The gaming revolution is in full swing, with over one-third of the world’s population embracing the fun and excitement of playing games. From hardcore console fanatics to casual mobile players, more than 2.7 billion individuals worldwide engage in gaming across mobile, PC, and console devices today.
The appeal is clear, as outlined by one of the co-authors previously — gaming simultaneously fulfils the need to escape from reality, the need to belong to a community and the need to achieve. Web3, in particular, represents a significant evolution in the gaming industry, as it shifts the traditional power dynamic between players, game developers and game publishers.
Web3 games empower players by offering them shared ownership and financial value, transforming them from mere consumers into active participants. By democratizing access to ownership and value, Web3 gaming creates a more equitable and inclusive gaming experience.
Yet the state of Web3 gaming remains nascent, with general consensus among industry participants that we are at the tail-end of the first “market cycle”. In this first cycle from late 2019 to early 2022, popular play-to-earn games like Axie Infinity introduced millions of gamers to Web3. It would be unsurprising to see the next cycle familiarize an even larger swathe of gamers with Web3, even as US$4.5B of funding was poured into Web3 games in 2022.
The plethora of choices gamers have today will further expand as these Web3 games mature through the development cycle. As gamers experience a mind-boggling and ever-increasing array of options, how can pre-launch Web3 games position themselves for success in the next cycle?
We believe the answer lies in selecting the right ecosystem partner to build and publish with. By choosing a partner that is aligned, Web3 games can expand audience reach, support user data sharing, safeguard interests, and support creators.
Also Read: Don’t just build a Web3 community, start a movement
These ecosystems often offer valuable resources such as dev resources, marketing support and user access, thereby helping Web3 games stand out in what is likely to be a hyper-competitive market when the next bull cycle begins. With a growing number of ecosystems, how should Web3 games identify the right partner to collaborate with?
Expanding audience reach
All that glitters are not gold grants. While ecosystems often invite Web3 games to partner up through the disbursement of grants, often in the ecosystem’s native token, we think the primary consideration of Web3 games should not be related to the grant.
While it is tempting to go with the ecosystem that dangles the most attractive “carrot” with a sizable grant amount, founders should take a step back and consider two questions: what is capital used for, and are there more challenging problems to solve than capital access?
On the former, the two largest expense categories for Web3 games are product development and user acquisition, in sequential order. With the average initial funding round approximating US$2.5M to US$5M, Web3 games are likely to invest the majority of funds in product development, only to find themselves with limited remaining capital for user acquisition.
While pursuing subsequent fundraising rounds emerges to be a viable and popular option, the first-principle question Web3 games should ask themselves is — can the ecosystem partner reduce user acquisition costs and expand distribution reach efficiently?
As it turns out, solving for user acquisition for Web3 games often turns out to be more challenging than capital access. In spite of the funding slowdown in current market conditions, there are still a sizable number of investors, individual or institutional, who are actively investing in Web3 gaming (one of the co-authors leads a venture capital fund that actively invests in Web3 games).
As such, we believe that solving for efficient user acquisition is more complex than accessing capital. Thus an ecosystems’ existing distribution and audience engagement are one of the most important criteria Web3 games should consider when picking an ecosystem partner.
Enabling users to share first-party data
Related to the two largest expense categories for Web3 games — product development and user acquisition — are the perennial questions of “How can we make our game attractive (to new players) and sticky (to existing players)?” and “How can we bring a gamer in for as low a cost as possible?”
These are questions that can only be well answered with data — not just third-party data from in-game actions or on-chain transaction history, but also first-party data around an individual’s preferences, behaviour and peculiarities.
Today, most of this first-party data exists in walled garden silos – the likes of Twitter, Instagram, Twitch, YouTube, among other social media platforms. Accessing this data requires the individual’s consent, and it is the role of the ecosystem to facilitate or even incentivise users to share their first-party data.
As discussed in an earlier piece on incentives around data sharing, incentive mechanisms are varied – from simplistic “pay-to-play” to removing Web3 friction such as gas. Ecosystems can play a role in experimenting with these mechanisms, with the eventual goal of unlocking first-party data on behalf of Web3 games, as in the case of Sky Mavis’ partnership with Qu3st to synthesize on-chain data with first-party data and create user segments.
The case for ecosystems to be the first-party data aggregator instead of individual Web3 games is clear. Firstly, users want permission for first-party data sharing as few times as possible, and the friction of permissions every Web3 game an individual interacts with is counterproductive.
Secondly, the synthesis of on-chain and off-chain data across multiple sources, each with different formats and granularity, is complex and requires non-trivial engineering effort. Instead of diverting resources away from core game development, Web3 games can begin to look to ecosystems that help unlock the potential of users’ data.
Thirdly, ecosystems play an important role in fostering trust — a fledgling Web3 game asking an individual to connect socials for data sharing might be met with scepticism and uncertainty over privacy and security, whereas an ecosystem often carries more credibility and projects confidence.
Safeguarding the gamer experience
The protection of an individual’s privacy and security extends beyond first-party data to encompass all interactions between the gamer, the game and the ecosystem. Given that a core tenet of Web3 gaming is the creation and sharing of economic value, it is certain that bad actors will emerge to seek profiteering opportunities through hacks, fraud, deception and other devious schemes. As such, the onus is on both the games and the ecosystem to safeguard the gamer experience.
Also Read: Echelon: Unlocking global growth opportunities with Web3
Interestingly, this could be an opportunity for newer, smaller ecosystems to leapfrog mature, larger ecosystems. If the sole criteria for ecosystem selection were audience reach (the first criterion outlined in this article), mature ecosystems such as Ethereum would almost always emerge as the preferred choice (save for its other shortcomings, such as high costs of transactions).
Yet Ethereum is an open, largely unpoliced ecosystem where fraud is rampant, malicious smart contracts are abundant and mostly masked behind technicalities that are incomprehensible to most. This presents an opportunity for more secure environments to foster user confidence and trust – a gap for ecosystems that are more agile and well-designed to fill.
Nurturing creators to expand UGC
As Web3 games empower players with shared ownership, another pertinent question Web3 games should consider in selecting ecosystems is the support for user-generated content (UGC) by nurturing creators. UGC forms a key growth driver for Web2 and Web3 games alike, allowing players to create and share content and fostering a sense of community and player engagement.
Also Read: Web3 gaming: The next big thing in online entertainment
A trend we have observed from the first market cycle is a tendency for Web3 games to return to the same few content creators and influencers — often, those with sizable distribution and reach. This influencer base tends to be relatively narrow as Web3 gaming is nascent, resulting in the same few individuals monopolizing the share of voice.
We believe this may also be counterproductive for Web3 games, even as these influencers promote multiple games a week, resulting in weak brand recall among audiences.
Going forward, we see increasing importance in the role of ecosystems to nurture gamers to become creators and get rewarded for sharing their experiences. In a recent pilot by Qu3st in collaboration with Axie Infinity to encourage UGC, 70 per cent of submissions were from first-time content creators. While the incentive mechanism was simple — the first 100 gamers who submitted UGC would receive a reward, the flywheel effect this sparked was a positive surprise.
After the campaign, a significant proportion of participants created subsequent pieces of content, with quite a few gamers even starting to live stream their gameplay consistently. This writing on the wall is clear — ecosystems, alongside the games they support, can create simple yet effective quests and campaigns to nurture creators. Not only will UGC deepen engagement with gamers, but it will also extend game longevity and contribute towards the “fun” experiences players seek.
Building and publishing a successful Web3 game is no easy feat, especially when more than half of mainstream gamers remain unfamiliar. With only 12 per cent of gamers having tried playing a Web3 game to date and a further 15 per cent who have not played but are interested in doing so, it can almost be tempting to write off Web3 gaming as a niche interest for a select few.
Yet we believe that mainstream adoption of Web3 games will accelerate in the next market cycle, with the close-knit support from the ecosystems that envelop these games. These ecosystems can broaden audience reach, facilitate data sharing, protect gamers and nurture creators, which in turn positions the games they support to stand out in the crowded market for gamers’ attention.
This article has been co-written by Hantao Yuan, Co-Founder of Qu3st.
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