The gaming industry has come a long way from crude PvP games on 8-bit displays. Today we have games that have expansive virtual worlds, lore, and in-game currency.
As Daniel Bell’s famous quote goes:
Technology, like art, is a soaring exercise of the human imagination.
Games, laying at the intersection of technology and art, are a testament to this. Moore’s Law holds true here — much of the accelerated growth in the space can be attributed to the sheer rate of technological progress we’ve achieved.
This becomes even more evident when you consider the past few years, during which the entire gaming industry underwent a significant metamorphosis. Improvements in tech that gave rise to smaller and better processors brought gaming to the masses, and further advancements in smartphones, cloud computing, blockchain technology, and AR/VR, introduced a new paradigm shift in the gaming landscape. Games in 2022 are nothing like the games before them. While mobile gaming made games more accessible, the gaming experience is nowhere as good as playing on a dedicated console or PC. Breakthroughs in augmented and virtual reality tech made gameplay more immersive than ever, and fungible and non-fungible tokens (NFTs) enabled players to explore new financial incentives.
When it comes to NFTs and other blockchain technologies, there has been a recurring theme of games incorporating web3 elements into their projects without fully understanding player behavior.
Currently, many games developers rely on theoretical archetypes as laid out by the Bartle Taxonomy; however, these categorizations do not contextualize the recent shifts in player behavior, and hence fall short. For example, blockchain technology enables true ownership of game assets, which gave rise to a new mechanic of game asset “renting”. Players can now rent out their game assets to other players and share the profits. This is something that is both impossible and unheard of in web2 games.
Hence, game developers need a better understanding of their users to anticipate and build functionality for new player types that are unique and native to web3 games.
In this article, we’ll be talking about how technology has dictated, altered, and influenced both game design and player behavior — and more importantly, how it will keep impacting the way players interact with games.
(Evolution of gamers. Credit: unknown)
Arcades and high scores
Arcades were the first venues to make gaming mainstream. Players could come in, deposit their quarters into a machine, and start playing. These games were low on content and were designed in a way that made it more challenging as the player progressed. Once the game would end, the player would be given a score, which represented the progress they made in-game. There were also P2P games like Pong, where players would compete against other players to score the highest points in real-time.
Arcade games were fun to play, but their real appeal lay in the scores. Most players focused on beating their friends’ Pac-Man scores, while gaming prodigies would have their eyes set on making it on the high-score leaderboard. This ingenious move of creating social competition for winning higher scores turned arcade games into lucrative behemoths.
Rise of console gaming
Improvements in storage and processing technology helped games move from arcades into the players’ homes with portable consoles. As the constraints of storage and playing time were removed, there was no longer any restriction on how long you could play a game.
Games hence moved away from a pay-per-play model to a pay-to-own model, which in turn led to the creation of content-heavy games. Console games have long, engaging storylines and game arcs, which the players can complete at their own leisure.
The focus was no longer on scoring the highest, but on ‘completing’ the game. As players completed the game content, publishers would release further expansions, sequels, and spin-offs to keep players engaged. Selling games this way not only got the player hooked but also greatly increased the revenue for game publishers.
A collection of all games in the Pokémon franchise.
Console manufacturers also saw this trend, and started shifting away from cartridges and CDs to DLCs (downloadable content). DLCs facilitated endless cosmetic and optional content (e.g., unseen cutscenes, additional game skins, new unlockables), but its biggest achievement was setting the stage for the next revolution in gaming — the Internet.
Era of free-to-play and the Internet
The Internet was an inflection point for the gaming industry. As more and more games went online, it gave them access to the incredible distribution of being on the Internet — the 5+ billion users who use the Internet were now 5+ billion potential players.
Wider distribution meant games could finally explore other novel forms of monetization. The Internet enabled massively multiplayer online real player games, or MMORPGs, where players could team up with other players in real-time, and compete against one another on a global scale. This gave online games a unique social nature and led to the creation of global gaming communities.
Most of these MMORPGs are F2P (free-to-play), which meant that anyone could start playing the game without any upfront investment. Additionally, cheaper and more powerful smartphones paved the way for mobile gaming, which introduced a major transition in F2P game monetization. Games like Candy Crush Saga and Puzzle & Dragons borrowed gameplay concepts from social-network games (limited turns per day) and offered players the use of in-app purchases to refresh their in-game energy to play more turns. These games ended up generating incredible revenue numbers and soon became the standard for many mobile F2P games that followed. As the popularity of these games grew, the developers introduced newer monetization mechanisms, like optional subscriptions and micro-transactions.
In modern F2P games, players could for instance pay a fixed monthly fee to gain access to exclusive in-game perks, or purchase rare items that would either be very difficult or impossible to get via regular gameplay. Some these items and perks help players accelerate their game progress (Fortnite’s Battle Pass) while others are purely cosmetic, allowing players to elevate their social capital within the game’s universe.
Fortnite allows you to customize your avatar with a range of free and paid skins.
The game economy also capitalized on the motivations of the “frustrated player” — if making progress was growing to be difficult, players could now pay their way to the top of the leaderboard.
The F2P game design ensured that a maximum number of players were enabled to play for as long as they wanted to. This in turn facilitated higher revenues as longer play duration increased the odds of in-game spending. Hence, there is virtually no cap on the potential revenue that can be generated via F2P.
Online gaming also introduced gaming as a career option. For the first time, players could indirectly earn money by broadcasting themselves playing games. Game streamers with large followings can now get paid by streaming platforms like Twitch and YouTube, or ad sponsors to create content and engage their watchers.
Popular Twitch Streamer and Fortnite player Ninja
All these technological shifts have changed the way game developers incentivized and motivated players — from collecting coins via arcades to selling narrative continuations via expansions and DLCs, and grinding and farming to get ahead in MMO games.
Games attract a myriad of different player types, with every game genre catering to players looking for a particular kind of experience that matches the technological platform, business model, and the player’s motivations. The technological changes inherent to web3 gaming have created new player behaviors and business models around them. In the following, we lay out some of the ways blockchain technology impacts both player and non-player behaviors.
Advent of blockchain and web3 gaming
Most MMOs have some form of in-game trading, but it was always restricted to the confines of the game itself. For example, Darza’s Dominion has a player-made economy where players can use potions to trade in-game assets like skins, pets, items, and more.
P2P trading on Darza’s Dominion
Valve tried to push the concept further by introducing the Steam Community Market, but it was again constrained to a specific ecosystem, and nothing could be bought or sold directly — all transactions had to happen via Steam Wallet only.
Community Market on Steam
Blockchain technology and its implied financialization potential aims to disrupt this part of gaming. Players have true ownership of their game assets and are allowed to conduct decentralized and unrestricted trade outside and between game ecosystems. As a permissionless ledger, blockchains grant players the ability to exchange assets for money without the need for any mediators.
This optionality has given rise to numerous new behaviors in and around games, some of which are analyzed here:
- The Profit Maker: The ability to trade in-game currencies and items for real currencies means that players can now calculate a financial ROI or profit. For the player, intrinsic motivations like “this game is fun” and “this game is challenging” are replaced by extrinsic motivations like “I can make money by playing”. A game with a well-designed economy can convert retail speculators who are financially motivated into deflationary players for the game economy.
- Collectors: Humans are hoarders by nature, and some carry this trait to the virtual world as well. There was always a subset of players obsessed with collecting things in games, but the relevance and value of their collections were restricted to the game and could only be shared via screenshots or videos. And since items could not be traded in such closed ecosystems, many players were left with incomplete collections that they cannot show off publicly. However, with NFTs, players now have access to tradable assets with provable rarity, issuance, and ownership. This attracts players who are more passionate about collecting game assets rather than playing the game.
- Pre-sales: Game developers can either make money to create games or create games to make money. One of the ways web3 allows game developers to do the former and get players to commit is by a pre-sale.
A pre-sale prompts players to invest money into a game ahead of its launch, in exchange for some form of in-game bonus, which they receive only once the game is released. The ability to pre-sell items as an NFT or organize an NFT mint allows game developers to give future players an asset to hold on to before the game launches, that they can opt to keep or trade. This enables passionate game fans to fund their favorite games’ development, and also allows game NFT investors to make decent profits by reselling NFTs to later fans.
- Peer-to-Peer Pay-to-Win: Ordinarily, pay-to-win games are designed so that game developers can profit from sales of in-game currency or items that provide an advantage within the game. Players who make high volume in-game purchases are called whales, and have the highest contribution to the game’s revenue; over 90% of in-game purchase revenue comes from these whale spenders. Open economies create a channel for regular players to also profit from these big spenders. The combination of artificial scarcity, pre-sales activities, and interoperability enables players to invest and trade in-game assets that are in demand. For example, if you own a rare potion, you can potentially sell that item to a pay-to-win player for real money. This behavior is reminiscent of trading card investors who exploit rarity to generate profits through secondary market sales — regardless of whether or not they play the game. Having an active economy for game assets also allows players to exit a game while recovering some of their investment (both time and money) by selling their items to other players.
- Passive Income: Most game genres (except perhaps idle games) require you to actually play the game to accumulate game assets. In web3 games and DeFi-inspired game ecosystems, asset owners can earn passive rewards and yield via the renting or staking of assets. Many other games and DeFi-inspired game ecosystems also allow for asset owners to be rewarded through the staking or renting of assets. This goes for playable assets like trading cards or characters, as well as geographic assets like virtual land.
Metaverse games like Decentraland let you rent out your land NFTs for money.
This motivates players to rent out or stake assets they are not actively using. Axie Infinity has an entire guild economy centered around passive income generation — cash-rich time-poor Axie owners rent out Axies to time-rich, cash-poor scholars (usually players based in developing countries like the Philippines) to earn passive income.
- Artificial Scarcity: Online games may have rare assets, but there is no transparency on the level and extent of rarity. Additionally, this rarity is relevant only within the context of that specific game; for instance, a person who does not play CSGO would not care about a rare gun skin. Web3 solves this problem with smart contracts, which add a layer of transparent verifiability to digital assets, removing the need for them to be constrained to a specific closed ecosystem. This, combined with the ability to dictate rarity via code, allows for a system of value from scarcity that only previously existed in less liquid environments (e.g., collectors’ items with mint numbers or extremely low print runs). This provable uniqueness has led to players valuing the rarity of the asset more — both economically and socially. However, the scarcity of these assets can also distort games when it comes to players monopolizing limited content or limiting player growth.
- Retention: True ownership also means a stronger sense of loss. Since NFTs can require significant capital to acquire, players will naturally try to make a profitable exchange out of it. The sunk cost fallacy of this might imply that players in the web3 context would quickly divest their assets, but it is observed that some of them actually stick around due to other incentives. Many games reported that most players do not play the game; instead, they end up holding on to NFTs for various reasons (collecting staking rewards and potential token airdrops, in-game events, access to the community, speculating a higher price, and more).
Web3 gaming is flush with talent and capital. Many seasoned executives from web2 corporations have switched to web3, and over $4.1B was invested in the first half of 2022. In spite of these developments, we are still very early. To put it in perspective, currently there are ~2,000 blockchain-powered games, while Apple’s App Store alone has over 1 million games.
According to a report by Naavik, blockchain gaming is moving towards its third era of games:
- The initial era of blockchain games was led by the likes of CryptoKitties, which showcased the NFTs and asset ownership, but faced severe scalability bottlenecks.
- The next generation of games marked the rise of big names like Axie Infinity, which built a real, scalable game, but lost on economic design by prioritizing unsustainable earnings over fun.
The much-awaited third era of crypto games will be built with the learnings of the previous two eras. These games will use various scalability solutions while avoiding economic flaws to prioritize fun over player income.
2023 will be a big year for web3 gaming with many games slated for release, and it is possible that the first web3 AAA game will also be released in that year.
In the pre-web3 era, online games were primarily a vehicle for monetization. In the web3 era, however, players have many different motivations to participate in games, even after losing interest in the underlying game itself, many of which are tied to the economies within the game. Hence, one of the ways games can create a sustainable and meaningful gaming experience is by leveraging data to understand user behavior and how blockchain technology and digital assets influence it.
Open economies bring cascading player behavior and increase the complexity of managing an in-game economy. This is why the economic design of a game need as much attention as the gameplay itself. It is easy to say that “players are players, they just want to have fun”, but one cannot ignore the influence that ancillary behaviors have on gamers (even traditional ones) when operating in the web3 space.
Moving forward, it will be interesting to witness how different developers will handle different actors within their game economies.