The Future of Gaming: How Micro-transactions are Disrupting the Industry

The future of gaming

The digital games market is a vibrant and growing market, which is expected to see a 10% year-on-year increase in revenue, across all devices. The growth is mainly in mobile games, with 2017 being the first year where they made up more than half the market, at 52%. The graph below is from Newzoo’s 2017 Global Games Report [1].

When the report was first published in 2012, the market was valued at $70,5 billion. The 2017 revenue of $108.9 billion shows a growth of 56% over the five years. Newzoo gathers extensive data to formulate their findings, including the monitoring of data usage on over one billion mobile devices, which provides a comprehensive view of the gamers’ market. The market is expanding and diversifying, with activities such as e-sports attracting new audiences.

[1] 2017 Free Global Games Market Report, Newzoo

Historic and Predicted Global Games Revenue, Source: Newzoo’s 2017 Free Global Games Market Report

The Preferred Platform for Games is Changing

There is also a trend away from traditional devices, such as consoles, towards mobile phones. Newzoo segment the market according to the device used to access the game. What is happening is that the smartphone is becoming the preferred device, and is expected to capture 40% of the market by 2020, while all other devices, such as PCs, will lose penetration.

How the Market is segmented — Source: Newzoo’s 2017 Free Global Games Market Report

This has a lot to do with the growth of popularity of games in Asia, where companies such as Tencent with their Wechat app have given users a simple and versatile platform for communicating with the Internet.

Asia’s Predominance in the Market

It was estimated that APAC (Asia -Pacific) countries would contribute 47% of the market revenues for 2017, with US demand still expected to grow, but holding 25% of the market share. The purchasing preferences of Chinese players in particular, are influencing how games are, and will be monetized in the future.

Market Share across regions for 2017 — Source: Newzoo’s 2017 Free Global Games Market Report

Traditionally, players paid upfront for games or downloaded them for free, but now the revenue streams are changing, influenced both by the preferred platform — the smartphone, and the preferences of the largest games market, Asia-Pacific.

How Games are Monetized

Historically, gamers have been happy to make an up-front purchase of a game, in recognition of the developers who built it. This was the accepted method of payment when games were offline and bought in box sets at gaming stores.

Another model that evolved was subscription-based games, where gamers subscribe on a monthly basis on a long-term basis.

However, the preferred model now, especially among Asian players, is the free-to-play model, which paradoxically earns the most revenue. In a Digital River Report on monetization and fraud in the games market , over 80% of revenue is earned from free-to-play games.

Assessment of Game revenue based on revenue model — Source: Digital River Report

The Rise of Micro-transactions

Free-to-play games earn money once the gamer is immersed in the game. As the player progresses through the game, additional features, such as special gear or weapons are offered for sale. As these are mainly cosmetic add-ons to the game, they do not affect the state of play. The gamer can choose to buy the item or not, and these micro-transactions create a healthy revenue stream for the publishers. This is how free-to-play games earn more than the other models, which are also adding micro-transactions now to boost their revenue.

Some companies offer purchases that allow players to get ahead of other players by leapfrogging obstacles in the game. In general gamers do not like these offers, because they benefit the gamer who can afford to spend. However, gamers generally are comfortable with microtransactions, so they are here for the long-term. in a report by Qutee on Gaming in 2018, while few players were fans of microtransactions, the majority were OK with cosmetic offers. While the statistics may seem to be based on a very small sampling, Qutee had sought out major influencers to participate in the survey.

How Gamers feel about Microtransactions — Source: Qutee Report on Gaming in 2018

So it looks as if microtransactions are here to stay and will be the major contributor to the future of gaming. The problem is finding a suitable platform for a customer base of over a billion gamers in China and the US alone according to Newzoo’s stats. The grey market in games and fraud are also issues from which publishers must protect themselves. This is where blockchaini micro-transactions makes sense.

Blockchain for Games

There are blockchain games out there, who can forget CryptoKitty? Blockchain too has the potential to disrupt how games are designed and played in the future, but we are focusing on the financial aspects. Ownership will be transparent and visible, eliminating the grey market. Microtransactions must be executed at speed and must be safe. Most blockchain games are currently based on Ethereum and Ethereum’s ERC-20 protocol. There is only one problem with this: as Ethereum’s scale is growing and growing, its performance is declining, and it is getting too slow for high volume transactions that require fast execution. When CryptoKitty launched in December 2017, it was so popular that at one stage the kitties were accounting for 25% of Ethereum’s traffic and seriously degrading its performance.

What’s the Deal About CryptoKitty?

CryptoKitties are digital assets which are traded like tokens and instead of tokens, there is one very important difference, however, each CryptoKitty is unique, unlike tokens which have to be identical, or fungible. Just like fiat currency, where one dollar has the same attributes as another dollar, one token is identical to another. CryptoKitties, are non-fungible, no single CryptoKitty is the same as any other. You can acquire a kitty in two ways, either via purchase of one of 50 000 Generation zero kitties, one of which is issued every 15 minutes for most of 2018, or you can create one by breeding your dog with someone else’s dam or sire. The resulting kitty will again be unique and have elements of both the father and mother as well as a few of its own. There is a new protocol for handling non-fungible assets like CryptoKitty that runs on Ethereum, it is known as ER721. However, even ER721 is beset with scalability issues, based on the Ethereum blockchain model.

TrustNote Comes to the Rescue

TrustNote is a new generation distributed ledger which uses Directed Acyclic Graph (DAG) principles to process transactions at an unparalleled rate. It is open-source and you can read more about it on GitHub. What the developers of Trustnote have done is built a TRC-20 protocol. This will give developers the same reusable and easy to understand design as ERC-20. This will enable developers who know ERC-20 to produce new products quickly. These products will transact much faster using the DAG network than they would on Ethereum. For those who want to take advantage of ER721, TrustNote has designed TR721, a non-fungible protocol to use when creating games based on digital assets.

To stay informed on Trustnote’s latest developments, follow their weekly article on Medium.

What does this Mean for Game Developers?

Trustnote will make game development, faster, easier and cheaper, with tamper-proof processing. TrustNote recently released a Cloud based token platform so that developers can easily issue and manage their own tokens or digital assets without writing the code.

There is a quick tutorial including sample code in JavaScript where developers can learn how to issue and transfer test tokens by modifying a few lines of the code

Developers who use TrustNote will also have priority listing on BIT.GAME, the gaming digital asset exchange. BIT.GAME recently announced that TRC-20 tokens will have priority when applying to be listed on the exchange, which will connect with TrustNote’s Super Wallet.

Even more exciting news is that recently, TrustNote announced that it signed an agreement with Galaxy Game Center, a blockchain game platform gathers popular IP games for global game players, meanwhile providing an ecosystem allowing game developers and IP owners to publish their in-game digital currency and digital assets in the platform for global players to trade with.

To start with, this agreement allows, a massively multiplayer battle game to get priority support from TrustNote developers on scalable blockchain technology that won’t slow the players down. More innovative blockchain games would come to follow.

To conclude, we believe that Trustnote is the ledger of the future for game publishers which will be able to support the growth of games into the future.