Play to earn: a new business model for the video game industry
Since the early 1970s, the video game industry has seen many changes as it evolved hand in hand with technologies and consumption habits. From arcade games in public spaces to mobile games and video game consoles, let’s take a look at the various economic models that have marked the last 50 years.
PAY TO PLAY
If I remember well, it was during the end-of-year holidays in 1984. For Christmas, my brothers and I had received an Atari 2600 console while our neighbour was given an Amstrad CPC 464 computer complete with a cassette player for loading games. It didn’t take us long to realize that we could copy official games using a sound system with two cassette drives, one to play and the other to record. We copied computer code from a purchased cassette to a blank one. We were only children, yet already consumers. You had to either pay to play or find another solution. That was the nature of the new world of video games. Nintendo dominated school yards with its portable games, especially Donkey Kong. A few years later, the Game Boy console and cartridges would become a global success story. Atari, Commodore, Nintendo and Amstrad were the big names in those years. A short time later, Sony introduced PlayStation in 1994 and Microsoft launched Xbox in 2011. Nintendo, Sony and Microsoft would end up dominating the market, together selling some 1.5 billion consoles between 1983 and 2021.
FREE TO PLAY (AND FREEMIUM)
The explosion of cellular telephones brought with it a new era of mobile games. In 1997, the game Snake was embedded without charge on devices produced by Nokia, the uncontested global leader in mobile phones for 14 years until the iPhone arrived in 2007. Apple disrupted the established order in the telecommunications and video game sectors. By selling 100 million iPhones in the first five years, Apple succeeded in placing a veritable game console in the hands of consumers. Obviously, the iPhone itself was not free, but was largely subsidized by telecommunication operators. Countless games were made available in the Apple store for free download as of 2007. The free-to-play model had appeared, and its coexistence with a paid “premium” model for consoles, computers and mobiles soon led to the freemium model.
Supported by the growing technological wave and the arrival of new smartphones on the market, as well as by the advent of social media, video game developers were able to include micro-transactions in free games—something that was unthinkable for computer games and consoles. Players could now purchase accessories, costumes, weapons, characters and additional points for a small cost more or less just by clicking.
In 2013, the entire planet was playing Candy Crush, a “free” game that nonetheless brought in more than $7 billion in eight years to King, the game’s owner, which was purchased by Activision in 2016 and is currently in the process of being acquired by Microsoft for $68.7 billion! What’s at stake? Eight hundred million dollars in annual profits for Candy Crush, 300 million players each month and as many potential consumers. In 2021, 85% of video game industry revenues came from so-called free games, eight of which generated more than a billion dollars annually. Through mobile phones, there are some three billion video game enthusiasts around the world.
PLAY TO EARN
And now, the blockchain revolution has begun. It can be described in two words: decentralization and disintermediation. Blockchain enables decentralized finance and leads us into the world of Web 3.0, whose primary characteristic is the concept of user ownership. Web 1.0 was “read only” and Web 2.0 was “read and write,” whereas Web 3.0 will be “read, write and own.” For the first time in history, non‑fungible tokens (NFTs) allow you to own digital goods. In Web 3.0, you can also participate in the governance of a project or acquire a small share in certain physical goods for the purpose of making a regular return on investment. Cryptocurrencies make it possible to own currencies that are not issued by governments or central banks.
Because blockchain technology is decentralized, some believe that it could liberate us from banks and large-scale commercial data collectors (the Meta group first and foremost), as well as from music labels, video game producers, Hollywood studios, and audio and video streaming services. The most fervent adherents already see a reduction in costs, such as bank fees and insurance, as well as a fairer distribution of profits.
During the summer of 2021, the play-to-earn game Axie Infinity made a name for itself by creating income for a large number of players in the Philippines. This relatively simple game (similar to Pokémon) has players raise and prepare little monsters called Axies for combat. All of the game’s attributes are NFTs—the creatures, their additional qualities and the settings. The more you play and win, the greater the value of your Axies.
The game incorporates two cryptocurrencies, one of which (the SLP token) is used to compensate players. While there is nothing revolutionary in the game’s mechanics, the “virtual” properties are not completely virtual. You can convert your SLP and AXS (the second cryptocurrency) tokens into dollars. The price of AXS rose more than 15,000% in 2021. You read that correctly. You can sell your NFTs on the marketplace and one property alone sold for the tidy sum of $2.33 million. You also have the option of saving the amount of cryptocurrency you own but don’t use in the game in order to earn a return on investment. The term GameFi has emerged as a portmanteau of “game” and “finance.”
You are no doubt wondering how a virtual property can be commercialized. The process is not new and players have been buying in for a long time. But up until now, no proof existed of their ownership. Web 3.0 is changing the rules of the game by providing actual certificates of ownership. They are integral to the process of purchasing, growing value, selling and speculating.
The inherent risks are the same as with other investments: depreciation, total loss and even destruction or theft. They are also backed by often highly volatile cryptocurrencies. Some voices are being raised in criticism of a model in which usually one must first pay (often dearly) in the hope of making a profit and in which the very notion of which leisure and the pleasure of playing could become secondary to financial purposes. Others question the reliability and sustainability of the play-to-earn model. One thing, however, is certain: the model will have to change, adjust and be reinvented in the years to come, for we are only at the beginning of Web 3.0.And yet $4 billion were invested in blockchain games in 2021. If the sector intrigues you, watch for the release of Penguin Karts and X-Rush or try playing Splinterlands or Axie Infinity: Origin (the version for the general public). You’ll be just one step away from the metaverse, which may become the umbrella term for all such experiences. Take the time to browse Decentraland and The Sandbox, two metaverses in which you might encounter Snoop Dogg, Adidas, Gucci, the Smurfs and even Atari, who is trying to make a successful return through blockchain games. Who knows? Perhaps one Christmas evening my children will receive an NFT or cryptocurrency tokens. While some things may seem the same, change is the order of the day.