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In the previous newsletter, we laid out the foundations of video game currencies in preparation for our Cross-Platform Gaming Currency report — you can now find that report here! We got a friendly tweet from Eric Meyerson, current Head of Marketing at Sens.ai and previous Director of Marketing at Facebook (Media & Video):
In this newsletter, we discuss some of our findings. Feel free to forward the email. Sign up here!
The case for paying attention to video game crypto assets is pretty straightforward. Legacy video game currencies (if we can call them “legacy”!) scream “Hit me with your best shot, crypto!”
First, yet again, in our examination of decentralization, cryptonetworks and crypto assets, we have some of technology’s biggest names in the crosshairs, Apple and Google. When GAFA is involved and the stakes are high, we’re inclined to pay attention.
Cross-platform gaming currencies primarily target mobile developers. And you can’t mention mobile businesses without mentioning the Apple App Store or Google Play. Each takes a 30% cut of mobile developer revenue. How will Apple and Google deal with revenues generated through crypto assets? If game developers start using crypto assets to circumvent large take rates, will Apple and Google stop distributing apps that utilize crypto assets?
Second, the video game industry is poised to benefit from crypto-economic incentive structures. The video game industry has always sat at the intersection of the technology industry and the broader media landscape (there’s a reason why our Wall Street Equity Research colleagues use the awkward term “Entertainment Software” to describe the industry). With the application of crypto-economics to this category, that cross-industry dynamic again takes center stage. Specifically:
- Among the great promises of crypto assets is a powerful incentive for software developers to build new and interesting products. And all the better if those developers are disgruntled with the status quo.
- Another promise is a mechanic for rewarding early adoption of a consumer technology product.
- Yet another is the potential to track and recognize the allocation of attention (traditionally the provenance of advertising) in new and more dynamic models. See for example our coverage of decentralized digital and social media.
Applying that framework here, game developers are like any software developer. They too want to benefit from their toil and creations. Further, with the shift to online play, video games — once siloed experiences — are now networks. Mechanics that incentivize more players are very valuable because they make gameplay more interesting and help games reach mass audiences. That is particularly important from a monetization perspective, for which game developers have increasingly turned to advertising/advertising-like models.
Add on the fact that the market for mobile in-game purchases is huge: $27bn in 2018, by our analysis (for context, the global video game industry is estimated to be worth $109b). And our view is that this is a crypto economy that merits attention. Our report explores these dynamics generally and the specific attributes of the crypto networks being constructed in this category. We arrive at the following takeaways:
- The decentralization of gaming currencies may have benefits for game developers but also presents risks, including by potentially reducing switching costs.
- Of the six crypto networks that we have identified and profiled in this analysis, none of the platforms have a substantial developer following. Given the nature of how these cryptonetworks acquire network participants, cross-platform gaming currencies are interesting cases of how some dApps likely will never be fully decentralized.
- The market has assumed for the moment a cautious posture in how its valued the publicly traded crypto tokens in this category.
For more information regarding our findings on cross-platform gaming currencies, check out our report here!