2023 Annual Survey of the Chain Game Industry: Acquiring new users is the biggest challenge, and there is still room for the P2E model to develop

Original: The BGA 2023 State of the Industry Report

Compilation: Zen, PANews

Now in its third consecutive year, the BGA State of the Industry Report was launched by the Blockchain Blockchain Game Alliance and prepared by Web3 consulting firm Emfarsis with a survey of 526 Blockchain gaming professionals.Blockchain It provides a comprehensive resource for industry stakeholders, providing important insights into the current state of the industry, potential growth, and emerging trends.

All Web3 gaming activity has dropped significantly compared to the peak of the Bull Market in 2021, but projects have shifted their focus to improving occupancy and player retention, while Blockchain has been developing infrastructure for secure, scalable, and smoother transactions. Collecting data through an online survey, the report aims to assess Blockchain gaming professionals’ perceptions of the current state of the industry, reflecting the industry’s collective outlook two years after the current Crypto Assets winter, identifying the challenges and opportunities facing 2024.

Advantages of Blockchain Gaming

In the 2023 survey interview, 76.2% of respondents believe that the ownership of players’ assets is the biggest benefit that Blockchain can bring to players. And since the survey began in 2021, this has also been the general consensus of industry professionals.

In Web2 games, while players can also own game items and trade them on specialized marketplaces, the terms and technical conditions of these games have always prohibited them from being exchanged for real value outside of the game. With the advent of Blockchain technology, players can truly own, trade, and collect in-game resources, skins, and other digital items instead of renting them from game developers or publishers. This provides players with real property rights and ownership, an area traditionally controlled by game developers and publishers, which opens up multiple possibilities for interoperability between games, compositability of games, new business models, and monetization strategies, among other things.

Following asset ownership, the new revenue model and player reward model were identified in the survey as the second and third biggest advantages of Blockchain gaming, respectively. In three surveys since 2021, these two strengths have been ranked second or third. There are subtle differences between regions regarding the perception of these two strengths. Respondents in the US, Europe and Oceania believe that the new revenue model should be the second biggest advantage, while respondents in Asia and Latin America place more emphasis on player reward models. More than half (52.1%) of respondents believe that within 12 months, at least 20% of the gaming industry will likely leverage Blockchain technology in some way.

Challenges of Blockchain Games

More than half of respondents said that acquiring new users remains the biggest challenge facing the industry. Despite the adoption of a free-to-own and free-to-play (F2P) model, with Blockchain elements as an option, improving accessibility, the issue of attracting new traffic is still hindering the momentum of the industry.

Poor gameplay is another important issue, as Web3 games tend to be lackluster in terms of functionality and gameplay compared to Web2 games. However, in 2023, some Web3 games are starting to break the ice and this stereotype. Games such as My Pet Hooligan and Illuvium are in the spotlight for their high quality. Star Atlas, which is currently in development, is also a highly anticipated game, using Unreal Engine 5 and potentially rivaling world-class titles such as Star Citizen and EVE Online. Other Web3 games that have received critical acclaim include the card game (CCG) Cross the Ages, which includes a story mode and a player-versus-player mode, similar to Web2 CCGs like Hearthstone, and the simulation game Upland, where players can purchase and trade virtual property that represents real-world landmarks.

In 2023, regulation has re-emerged as a key concern for the industry, jumping from 10th to 5th place in 2022. Given the frequent conversations and disputes between the Crypto Assets space and regulators over the past year, it is not surprising to refocus on this aspect. However, in the first industry survey conducted in 2021, regulation was cited as the number one challenge facing the industry, and there were concerns that the pace of Crypto Assets adoption would slow if countries began to implement stricter policies or compliance measures. In addition, it was difficult for Web3 founders to maintain clarity or confidence in an uncertain regulatory environment, which was a normal reaction of that era, as the earliest Blockchain games were highly financialized.

In two consecutive years of surveys, respondents unanimously agreed that the “Crypto Assets Winter” had the greatest negative impact on Blockchain gaming. With the arrival of the Bear Market and the loss of interest in Web3 by the masses and media, even those who continue to actively play the game may have experienced some fatigue due to the stagnation of the market. According to DappRadar, the number of active players for Web3 games in 2023 decreased slightly compared to 2022, with an average of 2.2 million monthly active users (MAU) in 2023, down 15.4% from the 2022 average of 2.6 million monthly active users (MAU). Still, companies are using this time to build solutions that enhance the gaming experience and facilitate better accessibility for players. Things are starting to get better as monthly active users start to increase to 2.6 million in October 2023, which bodes well for the year ahead.

Next, respondents’ top concerns are macroeconomic events. Global macro events, such as recessions, have created an environment of financial instability that limits access to capital, exacerbating the challenges. In addition, geopolitical tensions have further exacerbated complexity, making it more difficult for emerging businesses to navigate and thrive in the global marketplace. The Crypto Assets winter and the global macroeconomy are external factors affecting the industry. Taken together, they are the strongest force to put pressure on Blockchain games, with 51.3% and 45.2% of respondents mentioning these two factors in 2022 and 2023, respectively. This shows that professionals in the Blockchain gaming industry believe that once the market improves, their companies and projects will rise strongly.

The only issue in the Web3 space that is considered an internal challenge is the ban on Non-fungible Tokens by traditional game studios. This ranks third in both 2022 and 2023, accounting for 8.7% and 11.0%, respectively. Notable bans over the past year include a ban on Minecraft developer Mojang Studios, which is concerned that non-fungible tokens could impact the game’s inclusive community experience because not all players have access to non-fungible tokens; Grand Theft Auto developer Rockstar Games bans non-fungible tokens and Crypto Assets, as they fear that game rights will be distributed and monetized without the explicit consent of the publisher. Due to the speculative nature of Non-fungible Token games, South Korea has also explicitly banned Non-fungible Token games.

Misconceptions about Blockchain games

Since 2021, respondents believe that the biggest misconception surrounding the Blockchain game is that people think it is a scam or Ponzi scheme. In 2023, 70.0% of respondents believe that this is still the biggest fallacy about the industry. In 2022, it was 69.5% and in 2021 it was 59.0%, suggesting that Blockchain gaming professionals are paying more attention to this misconception.

While there have been some fraudulent projects in the space, these bad actors are not representative of the entire Blockchain gaming ecosystem. Unfortunately, their malicious actions have affected the overall reputation of the industry. As with any investment or emerging technology, individuals should exercise caution, conduct thorough research, and understand the potential risks before participating. It is also crucial that the industry adopt best practices and regulatory measures to build trust among users.

Another misconception cited by 46.4% of respondents in 2023 is that there is always a connection between Crypto Assets and the Deep Web. This seems to be a growing concern for Blockchain gaming professionals, as 38.0% of respondents highlighted this issue in 2022 and 38.2% in 2021. Mainstream media reports that Crypto Assets are being used to commit crimes and fund terrorist activities may have fueled this perception. The industry needs to do more education, demonstrate Blockchain transparency, and track crime-related transactions for law enforcement, and do more to further educate mainstream audiences about the benefits of Blockchain.

Web2 game IPs and practitioners are transforming to Web3

Poor gaming is considered the second biggest challenge facing the industry in 2023, with 36.7% of respondents supporting this view. Perhaps the main reason for this perception is to compare newly funded Web3 games with the work of Web2 studios that have been developing games for decades. When asked about the biggest positive impact on the gaming industry in 2023, 19.8% of respondents believe that traditional game studios are launching Non-fungible Token games, while 15.2% believe that Web2 (or traditional) games are transitioning to Web3. Taken together, this data shows that 35.0% of respondents believe that the positive impact of Web2 game studios’ pivot to the Web3 space comes from the talent, experience, brand awareness, and huge mainstream audience that Web2 studios bring.

Large game studios have been exploring and experimenting in this space, and many of them see the potential of Blockchain games to boost the entire gaming industry. Some Web2 studios have been working on Web3 versions of popular IPs or developing new Web3 games under their studios. This includes, but is not limited to, traditional gaming giants such as CCP Games (EVE Online), Nexon (MapleStory), Ubisoft, Square Enix, Bandai Namco, etc. More than a third (37.8%) of Blockchain gaming professionals believe that the adoption of Blockchain by large Web2 game studios can drive the industry.

Drivers of Blockchain Gaming

In addition to the adoption of Web3 by large Web2 game studios, game improvements are another big driver, accounting for almost one-third of the questionnaires. These two factors have been at the top two of the list since 2021, and they complement each other – large traditional studios can bring experience and talent to bring more Web3 games to market and elevate more Web3 games to the same level as Web2 games.

Outside of the top three, there was a significant uptick in the consideration of improving onboarding and accessibility, ranking fourth with 27.8% of the total responses. And in 2022, it is only ranked 10th, which means that the industry is increasingly focusing on making Blockchain games more accessible. Another notable trend is that respondents see releasing more Blockchain games as a significant driver for the industry, jumping from 12th place in 2021 to 6th place in 2023. Overall, one in four survey respondents (25.7%) said they believe that releasing more online games will help drive the industry, and that more games means a richer variety that caters to a wider range of preferences.

The P2E mechanism has lost its important role as a driving force for the industry, falling to eighth place in 2023, compared to first and fifth place in 2021 and 2022, respectively. In 2021, millions of new players joined Web3 through “play-to-earn” games that they did as if they were working because they could earn Token rewards through these games, which can be exchanged for Crypto Assets and fiat currencies. However, the sustainability of these virtual economies will soon be tested as Token prices fall and financially motivated players will be the first to exit.

Still, there is interest in “P2E”, especially in Asia, where the gaming culture is more open to the financialization of games. However, there are still doubts about how to strike a balance between the “P2E” Token economy and the Fluctuation of the Crypto Assets market. Developers must figure out how to make their games sustainable in the long term.

When it comes to what drives the industry, dropTransaction Cost and drop Non-fungible Token costs have taken a lower priority. They are ranked 12th and 15th, respectively. One possible reason for this is the improved scalability of L1 and L2. One example of this is Polygon’s transition to zkEVM rollups, which significantly drop transaction delays and drop costs by aggregating numerous transactions into a single transaction. In 2021, many Blockchain games require players to purchase at least one Non-fungible Token in order to play. Especially as Non-fungible Token prices recover from the Bull Market, it is becoming more and more expensive for new players to buy Non-fungible Tokens in the secondary market. Nowadays, most games have a free-to-play model, and players don’t need to pre-purchase Non-fungible Tokens to start playing. Therefore, the cost of Non-fungible Tokens is no longer an issue, as most browser games no longer require players to purchase Non-fungible Tokens or Non-fungible Tokens to start playing.

Enabling Web3 Growth: UA, Distribution, and Scaling

A game lives or dies based on two metrics: user acquisition (UA) and user retention. For decades, Web2 gaming has relied on a centralized model to collect personal data such as age, gender, and geographic location. Web2 games use a solid set of ways to launch and scale products and attract new players, including ads on Facebook, Twitter, YouTube, and Twitch, as well as in-app recommendations and email promotions.

In contrast, Web3 games prioritize user privacy and operate on decentralized platforms, making it difficult to collect all the routine data needed for traditional user analytics. However, unlike traditional user analytics strategies, Web3-native approaches typically emphasize provable community engagement, decentralization governance, and Token incentives. Users are seen not only as consumers, but also as active participants who contribute to the development and sustainability of the network. This approach aims to create a more inclusive and equitable digital ecosystem by redistributing value and decision-making power among participants, fostering a sense of ownership and collaboration.

Web3’s challenge to attract new users

In 2022, new user acquisition and accessibility were the biggest challenges facing the industry, with 51.0% of respondents citing them as top concerns. This trend continues in 2023, with 55.1% of respondents once again making it a top concern. There are many more obstacles that prevent Blockchain games from entering the mainstream. For example, Steam, the largest video game distribution platform in the PC gaming space, prohibits any form of Crypto Assets or Non-fungible Token trading. Web3 games have to redirect any transactions outside of Steam or use third-party programs, which makes the transaction process more cumbersome. The ban wasn’t permanent, but it hurt the industry as a whole as it shut down a Web2 giant’s Web3 game discovery channel.

App stores are also imposing restrictions. The Apple App Store treats all Web3 and Non-fungible Token projects the same as traditional apps, charging a 30% commission on all transactions completed using its marketplace. Google Play, on the other hand, has been slow to support Web3 games. Google itself has always supported Blockchain technology and recently changed its policy to allow Blockchain apps to run on Google Play. However, this change didn’t happen until mid-2023, which means that many developers are only starting to develop Blockchain games for Android phones.

Opportunities for key players in Web3

The Epic Games Store has already released dozens of Web3 games on its platform, with plans to release more in the future. These games include Illuvium, GRIT, and My Pet Hooligan. Amazon Prime Gaming has partnered with WAX’s game studio and game Brawlers to offer exclusive in-game items and physical prizes. The game Mojo Melee has also partnered with Amazon Prime Gaming for six months, with monthly prizes being offered.

A new approach to user acquisition

Blockchain technology offers unique possibilities for user experience. One of the earliest attempts was the “P2E” model, which became popular in 2021. Players can earn reward Tokens and Airdrops as they continue to play the game. In 2021, a whopping 67.9% of respondents believed that “P2E” was the biggest driver of the industry. This model was unique when the gaming industry was just emerging, and it prompted a lot of gamers to jump into it.

While “play-to-earn” is no longer seen as a major industry driver, it does open up possibilities for new user acquisition strategies. Many BGA members are exploring the following Web3-native approaches to user acquisition, distribution, and analytics:

• On-chain positioning: Being able to see on-chain activity means developers can track Wallets that participate in Web3 games or Non-fungible Tokens. Marketing to them or directly inviting addresses helps with user acquisition and expansion. Companies and developers can also leverage data tracked from player on-chain activity to gain more specific data on player behavior. For example, it will show the player’s preference for play-to-earn games or RPG games.
• On-chain prestige: Blockchain offers players the opportunity to build their prestige online. Others will be able to view in-game achievements, which are permanently and verifiably attached to the player’s Wallet. This provides players with an opportunity to demonstrate their credibility.
• Web3 Launch: Publishing on a dedicated Web3 platform can help increase visibility and target the audience your company wants to reach. In addition to this, many large companies in Web3 and Web2 are now starting to offer projects to help grow this ecosystem.

Looking ahead to 2024

More Web2 studios are moving to Web3

Many Web2 studios have been experimenting with Blockchain technology. There are companies that are experimenting more openly, such as Square Enix and Ubisoft, while others are taking a “wait-and-see” approach. As these studios begin to consider iterations of technology, they may gradually dabble in Web3. According to survey respondents, mobile games and multiplayer games are the most likely to be adopted. Web2 studios can bring talent and experience, which may improve important aspects such as onboarding and user experience. Some studios may experiment with on-chain assets, and since there is still negative sentiment about Non-fungible Tokens and Blockchain, some developers may apply them as technologies rather than explicitly advertising them as Non-fungible Tokens, Blockchain, Crypto Assets, or Web3.

Artificial intelligence in Blockchain games has become a hot topic

AI has dominated the conversation in many industries this year, including Blockchain gaming. With the popularity of generative AI and large language models such as ChatGPT, some respondents believe that Blockchain games are already testing AI for Web3 games. For example, behavioral AI can make NPCs’ conversations richer and more engaging, while also improving their decision-making skills. However, some are concerned that the ability to create games using AI could lead to a supply shock of low-quality assets and collectibles. But on the other hand, AI can unleash creativity like never before.

Development and launch of large-scale Web3 games

In the past two years of ongoing development, it is possible that a massive Blockchain gaming hit will emerge in 2024, triggering a ripple effect, attracting millions of new players to Web3 and changing the perception of most people. Judging by historical trends, such games may initially be adopted and promoted in the Eastern world before being accepted in the West. This is similar to the widespread adoption of free-to-play games such as League of Legends in Asia back in the early 21st century, when the model was widely adopted before it was accepted elsewhere in the world.

Blockchain games will only be called “games”

Currently, there is a separation between Web2 and Web3 gaming, but this is expected to change. As more Web2 studios explore Blockchain technology, they may strive to incorporate Blockchain technology into existing game elements, making it virtually imperceptible to players, making it part of the game rather than an additional feature to ensure that the overall experience of the game is appealing to the existing player base.

The end of the predatory income model

Free-to-play games have revolutionized the gaming industry by removing barriers to entry. However, it has also led some developers to fall into predatory practices in an attempt to extract more profit from players, whether by pricing game features or by imposing limited-time offers to evoke the fear of missing out on the game. As more and more games adopt Blockchain technology, 2024 marks a shift to a transaction-centric environment that both developers and players can benefit from. With this new mode, we will see the end of predatory practices in the game.