The games industry is ever-changing, and business models must adapt to survive.
The games industry is under pressure. Players are becoming more and more demanding, while games are becoming more and more expensive to develop. These days, the floor for an AAA game is around $100 million ($50 million for development and $50 million for marketing), and even a small indie game costs hundreds of thousands of dollars to make. This industry is also becoming increasingly competitive, with many new companies entering the market each year. Some traditional game business models may no longer be sustainable. In order to stay afloat, game companies need to evolve. It is imperative they find new ways to generate revenue and keep players engaged.
To understand why game business models must evolve we have to explore their current business models first.
Pay-to-Play
In the past, most games were what we call “pay-to-play.”, meaning that players had to pay upfront to access the game. Once they paid, they could play as much as they wanted. While this business model worked for many years, it had its limitations for game developers. Once the sale was made, there was no more revenue coming in from that player. Therefore, game developers had to find new ways to monetize their games, typically through DLCs, or additional in-game purchases. This is not ideal, as it can often result in a feeling of “nickel and dime-ing” players, which can lead to frustration, ultimately causing them to stop playing the game. In the future, this model may not be sustainable, as games are becoming more and more expensive to develop than ever before, and players are becoming more resistant to paying upfront for games.
Free-to-Play
In recent years, the free-to-play model has become increasingly popular. Free-to-Play was certainly a big evolution in gaming business models. This new model allowed game studios to create hyper-casual games fast and efficiently. Game studios, like Voodoo, release multiple hyper-casual games per month. It also allowed them to reach a much wider audience since the games were free. Free-to-play games typically generate revenue through ads. While this can be successful for some games, it often results in a feeling of intrusive advertising. Some hyper-casual mobile games are showing ads every 20–30 seconds, which can be very frustrating for players. Placing too many ads in mobile games can lead to uninstallation.
Subscriptions
Next, we have game subscriptions, which are when games make players subscribe in order to access the game. This is usually a monthly fee. The subscription gives players access to the game as well as any new content that is released each month. For example, World of Warcraft has had a successful subscription model for many years. However, this model also has its own set of challenges.
First, it can be difficult to get players to subscribe in the first place. Many people are already subscribed to Netflix, Spotify, and other monthly subscriptions, so it can be hard to convince them to subscribe to another service, especially if they’re not sure what the game will offer each month.
Second, it’s important to keep players interested once they’ve subscribed. If a game is not able to provide new and interesting content on a regular basis, players will quickly become bored and unsubscribe. If a player cancels their subscription, the game developer is no longer generating any revenue from that player. Some WoW players took an issue with the new content rolling out, as it can only be accessed by completing long and tedious quests- upping their subscription time.
Third, this model requires a lot of upfront investment from the game developers. They need to create enough content to last for at least several months, if not longer. This can be a risky investment, as there’s no guarantee that players will subscribe in the first place.
Pay-to-win games
In particular, pay-to-win games are not attractive to many gamers. Pay-to-win games are games where players can spend money to get ahead in the game. This type of business model is often maligned by the gaming community because it gives an unfair advantage to those who are willing to spend more money on the game. As a result, many games have shifted away from this business model in recent years.
The future of game business models
The challenge that all the above-mentioned game business models share is that games themselves can be quite ephemeral. People can lose interest in a game very quickly, and once they do, it can be very hard to get them back. The most important metrics for games are usually daily active users (DAUs) and monthly active users (MAUs). If a game stops growing its DAUs and MAUs, it is in trouble. In the past, games could rely on word-of-mouth to grow their player base organically. However, in the age of social media and constant distractions, this is becoming increasingly difficult. The successful future game models will likely be the ones that are the most sustainable and the most attractive to players. Game developers must now find new and innovative ways to market their games and keep their players engaged. So, how can game developers achieve this?
There is no magic formula for a successful game, but there are 3 things that I think many successful games will have in common:
1. They will evolve
Static games are ones that are built and then shipped as a permanent client. They don’t have updates, tuning, or new content releases over time. Games with “On Disk DLC” qualify as static, too, since there’s no need for a live operation to distribute the extra content.
Live games, on the other hand, constantly add new content to keep players engaged. A live game is any digital game that can receive post-launch updates of content, design elements, or player interactions. Often these updates are managed server-side rather than needing an update to the player’s game client. One way to keep players engaged is through constant content updates. This could be anything from new levels and challenges to new items and characters. By giving players new content to explore on a regular basis, games can keep them coming back for more.
This type of game requires a lot of resources to maintain, but it can be very successful if done correctly. Games like Fortnite and Player Unknown’s Battlegrounds have shown that there is a large appetite for live games.
2. They are community-driven
Another way to keep players engaged is through community building. Games like Minecaft and Roblox have built large and active communities around their games. Players can create their own games within Roblox, and many of these games are very popular in their own right. Young people nowadays frequently meet in the virtual realm and engage in social activities. These communities are engagement drivers. They keep players coming back to the game, even when they might be losing interest.
Community building can be a very effective way to keep players engaged, but it requires a lot of effort and resources.
One way to build a community is through social media. Platforms like Twitch and YouTube have made it easy for games to reach a large audience. Streamers and YouTubers can provide valuable exposure for games, and they can help build a community around the game.
Another way to build a community is through in-game features. Many games now have built-in chat features that allow players to communicate with each other. These chat features can help players connect with each other and form friendships. In addition, many games now have leaderboards and achievements that players can use to compare their progress with friends.
3. They let you earn money
Web2 games are games that run on the centralized web. That means that they are hosted on servers that are controlled by the game developers. Because of this, game developers have complete control over the game and game items, and can make changes at any time.
Some of the disadvantages of web2 games are:
- Lack of trust between player and game developer
- Centralized game economies can be manipulated by the game developers
- Lack of control over in-game assets for players
Play-to-Earn or GameFi games are different, as they utilize Non-Fungible Tokens (NFTs). With NFTs, players can own their in-game items and progress. They can also trade or sell their items for real-world value on NFT marketplaces, and this income can be “taken out” of the virtual game world and converted to cryptocurrency. This is a huge shift from the traditional model where games are bought and sold as products. With web3 games, players can actually earn money by playing the game, which gives them a real incentive to keep playing.
With the advent of other web3 technologies like Decentralized Autonomous Organizations (DAOs), and Decentralized Finance (DeFi), game developers have more tools than ever to create games that are not only fun but also have a positive impact on the world. Games that use DAOs can decentralize the game economy and put power back into the hands of the players. Players may vote on game changes, elect game moderators, and receive rewards for their participation.
Games that have DeFi features can offer players new ways to earn money by playing the game. For example, a player could stake their in-game assets to earn interest on their investment.
An example would be Celo-based IntoTheVerse, an NFT utility-driven game-fi metaverse that is based in two worlds; the real world and the unreal world. The real world is a pixel replication of the cities we live in, reimagining the possibilities where people owning avatars can own virtual lands, visit museums, schools, banks, travel, and engage in recreational activities, powered by DeFi, ReFi, NFTs, and dual token economy.
Web3 games have their own challenges to overcome:
- Web3 technologies are still in their early stages (and may fail)
- Lack of easy-to-use web3-compatible wallets and browser extensions
- The user experience of web3 games is not as smooth as traditional games
Despite these challenges, the potential web3 games hold is too great to ignore. As web3 technologies continue to mature, we will likely see more and more games that have new Play-To-Earn mechanics than other game models. Web3 games allow developers to focus on creating great games without having to use Pay-to-Play, Free-to-Play, or Subscription, business models. Web3 provides game developers with a new way to monetize their games, for example, by selling NFTs, and charging a small fee for every transaction (trading) that happens in the game. Some games may even launch their own crypto-token that serves as the in-game currency. By using this model, developers can keep the game affordable, and still make money from it.
This provides not only a new revenue stream for game developers but also gives players a real incentive to keep playing the game. Moreover, web3 games are often more engaging than traditional pay-to-play games because usually they require players to interact with each other in order to progress.
The games industry is at an inflection point
Games need to evolve in order to keep up with the changing landscape of the gaming industry. However, the current game business models don’t support this kind of constant innovation. It’s a real challenge for game developers to maintain their player base and keep people interested. The games of the future won’t be static but will evolve and constantly add new content to keep players engaged. Furthermore, the community of the game will drive engagement. And lastly, Play-to-Earn mechanics will empower players to earn money by playing a game. The combination of these 3 elements might just be the games industry’s next big evolution.
