Over the past year I’ve been in web3 gaming, and especially over the past ~6 months I’ve been supporting Sam Peurifoy for Hivemind’s gaming / metaverse vertical, I’ve seen many ebbs and flows as the web3 gaming space discovers uses for blockchain technology.
Of these changes, there have been a few that represent core shifts in the industry’s focus. However, among all these focuses, there is one that represents a fundamental shift in the direction of web3 gaming: “Web2.5.”
Web2.5 is a catch-all referring to a blend of web3 and web2. In this new paradigm, the emphasis is on fun games and web2 fundamentals to attract previously reluctant web2 gamers, not only web3 native gamers.
To make it less confusing, web2.5 can be described as web3 as a feature, not product. This is a win for the “blockchain is just a database” people out there — I’ve seen many games begin to view blockchain as a means, not the end.
Practically, this paradigm means a shift in business models, moving the focus from fees to tried-and-true staples. For game developers, this could mean battle passes, cosmetics, and wagering fees, and for game infrastructure developers, this could mean recurring platform fees.
Why is this happening? I have 5 high-level reasons I think have informed this industry pivot:
Market size concerns: Dappradar reported that in 2022, ~1.13M unique active wallets (UAWs) logged in daily to blockchain games. However, to put this in context, World of Warcraft itself is estimated to have between 700K — 1.565M daily player logins. The consensus seems to be that instead of fighting for a small pie, it’s better to expand it first.
Emphasis on fun: The first wave of web3 games has not panned out, partly due to the fact that these games like Axie Infinity and DeFi Kingdoms were not particularly fun or were simply decentralized finance wrapped in a gaming skin. Once the money stopped coming out of these games, people stopped playing. To keep people in the game, games need to be fun. Who’d’ve thought?
Shift from content to infrastructure: Continuing the thought from above, many developers soon realized they needed to make fun games. As they began building those games, they found that most of the backend systems required to interact with the blockchain needed to be built from scratch. So what did they do? They shifted the focus from building the game to building out the stack needed to build the game, and along the way discovered several needs, including the problem of making the onboarding experience much easier for traditional, web2-native gamers.
Control over “web3-ness” of a game: To be truly web3, a game needs to be fully decentralized, potentially open-source, and as on-chain as possible. Web2.5 gives developers a middle ground to figure out how much of their games need to be on-chain to give players ownership of value while keeping certain things in-house to maintain IP, efficiency, and some governance rights.
Branding: The degree of control over the web3-ness means a game can present itself like any other game with some level of blockchain technology humming along in the background. With the level of backlash digital assets like tokens and NFTs have gotten from the gaming community, this is a way for games to experiment with blockchain features while still accessing gamers of all stripes.
With this groundwork, here’s a sneak peek of a thesis I’m exploring–what’s the future of blockchain gaming? Here are some thoughts to keep in mind:
Browser and Mobile: As games figure out how to effectively integrate blockchain into their player experiences, the quest to expand market share remains. Where I think there will be significant value created in the next couple of years will be in browser-based gaming and mobile gaming. Statista estimates that in 2023 there will be a little over 1.8B PC gamers.
However, note that in 2023 there are estimated to be at almost 5.4B mobile users — and with 4 of 5 mobile users being smartphone users, that implies 4.3B smartphone users. At the same time, general desktop / laptop internet users are estimated to be at 2/3 of all 5.2B internet users, or ~3.5B desktop users.
Why is this important? A little over 90% of PC gamers use actual gaming PCs, and part of my thesis is that access to games is currently gated by hardware, not the lack of games. Making easy-to-play and easy-to-access browser games means opening up the number of potential PC gamers. Similarly, mobile represents a significantly larger userbase than PC gamers, with over 3B mobile gamers worldwide. In an industry driven by engagement and active users, these large markets present unique possibility for fast adoption.Mashup Era: As web3 games become easier for web2 gamers to approach, they encounter another issue: differentiation. Without an explicit “web3-ness” that attracts gamers, these games need to create fun, unique game experiences, as “League of Legends, but with blockchain” isn’t necessarily a winning proposition. As a result, many of these new games are likely to try to experiment with current genres by mixing them together–for instance, game modes like Sparkadia’s Edenball present an intriguing mix of MOBA, brawler combat, and FIFA-like sport.
Cost of Game Development is Decreasing: As developers create better and better game engines, infrastructure, and other support tools, the cost of development is decreasing and it is much easier for indie studios to create games. Many all-in-one infrastructure packages enable developers to deploy web3 backends to their games in an extremely short amount of time, and generative AI presents exciting possibilities for AI-generated scenes, 3d assets, music, and more. “Not enough money” becomes less of a deterrent, and the capital intensiveness of game creation is slowly decreasing.
To sum it up, I’m excited to see what scrappy teams can build engaging and unique experiences that tie web3 and web2 in a sustainable, sensible way. There is no doubt that the web3 gaming industry will see more curveballs even over the next 6 months, but I’m excited for the future of this industry and what the next wave of high-quality games under development will bring.