The Risk of Ignoring WEB3 Gaming

Jan 4, 2023
The Risk of Ignoring WEB3 Gaming

The Risk of Ignoring WEB3 Gaming

Why We Wrote This Post

Recently, we found ourselves spending time in a great meeting with amazing founders and leaders in the gaming industry. Some of them are indie developers and some are executives in top gaming publishers. Most of the teams are working with web2 games or building new games. We felt that it would be valuable to summarize and share our experience and insights.

If It's Ain't Broken, Don't Fix It

Before speaking on WEB3 games and opportunities, it's important to focus on WEB2 games challenges. Because if there is nothing broken, the motivation for a new innovation layer is weak. Running a successful game is always hard, but it is becoming increasingly clear that traditional web2 games are struggling to attract and retain players.
People claim that games are still strong and that F2P is still the most profitable model, but that doesn't mean it's a good opportunity for new studios. Most of the value is generated by a small number of titles. Read more about it in this post (link). So before we move forward, we must admit that the WEB2 games model is flawed.
This is how one of the industry (web2) leaders we met described the situation: "If nothing changes in the next 2-3 years, the gaming industry will die. But since we know that's not a realistic scenario, it's inevitable that the industry will experience changes, innovation, and new initiatives."

Games Can't Keep Spending Money In Negative ROI

WEB2 games are relying more and more on performance marketing in an attempt to stand out, but this can be expensive and often results in a negative ROI. Even the biggest publishers are feeling the effects, as they shut down game studios and cut marketing budgets. Small and medium studios are struggling to raise money in a tough market and growth fund capital is more limited.
In the fundamental equation of CPA < LTV (or CAC < LTV), it is more reasonable for games to invest resources to increase LTV rather than waiting for lower user acquisition. There will be more space for games with rich narratives, deep content, and meta features and less for hyper casual games.

WEB3 Is Far From Being Perfect

A lot is being said about WEB3 and the opportunities it brings: community economy, digital ownership, connectivity, assets, decentralization, better UGC, and interoperability. At first glance, it might sound like the perfect candidate for being the next growth channel for a game while increasing the player's LTV. But that's not true. The right business model for web3 games has not been defined yet.
Play-to-Earn, Play-To-Own, and being related to a crypto game token have not proven themselves so far. Yet, they were all necessary milestones in the evolution, and founders are still looking for a sustainable business model. On the other hand, we have never experienced such significant hype that has attracted talent from all over the world with massive capital to join forces and build a new age of games.

WEB3 Is Not The Only Alternative

It's impossible to predict which revolution will change the gaming industry or any industry. Will it be specific content or a genre? Maybe a new marketing source or a new way to approach the next generation of players? There is a wide range of opportunities: generative AI for art, transformation of games to be part of metaverses and become social platforms more than games, VR or AR, a new version of Roblox, or involvement of brands and ecommerce in games.
What we find exciting about WEB3 is that it's a concept, not a technology or new capability. WEB3 is not an alternative to all these opportunities; it can leverage them, with or without a blockchain, with or without crypto. WEB3 prioritizes the power of players, creators, and communities and gives them true ownership for their effort.
The problem with WEB3 is that it takes time to develop the right experience, economy models, monetization models, and right tech. That's why we believe it's riskier to ignore it. Games won't be able to adopt the concept fast enough without giving the minimum required attention and being updated with it.

Whatever a game studio thinks about WEB3 at this stage, and unless it's in hyper growth status, we suggest staying updated, researching, and being closer to WEB3 updates.

The last, and not least, advice is to be open to new opportunities, but remember that in data we believe. It sounds trivial, but WEB3 games tend to PR themselves more than we're used to seeing. Fortunately, the data is more open and anyone can easily see game performance.

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