Gaming is big. Not just in web3, but in “web2” as well, where the over-$200bn industry routinely leaks into the broader mainstream through announcements like “Netflix to release 40 more games this year” or “Amazon Makes New 'Lord of the Rings' MMO Game.” And it might just be web3’s most important subsector, where it makes up nearly half of on-chain interactions. So, when gaming activity is down, web3 feels it.
What's next after "play to earn"?
With the recent decay of the “play to earn” narrative, web3 game studios are increasingly turning to the tried-and-true methodologies of traditional game marketing, e.g. ads & paid news blitzes. But these activities can overwhelmingly come with high costs, and, notably, engagement numbers across web3 community spaces have been dwindling for some time, signaling that perhaps traditional vectors are either insufficient or incorrect for addressing web3 gaming’s target audience.
Fortunately, commoditized web3 solutions have popped up to help reinvigorate engagement. While these UA methodologies are still experimental (and, in some ways, throwbacks to older methodologies), early tests look promising. Projects building out “quest” systems, vampire airdrops, and community guilds brokering players have blossomed in the space thanks to a spat of semi-recent funding rounds validating their new efforts.
Direct incentives and "nouveau-advertising"
From our perspective, we view these efforts favorably as “nouveau-advertising." and expect developers to recognize a lower cost per install (CPI) than traditional gaming. This is in no small part thanks to the power of direct incentives, which, in the digital asset world, may be a substantially better “pull” for users as opposed to inorganic advertisement "pushes.” But, we note that this reduction in cost is likely to only be appreciable if the observable userbase inside of web3 gaming is large enough to satisfy the complete user metrics demands of these incoming studios, i.e. this only works if there are enough people interested & watching web3 gaming, else the studios will need to resume traditional advertising to capture a broader sum of players.
But, assuming that web3 continues its march towards global adoption, we view the digital asset ownership narrative as a powerful force for capturing attention at a lower cost. User ownership via digital assets is akin to “pre-order” or “signup bonuses” in the traditional gaming world, inasmuch that users feel they are receiving something of value in exchange for their time or primacy in an environment. Digital assets take that one step further by enabling users to hold or own bearer-type electronic assets, which before was not possible.
Cost of user acquisition
It’s important to consider the hard numbers behind current costs, as we’ll revisit this article later in the year to determine how these new “web3 user acquisition solutions” panned out. User acquisition in AAA PC gaming is sometimes nearly as expensive as primary development, and marketing spend can reach up to half a billion dollars. Such marketing often involves more art than science, as campaigns span a large variety of delivery media, and distribution is slightly less convenient as not everyone happens to be carrying an ultra-high performance gaming PC in their pocket (unlike ubiquitous mobile devices).
Mobile gaming, on the other hand, leans in the opposite direction, with readily-available industry-wide statistics and benchmarks giving us a clear picture of the science behind the spend. Costs per install vary widely by both target distribution platform, game type, and audience, but broad industry benchmarks sit at around $1-2 in cost per install.
These benchmarks give us a good starting point for examining the new field of web3-native user acquisition solutions. While it’s too early to examine sufficient data on if these new solutions can beat the entrenched “web2” approaches, it’s our expectation that web3-native solutions are likely able to drive substantially lower CPIs than those experienced by traditional games, as a consequence of a) the nature of digital asset ownership compelling native web3 players to experiment in new environments, b) the unique constructs that have come together around “quests” for specific actions which have been well-received in web3 communities, and c) the continued presence of large “guilds” (effectively pseudo-esports organizations) that drive player flows between different games in web3.
User retention is key
Importantly, however, user retention is one key area of risk that we highlight when games begin to lean on these more mercenary web3 solutions. DeFi protocols too often have seen mercenary capital come in while the yield is good and leave just as quickly. Dedicated web3 gaming user acquisition channels may prove to be similarly fairweather friends to developers, but, given that players generally are amenable to being convinced by strong gameplay, we expect the cream to rise to the top and true games to recognize true cost reduction utilizing these new user acquisition channels.
We’ll be watching over the rest of 2023 to see how this subsector plays out, and provide a more detailed update towards the end of the year to evaluate its success.