Chain Games Industry 2023 Annual Survey: Acquiring new users is the biggest challenge, and the P2E model still has room for development

The “BGA State of the Industry Report” has been released for the third consecutive year this year. It was initiated by the Blockchain Game Alliance and compiled by the Web3 consulting company Emfarsis. There are a total of 526 Blockchain game professionals participating in the survey. This survey will provide comprehensive resources for industry stakeholders, offering crucial insights into the current state, potential growth, and emerging trends of the industry.

Activity across all Web3 games has dropped significantly compared to the peak of the 2021 bull run, but projects have shifted focus to increasing occupancy and player retention, while blockchain has been developing security, scaling, and smoother transactions infrastructure. Through online surveys and data collection, this report aims to assess the perspectives of blockchain gaming professionals on the current state of the industry. It reflects the industry’s collective outlook after the past two years of the current cryptocurrency winter, identifying challenges and opportunities anticipated for 2024.

Advantages of blockchain games

In the 2023 survey interviews, 76.2% of respondents believed that players’ asset ownership is the biggest benefit that blockchain can bring to players. And this has been the general consensus among industry professionals since the survey began in 2021.

In Web2 games, although players can also own game items and trade them on specialized markets, the rules and technical conditions of these games have always prohibited exchanging them for real value outside the game. With the advent of blockchain technology, players can actually own, trade, and collect in-game resources, skins, and other digital items, rather than renting them from game developers or publishers. This provides players with true property rights and ownership in an area traditionally controlled by game developers and publishers, opening up opportunities for interoperability between games, game craftability, new business models and currencies. strategies, etc., opens up a variety of possibilities.

Following asset ownership, new revenue models and player reward models were considered the second and third largest advantages of blockchain games respectively in the survey. Those two strengths have consistently ranked second or third in three surveys since 2021. There are subtle differences between regions in the perception of these two advantages. Respondents in the United States, Europe and Oceania believe that new revenue models 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 utilize blockchain technology in some way.

Blockchain Gaming Challenges

More than half of respondents said acquiring new users remains the biggest challenge facing the industry. Despite improvements in accessibility through the adoption of a free-to-own and free-to-play (F2P) model and the inclusion of blockchain elements as an option, new traffic issues are still hampering industry momentum.

Poor gameplay is another important issue. Compared to Web2 games, Web3 games tend to be lackluster in terms of functionality and gameplay. However, in 2023, some Web3 games are starting to break the ice and this inherent perception. Games like My Pet Hooligan and Illuvium have attracted attention due to their high quality. Star Atlas, currently in development, is also a highly anticipated game that uses Unreal Engine 5 and has the potential to rival world-class games such as Star Citizen and EVE Online. Other Web3 games that have received favorable reviews include the card game (CCG) “Cross the Ages”, which includes a story mode and a player-versus-player mode, similar to Web2 CCGs such as “Hearthstone”; and the simulation game “Upland” , players can purchase and trade virtual properties representing real-world landmarks in the game.

Regulation has returned to be a key concern for the industry in 2023, jumping from 10th place in 2022 to 5th place. The renewed focus on this aspect is not surprising given the frequent conversations and disputes between the cryptocurrency space and regulators over the past year. However, in the first industry survey conducted in 2021, regulation was cited as the number one challenge facing the industry, with concerns that cryptocurrency adoption would slow if countries began to implement stricter policies or compliance measures. Furthermore, it was difficult for Web3 founders to maintain clarity or confidence in an uncertain regulatory environment, which was a normal reaction of the era, as the earliest blockchain games were highly financial.

In two consecutive years of surveys, survey respondents unanimously believe that the “cryptocurrency winter” has the greatest negative impact on blockchain games. As the bear market sets in and the public and media lose interest in Web3, even those who continue to actively play games may be experiencing some fatigue from the stagnant market. According to data from DappRadar, there will be slightly fewer active players in Web3 games in 2023 than in 2022. The average monthly active users (MAU) in 2023 will be 2.2 million, a decrease of 15.4% from the average monthly active users (MAU) in 2022 of 2.6 million. Still, companies are using this time to build solutions that enhance the gaming experience and promote better onboarding for players. Things are starting to look up as monthly active users start to increase to 2.6 million in October 2023, which bodes well for the coming year.

Next, the issue that respondents are most concerned about is macroeconomic events. Global macro events such as the recession have exacerbated challenges by creating an environment of financial instability and limiting access to capital. In addition, geopolitical tensions further compound complexity, making it more difficult for emerging businesses to navigate and thrive in global markets. The cryptocurrency winter and global macroeconomics are external factors affecting the industry. Taken together, they are the strongest forces putting pressure on blockchain games, with 51.3% and 45.2% of respondents citing these two factors in 2022 and 2023 respectively. This shows that professionals in the blockchain gaming industry believe that their companies and projects will rise strongly once the market improves.

The only issue within the Web3 space that is considered an internal challenge is the ban on NFTs by traditional game studios. This ranks third in both 2022 and 2023, at 8.7% and 11.0% respectively. Notable bans in the past year include Minecraft developer Mojang Studios, which feared that NFTs could impact the game’s inclusive community experience because not all players have access to them; Grand Theft Auto Grand Theft Auto developer Rockstar Games has banned the use of NFTs and cryptocurrencies due to concerns that the game’s property rights will be distributed and monetized without the publisher’s explicit consent. Due to the speculative nature of NFT games, South Korea has also made it clear that NFT games are prohibited.

Misunderstandings about blockchain games from the outside world

As of 2021, respondents believe the biggest misconception surrounding blockchain gaming is the perception that it is a scam or Ponzi scheme. In 2023, 70.0% of respondents believe this remains the biggest myth about the industry. In 2022, this ratio was 69.5% and in 2021 it was 59.0%, indicating that blockchain gaming professionals are more concerned about this misconception.

While some fraudulent projects have emerged in the space, these bad actors are not representative of the entire blockchain gaming ecosystem. Unfortunately, their malicious behavior affects the overall reputation of the industry. As with any investment or emerging technology, individuals should exercise caution, conduct thorough research, and understand potential risks before participating. It is also crucial that the industry adopts 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 cryptocurrencies and the darknet. This appears to be a growing concern among blockchain gaming professionals, as 38.0% of respondents highlighted this issue in 2022 and 38.2% in 2021. Mainstream media reports of cryptocurrencies being used to commit crimes and finance terrorist activities may have fueled this perception. The industry needs to strengthen education awareness on this, demonstrate blockchain transparency and teach them to track crime-related transactions for law enforcement, increasing efforts to further promote the advantages of blockchain to mainstream audiences.

Web2 Gaming IP and Practitioners’ Transition to Web3

Poor gameplay is considered the second biggest challenge facing the industry in 2023, with 36.7% of respondents supporting this view. The main reason for this opinion may be comparing newly funded Web3 games to 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 the respondents believed that it would be the launch of NFT games by traditional game studios, while 15.2% of the respondents believed that it would be Web2 (or traditional) gaming’s transition to Web3. Combining this data, it is illustrated that 35.0% of respondents believe that the positive impact, following Web2 game studios’ transition to the Web3 space, comes from the talent, expertise, brand recognition, and massive mainstream audience brought in by Web2 studios.

Major game studios have been exploring and experimenting in this field, with many recognizing the potential of blockchain games to drive the overall development of the gaming industry. Some Web2 studios have been developing Web3 versions of popular IPs or creating new Web3 games under their studio brand. This includes, but is not limited to, traditional gaming giants such as CCP Games (EVE Online), Nexon (MapleStory), Ubisoft, Square Enix, Bandai Namco, and others. More than a third (37.8%) of blockchain gaming professionals believe that the adoption of blockchain by major Web2 game studios can propel industry development.

Drivers for the Development of Blockchain Games

In addition to the adoption of Web3 by large Web2 game studios, game improvements were another big driver, accounting for almost a third of the survey respondents. These two factors have been at the top of the list since 2021, and they go hand-in-hand: 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 the top three, considerations for improving onboarding and accessibility improved significantly, ranking fourth at 27.8% of total responses. And in 2022, it only ranked 10th, which means the industry is increasingly focusing on making blockchain games more accessible. Another trend worth noting is that respondents believe the release of more blockchain games is an important driver for the industry, jumping from 12th place in 2021 to 6th place in 2023. Overall, one in four respondents (25.7%) said they believed releasing more online games would help drive the development of the industry. More games mean a richer variety that can satisfy a wider range of needs and preferences.

The P2E mechanism has lost its importance as an industry driver, falling to eighth place in 2023, after ranking first and fifth in 2021 and 2022, respectively. In 2021, millions of new players joined Web3 through “play to earn” games. They play these games and take them as jobs because they can earn token rewards through these games, which can be redeemed for cryptocurrency and legal tender. However, the sustainability of these virtual economies will soon be put to the test as token prices decline, prompting economically-motivated players to exit first.

However, there is still interest in “P2E”, especially in Asia, where gaming culture is more open to the financialization of gaming. However, skepticism remains about how to balance “P2E” token economics with the volatility of the cryptocurrency market. Developers have to figure out how to make their games sustainable in the long term.

When it comes to factors driving industry development, the priorities for reducing transaction costs and lowering NFT costs have decreased. They rank 12th and 15th, respectively. One possible reason is the improvement in the scalability of L1 and L2. An example of this is Polygon’s transition to zkEVM rollups, significantly reducing transaction latency and aggregating numerous transactions into one, thereby lowering costs. In 2021, many blockchain games required players to purchase at least one NFT to play. Particularly, as NFT prices rise from the bull market, the cost of new players buying NFTs on the secondary market has increased. Nowadays, most games have adopted a free-to-play model, allowing players to start the game without having to purchase NFTs in advance. Therefore, the cost of NFTs is no longer an issue, as most web games no longer force players to buy NFTs before starting the game.

Achieve Web3 Growth: UA, Distribution, and Scaling

A game lives or dies by two metrics: user acquisition (UA) and user retention. For decades, Web2 games have relied on centralized models to collect personal data such as age, gender, and geographic location. Through advertising on Facebook, Twitter, YouTube and Twitch, as well as in-app recommendations and email promotions, Web2 Games has a proven approach to launching and scaling products and attracting new players.

In contrast, Web3 games prioritize user privacy and operate on decentralized platforms, making it difficult to collect all the conventional data required for traditional user analytics. However, unlike traditional user analytics strategies, Web3 native approaches often emphasize demonstrable community participation, decentralized governance, and token incentives. Users are not only seen as consumers but also as active participants who contribute to the growth 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.

The Challenge of Attracting New Users in Web3

Acquisition of new users and accessibility are the biggest challenges facing the industry in 2022, with 51.0% of respondents citing it as a top issue. This trend has continued in 2023, with 55.1% of respondents again ranking it as a top concern. There are still many obstacles that prevent blockchain games from entering the mainstream. For example, Steam, the largest video game distribution platform in PC gaming, prohibits any form of cryptocurrency or NFT trading. Web3 games must redirect any transactions outside of Steam or use a third-party program, making the transaction process more cumbersome. The ban isn’t permanent, but it hurts the industry as it shuts down Web3 game discovery for a Web2 giant.

App stores are also imposing restrictions. The Apple App Store treats all Web3 and NFT 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 been supportive of blockchain technology and recently changed its policy to allow blockchain apps to run on Google Play. However, this change won’t happen until mid-2023, meaning many developers have only started developing blockchain games for Android phones.

Opportunities for major Web3 players

The Epic Games Store has released dozens of Web3 games on its platform and 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 Studios and Brawlers to offer exclusive in-game items and real prizes. The game Mojo Melee also has a six-month partnership with Amazon Prime Gaming, offering monthly prizes.

A new approach to user acquisition

Blockchain technology offers unique possibilities for user experience. One of the earliest attempts was the “p2e” model that became very popular in 2021. Players can earn bonus tokens and airdrops as they continue playing the game. In 2021, 67.9% of respondents believe that “p2e” is the biggest industry driver. This model was unique when the gaming industry was just emerging, which prompted many players to try it.

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

• On-chain targeting: Being able to see on-chain activity means developers can track wallets participating in Web3 games or NFTs. Marketing to them or inviting addresses directly helps with user acquisition and expansion. Companies and developers can also leverage data tracked from players’ on-chain activity to gain more specific data on player behavior. For example, it will show players’ preferences for play-to-earn games or RPG games.
• On-chain reputation: Blockchain provides players with the opportunity to build reputation 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 the 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 offering projects to help grow this ecosystem.

Outlook 2024

More Web2 studios move to Web3

Many Web2 studios have been experimenting with blockchain technology. There are companies that are experimenting more openly, like Square Enix and Ubisoft, and there are companies that are taking a “wait and see” approach. As these studios start to think about technology iterations, they may gradually branch out into Web3. According to survey respondents, mobile gaming and multiplayer gaming are the most likely to be adopted. Web2 studios can bring talent and experience that 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 toward NFTs and blockchain, some developers may use them as technology applications rather than explicitly promoting them as NFTs, blockchains, cryptocurrencies, or Web3.

Artificial intelligence in blockchain games becomes a trending topic

Artificial intelligence 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 blockchain games are already testing AI for Web3 games. For example, behavioral AI can make NPC conversations richer and interactions more engaging, while also improving their decision-making abilities. But some worry that the ability to create games using artificial intelligence could lead to a supply shock of lower-quality assets and collectibles. But on the other hand, artificial intelligence can unleash unprecedented creativity.

Development and launch of large-scale Web3 games

In the past two years of continuous development, there is a possibility that a large-scale blockchain game could become popular in 2024, triggering a chain reaction, attracting millions of new players to join Web3, and changing the perspectives of the majority. Historically, such games may initially be adopted and promoted in the Eastern world before gaining acceptance in the Western world. This is similar to the widespread adoption of free games (such as “League of Legends”) in the Asian region in the early 21st century, where this model was widely accepted globally only after its success in other parts of the world.

Blockchain games will only be called “games”

Currently, there is a separation between Web2 and Web3 games, but it is expected that this situation will change. As more Web2 studios explore blockchain technology, they may make efforts to integrate blockchain technology into existing game elements, making it almost imperceptible to players. The goal is to make it a seamless part of the game rather than an additional feature, ensuring that the overall gaming experience remains appealing to the existing player base.

The end of predatory revenue models

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

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