The Evolution Of Game Monetization: The Gamer-Led Economy
Why Gaming Monetization is Changing
Every decade, game developers radically shift their monetization methodology. Each shift has been driven by developers looking to maximize game revenue, often compromising on the quality of their games. Every game became a reskin of a popular competitor and as a result, the player experience has suffered. There was no middle-ground where game monetization and player experience both benefited, until now.
Blockchain is enabling the foundation of a new, open gaming economy that allows game developers to maximize game revenue while giving players an exceptional in-game experience. This model both incentivizes players to spend more time in-game and developers to create experiences that draw players in for longer periods. Aligned incentives through monetization will lead to a golden age of gaming.
The 2000s: Paid games
The most basic game monetization carried us into the early 2000s: pay for the game itself, $60 for a Playstation 2 game. While this worked well for many years, it led to slow growth in the market and misaligned incentives. Game developers needed players to finish games as quickly as possible to get them to buy new games, leading to a measly 6% year-over-year growth in the industry. An industry that was worth $11.5 billion barely was growing, and the games were the problem. Game loops were repetitive, innovation stagnant, and gameplay non-immersive.
Whether you spent 1000 hours in-game, or 10, game developers made the same amount of money. Game developers want gamers to play less, while gamers want to play more.
The 2010s: Freemium Games
Monetizing time players don’t want to spend in-game
Mobile became the dominant distribution platform in the early 2010s and freemium emerged as the primary monetization method. The games were free, bringing in a flood of new users, but the monetization strategy was to have players purchase items to get further in the game, instead of earning them. This led to 0.1% of the players being monetized to their maximum potential and 5% of users made up 100% of game developer revenue.
The games were being developed for non-gamers; for players that were interested less in the journey of a game and more for the adrenaline-inducing “quick-win”. While it created short-term profits for game developers, it left money – and experiences – on the table. Instead of creating long-term fandom that guaranteed recurring revenue with each game iteration, game developers designed games that led players toward buying items that are overpowered and impossible to earn in-game. The irony of the IAP model is that while it allows game developers to monetize more effectively than paid games, it only monetizes players who rather purchase items rather than play the game to earn them. The learning? Game developers wanted gamers to purchase more items, while gamers just wanted to play the game.
The 2020s and beyond: Open Economies, monetizing time spent in-game
An open economy represents the first-ever true alignment of game developers and players; highly profitable games combined with the immersive gaming experiences players want. Games that allow players to earn and retain value in-game lead to higher ARPUs and better distribution of revenue across a higher percentage of players than the freemium model today.
Blockchain is the correct technology to facilitate an open economy in-game. An economy that has free trade is powerful, but one that has open borders and the free transference of items and value not only within it but also outside makes it more valuable. A great analogy would be to think of an open-world game not built on blockchain as a country built with closed borders; as with real-world economies, open borders make economies more valuable.
NFTs are in-game digital items representing the value a player has created. As you would have a unique sword within a game like World of Warcraft, a NFT gives you the ability to have a unique item within a “digital worldwide economy”, giving it provenance, authenticity, and composability.
Roblox is a perfect example of a player creation, open economy, and UGC platform that does an unbelievable job at creating a player experience that is immersive and rewarding. In 2021, ~38 billion hours will have been spent in Roblox; for context, that is 1.58 billion days, and 4.33 million years. Roblox monetizes well through premium currency “Robux”, on track to make about 2 billion revenue in 2021 and averaged 190 million monthly players, their ARPMAU (average per monthly active user) is about $0.88. These are statistics and monetization models that belong in the 2010 era, not in a blockchain world and beyond.
Through a different lens, one that is more reflective of how to monetize an open economy, Roblox is making $0.05 per player per hour. Play to earn games like Axie Infinity make between $0.15 to $0.45 per hour, per player; and even more, if you consider their stake in the economies they build through treasuries. By allowing players to retain the value they are creating in-game with NFTs, the overall economy becomes more valuable, this value can then be accrued to treasuries, revenue streams, or earned by guilds. Being a play to earn economy doesn’t eliminate developers from selling items directly to players, but instead lets them monetize what they have an ever-increasing supply of; players time in-game and rely less on what they have an ever-decreasing supply of; whales who spend thousands of dollars in purchasing items. Different models emerge every month on how play to earn games can monetize better off players’ time spent within them, but there is no question that a revolution is coming and gaming is radically changing for the better.
We’re heading into a golden age of game developer and player alignment. Paid games, freemium, and now open economies will lead to more revenue for developers, enjoyment, and value for players. As more games join this ecosystem of open economies, we will start seeing items being used within multiple games, the future of play to earn guilds, and an interconnected world of games in a broader VR Metaverse.