every time a secondary market transaction occurs, a completely new revenue stream would open up.
Nick Tomaino, Managing Partner at 1Confirmation, was calling a few weeks ago for an NFT-based AR game where users would “feel empowered to own the game they are playing and entrepreneurs are empowered to build new experiences on top of the game”. AR gives a broader social context to digital assets and would definitely reinforce the aforementioned correlation between involvement and average spending (it’s scary to wonder what the future might hold when VR will be a mass-adopted reality).
Witnessing the creation of a new market
According to Forbes the global collectibles market cap is worth about $370 billion. It’s highly probable that NFTs would eventually digitalize a portion of that market, but when it comes to online game assets (accounting for all PC, mobile and console games) the potential is utterly untapped and only a bottom-up approach would tentatively size the market.
There are a few projects I know, namely OpSkins, Fimatix (featuring also an AR implementation into their own collectible game), and GameDex, that are working towards this direction and have understood the enormous opportunity arising from NFT integration with games’ digital content.
The key will be to educate and drive big publishers to adopt blockchain technology for the tracking and trading of in-game content. There’s already plenty of infrastructure in place (developer tools, decentralized registries, crypto wallets, broader crypto collectibles marketplaces), but the winning strategy to ignite this market? Personally, I am counting down the days for the launch of a powerful turnkey solution for publishers to really get this game started.
Please comment below 👇 if you’d like to discuss the subject further