Original title: The Creator Economy In Gaming - Fun and profit from constrained randomness
Original compilation: Kxp, BlockBeats
Original compilation: Kxp, BlockBeats
In this post, we discuss the potential of games in the digital asset ecosystem, one of the few use cases that has the potential to reach 1 billion users. The reasons are: First, gamers are used to using digital assets because they often trade them in games. Second, the game involves high-frequency transactions, but the current financial infrastructure cannot meet this demand well, especially for global markets. Finally, games allow us to disconnect from our real lives and find a sense of belonging in a community.
Todays article is written by me withSiddharth JainCo-authored, he is a venture capitalist and gamer. In the past two years, he has developed a deep understanding of the operation of game studios and guilds. Siddharth founded IndiGG in 2021 and has been a gold medal advisor to several well-known game companies in the Indian market. He loves to play Dota and Zelda whenever he finds free time, so I know he has a lot to say about the game.
Over the past few weeks, weve discussed how the Web3 infrastructure can facilitate the growth of user-generated content (UGC). In this post, we explore the ways in which blockchain and gaming will integrate in the coming years.
High-priced JPEGs and non-existent users
The amount of funds for chain games has surged from US$83 million in 2020 to more than US$2.4 billion in 2021. The success of Axie Infinity fueled this 30-fold surge at the dawn of a new category. As founders and VCs rush to build everything from developer tools to wallets for the gaming ecosystem, there will be even bigger investments in the ecosystem ahead.
However, two years later, the hype may not have paid off (yes, we know it takes years to build a triple-A game like Fortnite from the ground up).
Beyond that, there are many reasons: one, players have traditionally played games for fun and distraction. Currently, Web3 games are too focused on revenue and neglect the game experience. You cant create a Web3-native version of GTA 5 or Red Dead Redemption in 18 months; and it doesnt make sense for a studio with an existing user base to force on-chain primitives. Their users fought so hard against these ideas that it caused unknown confusion and bad PR. Industry insiders even believe that in-game assets are destroying the entire industry.
On the other hand, the bear market has hit Web3-native games like Axie Infinity, which saw a surge in new users in Q3 2021. The decline in Token prices made ordinary users lose the economic motivation to pay attention to Web3 games, and they began to think that these products are more about transactions than game experience. These games could not sustain as a means of earning a living or entertainment to pass the time, and their average daily users and revenue plummeted.
Established game studios with decades of game making experience are also showing no signs of improvement in their Web3 projects. Ubisoft didnt even make $400 after integrating NFTs into one of their flagship games, Ghost Recon. The response was so poor that they stopped any NFT-related updates in less than five months.
The reason is simple: imposing Web3 as a narrative method on games is equivalent to adding layer after layer of complex elements on top of an already mature work. Users will appreciate this innovation only if its advantages are significant enough. Over the years, players have found that studios have developed more and more ways to monetize them.
In its current form, NFTs are just another way for gaming companies to loot user assets. There was a time when gamers could exchange physical copies of their favorite games with friends. This was no longer the case when games moved to digital distribution, and platforms like Steam and Origin became centralized marketplaces for games.
Game developers realized that they could sell expanded versions of the original game in downloadable content (DLC), rather than releasing the full game. Microtransactions entered the market when publishers were hungry for more profit. Perhaps the most controversial monetization method in gaming over the past decade has been loot boxes, which are effectively lottery tickets sold to newcomers looking to get random upgrades for their in-game characters.
LinkLinkThe videos in can help you understand how players perceive various monetization methods of game studios.
Over the past 15 years, people have had mixed reviews about monetizing games. Previously, you could buy a game and own it outright without needing to buy other products or expansion packs. However, the unit economics for game publishers are not ideal, especially for multiplayer games, where they need to spend a lot of money on an ongoing basis to maintain servers, manage users, release features, and build key mechanics.
Combined, these costs would be a hefty expense that few users could afford, and ultimately the game would die as a result. This is part of the reason why new-age games like Fortnite transitioned to a subscription model. Additionally, ecosystems such as Microsofts Xbox and Sonys PlayStation have their own bundled platform subscription packages.
You can understand the game platform as a digital town, where users gather, interact, play games, and trade. Unlike games in the early 2000s, which required a linear experience through a storyline, these digital products are now social consumer goods packaged as gaming experiences.
Every time we introduce a new financial primitive into the game, we get resistance because then the power of the user is taken away from the developer. It’s like, when you eat at a restaurant, you pay for every bite of your dish — and today’s microtransaction tools are very similar. Especially in Web3 native games, the barrier to entry is generally to buy a jpeg, which may be your monthly salary.
In order for gamers and developers who sustain these digital worlds to get a fair deal, we need to find financial primitives that serve both sides. Players who have invested a lot of time in the game already call the game home, but the game has few primitives that allow creators and toys to take ownership or allow them to directly monetize the game.
Perhaps, the idea of creators making a living off of in-game experiences is a bit of a stretch. The behavior of many people has told us that the reason why most game enthusiasts spend time managing the community is not to earn income through transactions, but to build relationships with each other.
But thats like saying Substack couldnt possibly succeed because of Wikipedia. Todays Web3 games are struggling to maintain a balance between financial infrastructure and asset verification. If these primitives are going to work, we have to empower users and creators through these infrastructures - this is what UGC is about.
Understanding User Generated Content
Most traditional publishers have limited productivity due to the inherently time-consuming nature of high-quality content creation, whether writing a book or producing a film. Team members need time to seek inspiration and find the motivation to turn ideas into consumable content. After the content is produced, it also faces the risk of a small audience.
That’s why most big movies are willing to deal with universal emotions, such as falling in love and breaking up, or self-made hero stories of protagonists-these works are more accessible to the masses. If you study traditional print or cable publishers, their audiences often share ideological leanings.
The Internet has largely disrupted this relationship, content is no longer produced by a centralized publishing house, but co-authored and consumed by any user. Since the Internet has greatly reduced the cost of communication, the main body of content creation has gradually expanded to those users who are eager to build an audience.
Unlike traditional media, the cost of creating content on social networks is even as low as zero, while at the same time attracting the attention of more and more users. As long as one or two advertisements are inserted on the platform from time to time, you have harvested a money printing machine.
Shifting the cost of producing content to users, while increasing the amount of time users spend on these platforms, will enable the new age of social media to have unlimited business opportunities. Compared with traditional media, it can gain user attention with the lowest operating cost. When you spend time browsing TikTok, ByteDance (the company behind the app) effortlessly creates a never-ending stream for you.
Their costs are limited to content review and maintenance servers, such as Facebook spent more than 500 million US dollars to ask Accenture to help manage content. An estimated 15,000-30,000 moderators sift through content on social networks every day.
andModest PelicanandGirlfriend ReviewsAre my two favorite game reviewers.
Twitch is the de facto streaming platform for gaming-related content today, with all viewers spending the equivalent of 2,500 years a year watching content on Twitch.
But simply watching other people play doesnt provide consistent fun, so some games allow creators to build and sell assets to others, ranging from developing a simple racing game to one that requires complex strategy to win. Suddenly, what players can do is no longer limited to what the developer provides; instead, users can create infinitely new branches of different games based on this foundation.
You can think of it as the difference between releasing a book and releasing a copy of Microsoft Word, and watch what unique stories creators can come up with. Game studios own the intellectual property surrounding the characters and the code of the players world, and they are also responsible for creating the games initial user base.
Games like Counter-Strike and Age of Empires allow players to create unique levels and challenges within the game; Fortnite has a creative mode that allows users to build their own worlds and characters; Far Cry 5s arcade mode includes Custom game levels created by community members. Unlike MODs, in-game UGC usually only requires basic expertise and is usually supported by the games design mechanics. As early as 2012, users have started discussing it.
From game to platform
UGC is a powerful lever for new games and has two core functions. First, they increase the amount of time users spend in the game. Linear gameplay with a progressive storyline is fun, but after the story is over the player has little incentive to continue playing. In contrast, online modes, such as the one in GTA V, prolong the life and profitability of the game. Thats why Rockstars GTA 5 is the most profitable entertainment product of all time, with over $6 billion in worldwide sales.
Second, it allows the games most active contributors to continue investing. As players build their unique worlds within Digital Domain, they develop an emotional attachment to the game. As games become a new outlet for creative expression, the positive feedback gamers receive from other players will serve as validation for their efforts. Essentially, the development of user-generated content will help some users in the game transform from passive participants to active creators.
Most games have a compelling storyline (like Assassins Creed or Call of Duty) and eventually transition to the UGC stage. More recently, games like Fortnite have shown a pattern where users seldom engage in combat, preferring to engage in custom content.
The randomness afforded by massively multiplayer games has successfully attracted many users, who enjoy experiencing the variety of unpredictable gameplay in games. Each game session has different content, which creates an effective feedback loop, and users will participate in the game more because of the anticipation of these mysterious content.
Minecraft and Roblox are exceptions to this rule; they go beyond the platform. A game that has become a platform usually has relatively few IPs and can have fluid storylines, all depending on who is building it. In these games, users spend more time on the original game experience than on the storyline or levels developed by the game studio. Fortnite is in a unique period of transition to the platform. According to reports, users now spend about half of their time in games interacting with UGC.
Transitioning to a platform over time is the holy grail of most games and opens up monetization paths in unique ways. For example, Fortnite has partnered with over 100 brands over the past few years. In addition, games that become UGC platforms can transfer part of the revenue from users to creators.
In 2021, Roblox has more than 1.7 million unique users creating content on the platform. Of these, more than 8,600 earned more than $1,000. Additionally, about 74 developers each netted more than $1 million. However, revenue growth is only one aspect. More importantly, games can attract more attention and participation after transitioning to a platform. In 2021, Roblox users experienced an average of 40 different experiences on Roblox.
That same year, the game went live with over 1,900 play experiences, generating at least one million hours of engagement in a given year. Of these, more than 350 gaming experiences generated more than 10 million hours of engagement. Half of adult Roblox users trade, and 1 in 10 have participated in a single transaction of more than $100.
They have gone from standalone media consumption goods (like TV shows) to platforms where users create most of the experience.
The challenges of user-generated content
UGC is a powerful lever for a game looking to grow into a trading platform. However, it may not always work as expected. Even a large gaming marketplace like Steam struggles to maintain creator bonuses long enough. In 2015, long before NFTs or royalties appeared, Steam had a creator studio division that paid over $50 million to creators of MODs, skins, etc. for several games.
Only 25% of royalties were paid to creators at the time. The program had to be shut down after four months, citing unexpected user behavior.
Roblox and Fortnite are powerful platforms for creating entirely new forms of work. A decade or two ago, it was almost impossible for gamers to turn their time and skills into income. Today, developers make an average of $0.29 for every dollar spent on Roblox. Maybe that seems low, but Fortnite creators only earn 5% of the revenue they generate for the platform.
pagedeveloper economicspage
Thats not to say that the game studios behind these titles are stealing from the creators. They need to invest a lot of money to maintain the game, pay development fees, and platform fees from Xbox, Apple, or Google. In most cases, users are happy to see their efforts pay off. From the users point of view, what they are most disgusted with is the threshold limit required for payment. For example, Fortnite requires a $100 minimum due to high transaction costs. Embedding a Web3 native wallet and using tools such as Stripe to pay in USDC can reduce the payment threshold by a small amount.
The other part of the equation is the enforcement mechanism of copyright today. It is difficult to automatically verify and audit which user created an experience first. Human intervention may be able to help with this type of problem, but it may take weeks. In addition, game platforms may also face the risk of copyright infringement.
Most recently, Roblox paid a $200 million settlement for music copyright infringement. Theyve since partnered with several major studios to embed known tracks within the gaming experience without copyright infringement.
You might be wondering why we care so much about copyright and payment issues in an unfamiliar game, its because these virtual worlds are the workplaces of creators in the future. In 2021 alone, Roblox will pay over $500 million to creators on the platform. Thats a far cry from the $1.6 billion that OnlyFans paid out to creators on its platform that same year. But it suggests that developing, nurturing and maintaining gaming experiences could be a form of employment in the future.
If this is the case, then payment rails and rights management must be done by tools that do not involve human intervention. And ironically, many of the primitives we talk about in the blockchain ecosystem today apply here.
Overfinancialization of games
A few weeks ago, I asked Tegro founder Siddharth Menon which game was the most fun in Web3. He replied that users dont come to Web3 games just to have fun, half of the reason is to make money.
For me, game mechanics that provide fun are a solved problem. Its not new and has been around for years. However, web3 games present a new problem for us, so we have to design Make a game that combines an open economy (with appropriate economic incentives) and fun. The game needs to be designed not only for players, but also for investors and traders. - Siddharth Menon
Thats why Web3 gaming is such a controversial industry for traditional gamers. Today, the industry appears to be built for speculators, not players.
I was in my article aboutArticle on Aggregation Theory and Web3The reason for this is mentioned in . Compared with traditional infrastructure, Web3 greatly simplifies user classification and payment verification, which is much simpler than traditional infrastructure. For example, if you have to pay $100 to a thousand Delaware LLC users, the former is much more convenient.
Onboarding users, collecting their banking information, conducting the necessary AML/KYC checks, and managing payments are all tasks that you will be responsible for. If this process is carried out using a stablecoin on the blockchain, the risk will be transferred to a heavily regulated third-party entity (such as an exchange) and you will no longer have to fulfill these responsibilities yourself. This is especially important in UGC because youll be making two big changes. On the one hand, as a platform, you can use in-game assets to reward users who actively contribute in the early stages. On the other hand, you can create a marketplace for these assets, where users can monetize their hard-earned in-game assets.
In these new transactions, studios will no longer have to pay substantial costs to incentivize creators. Amy Wu explained this phenomenon well in a recent talk:
In the process of maintaining the game, the repetitiveness of the content is one of the biggest challenges. UGC, coupled with token incentives and a liquid market, is an important tool to attract a new generation of creators who would otherwise not pay attention to Web3 games at all. Advances in generative content and creator incentives including tokens are both early and promising - Amy Wu
Ideally, users who have spent time playing games or creating gaming experiences will exchange the assets they receive with those who do not have the time or skills to play games. I was skeptical about this, so we reached out to theSuper Gaming(one of the largest game studios in India)Roby JohnTo comment on this point of view:
Transactions between users are nothing new. I noticed this when I was working on a game that helped clan leaders trade and transfer items owned by certain top clan players to other junior players in their clan.
I never quite figured this out, and after I figured out the logic, I turned it into a feature of MaskGun itself in 2017. Today, blockchain-powered ownership can do this more easily without the intervention of customer support or tools.
Of course, this deprives me of the excitement of being a customer support guy trading virtual AK-47s and SCAR-Hs between tribes before the games wars.
In the absence of infrastructure for players to trade, Roby had to facilitate some transactions himself, and his private messages were full of news like the one below. Were in the age of Craigslist for mobile game assets.
In this case, we need to consider two main factors: the first is the profit motive, which largely influences user behavior and motivates them to engage more with the game and its experience. However, this may cost game studios, who may not see immediate revenue as a result. In the past, developers made money when users bought assets directly from them. Now, that has changed thanks to improved retention rates and lower customer acquisition costs.
Second, game studios may earn more royalties due to digital asset transactions between gamers, rather than instant income when users buy assets directly from the studio. For example, Yuga Labs and Nike have each earned more than $100 million in royalties from trading assets from their user bases.
Games like Axie Infinity were pioneers experimenting with alternative models, while big studios like Epic and Ubisoft were hesitant to disrupt existing user bases with different models, creating disruption for new entrants. There are studio opportunities.
Royalty isnt a groundbreaking feature that games have discovered recently, and todays technology stack could easily enable more developers to earn a portion of revenue every time users trade in-app assets. What makes it unique, however, is the similarity between these on-chain primitives and a complex ecosystem of financial primitives.
Today, most new Web3 games and NFT launches find their early user base among the Crypto natives. These users are used to storing billions of dollars in DeFi and spending the same amount on NFTs. These users familiarity with financial primitives creates a unique opportunity for game studios to leverage Web3 technologies to deliver more value to their users.
fromVariant fundcreator economy pioneerLi Jin, when we discussed this with her, related this aspect:
Using Web3 primitives in games not only gives creators the confidence to own the fruits of their efforts, but also optimizes the speed and means by which they create wealth. Li Jin, a pioneer of the creator economy, said that this may lead to accelerated growth in the future for creators using in-game assets with DeFi primitives, such as tokenizing revenue streams, making loans for custom art, and even raising investment——Li Jin
Users are attracted to the new Web3 primitives not just because they are fun, but also because they make money. They are willing to build bridges for cross-chain assets, participate in secret ceremonies, and join new projects. As their income increased, they began to focus on how to use permissionless assets to increase profits.
Users use the NFT in the game to make loans, issue derivatives to hype its price, and set up a DAO to acquire assets in the game at a large discount. These behaviors are usually not what the game developers intended or wanted to encourage.
While developers may not want the price of in-game assets to crash due to the liquidation progression of NFT lending platforms, there are benefits and risks to building permissionless and composable tools on the blockchain, and it is difficult to predict whether the outcome will be good or bad .
We consulted Gabby Dizon of YGG, one of the largest gaming guilds in the world, to explore these ideas: Building user-generated content on top of permissionless assets greatly improves the existing UGC model. Not only does it allow the community of players to create new content, but it also compounds network effects in ways the original game developers never thought possible. It also provides a fairer means of value transfer and ownership acquisition for creators who make UGC.
Simply put, users who used to be able to perform certain behaviors in a restricted environment now have the opportunity to gain more control over the product itself, but in doing so they may behave in unpredictable ways - you There is only a trade-off between the two. This is similar to how DAOs work, but a little more interesting.
Guide UGC economic development
Web3 native games transitioning to UGC platforms usually follow a similar development path:
· All games start with a major product that attracts thousands of users.
· Once enough users are playing the game, the next step is to introduce scarce assets that can only be obtained by playing the game for a long time. These tools often give their holders a slight advantage in earning points or winning games.
· Traders and players who do not want to spend their time playing the game can acquire these tools at a price determined by the free market.
· At this stage, games are incentivized to launch their in-game marketplaces to deter scammers and provide a safe environment for users to trade.
· If the market is liquid enough and transactions happen in an orderly fashion, developers can introduce native assets like Robux or Fortnite’s V-bucks, the economics of which will vary by game, but can be used to incentivize users to trade in In-game content.
But why go to the trouble of rewarding users with on-chain tools that allow them to trade or take out loans? Passing asset ownership to users has two benefits. First, it allows users to imagine and create new uses for assets beyond the original intent of the developer, such as building a lending market or creating an in-game DAO.
The second reason for rewarding users with on-chain tools is that it helps determine the fair value of assets in the game before publishing user-generated content. By implementing it upfront, it reduces the likelihood of the platform being overwhelmed with a crap experience designed specifically to receive airdrops. This challenge is currently prevalent in DeFi and NFT-native products, making it impossible for founders to determine the actual size of their user base, since most users may only use the product to obtain airdrops.
The price of virtual land has dropped significantly, but Decentraland is still outperforming its peers (see Metalands Dune page)
Sandbox and Decentraland are at the forefront of UGC in the Crypto space. They use native tokens to motivate creators and provide a platform for traders and creators to cooperate. But they ignore the fact that unless you have a large enough user base interested in the joy of using your product, ecosystems are hard to sustain. Traders often buy plots of land or development experiences in anticipation of future profits.
But like Chinas ghost towns, unless there are real people looking forward to spending time in these virtual worlds, the prices of these assets can quickly collapse.
UGCs are likely to be stronger if they are built with a focus on player motivation. If Web3-native games can be compensated in terms of monetization, then there is nothing wrong with it being a little less fun. Most of the users we see in the P2E economy come for the extra revenue it generates. A user like this may have an evolutionary arc. Over time, users will earn enough money to purchase in-game assets and trade them.
With enough profits, players can rent assets to other players, similar to the guild model. At its peak (in terms of commercial value to the game) - players will be skilled enough to build a unique gaming experience, form and form a community around it, and earn passive income.
GamersMost Web 3 native studios are currently missing out on the evolution of gamers, who move from earning income directly related to playtime to actively creating and managing gaming experiences.
We often think that primitives in DeFi, DAOs, and NFTs have no value to ordinary people. In order to realize the value of these primitives, they should be integrated into the game and attract a large user base.
A would-be game creator can raise money from their peers by setting up a DAO, and contributors get a share of the experiences revenue. This is similar to how traditional developers acquire and develop properties, and we may see some studios specifically creating experiences in Web 3 native virtual worlds like The Sandbox.
That might seem far-fetched today, but considering that over 70 developers will make over $1 million on Roblox in 2021 (with seven more over $10 million), anything is possible.
As the ecosystem around Web 3 native UGC grows, we will witness targeted marketing to the most active wallets on-chain. This would benefit games trying to scale by offering discounted attributes and similar incentives to creators who have built a great experience across different titles.
Just like nation-states provide incentives for entrepreneurs, games and protocols lock in the most active wallets through in-game interactions.
The Creativity Gap Most Web 3 games right now are focused on transaction rather than creativity. To attract more users, we need to shift towards fostering creative expression. The social network made this shift about a decade ago and made it a much more enjoyable place to hang out. Web 3 gaming platforms can do the same when they do this.
As creators earn more, they become less concerned with capital and more concerned with their impact. For these individuals, creative expression becomes a priority. That may sound unrealistic, but consider that just last year, a user received $5 million from the Fortnite creator support program. Even more amazing is that this user generated over $100 million in revenue for the game.
Consider that younger generations like Gen Z and Millennials often struggle to afford traditional assets like real estate. Moreover, with our current technology, it is impossible to develop space assets. Our ownership and sense of value often exist in digital assets. Its not fair to compare a physical home in New York to a virtual property in Decentraland. However, those who enter the digital space early have the potential to reap handsome profits, even more so over the next decade.
Unlike before, the internet allows us fair access to opportunities. However, we have already seen some new things, such as ICO and NFT, are milking the assets of retail investors. In the gaming industry, simply being an early adopter is not enough to reap the benefits. Creators need to build what users want to prevent the emergence of digital ghost towns.
The challenge of most games is to balance the relationship between community and profit motives. The profit motive of asset owners can lead to very poor decisions, as we have seen in protocols and DeFi primitives-this is part of the reason why we want to gradually introduce UGC in the game. At the same time, a sticky community is very important for a sustainable market.
Regulators need to recognize that games are channels for work and not just for entertainment, and maybe in the future we might see creator alliances form in games. Investors may view in-game experiences as SaaS offerings. Finally, and most critically, creators also need to understand how to use their newfound ownership.
This brings us back to how we thought about how people could leverage smart contracts back in 2016. Well leave you with this fun game based on Indian futurismtrailer, weve been following for a while, and it may have some relevance to what we just wrote.
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