How 'Play-To-Earn' Is Changing The Business Of Gaming

Gaming Computer - ADOBE

By Randy Breen, Advisor to Bright Star Studios and Ember Sword

When we hear about globalization, we think of public policy, trade agreements, immigration, and big business. But oftentimes, the connectivity of the world isn’t happening in board rooms - but in virtual environments accessed from across the world. Massively Multiplayer Online (MMO) games have changed the way we interact, form friendships and establish communities, allowing people to connect and socialize without borders in virtual, playful environments. One of the most interesting aspects of this rapid globalization of communities is the economies that have grown out of them, how players place and create value on digital goods and services. Online games and MMOs in particular have been at the forefront of innovative business strategies enabling participation from all around the world. This has ranged from players wishing to sell their digital goods for real-life currency, to large companies inventing entirely new business models.

The Real-World Applications of Virtual Economies

The practice of buying and selling digital goods for real currency is not new, but this economic activity has become more universal as online communities grow and become big business. Venezuela made international news when many citizens turned to Gold Farming as their primary source of income, finding that it provided more financial stability than regular sources of employment. The practice has become so widespread that it even has its own Wikipedia and Encyclopedia Britannica page.

Most game companies ban Gold Farming or other forms of monetary exchange of in-game assets or account transfers by restrictive Terms of Service (ToS) agreements. The intent of these practices is to protect the community; but are more likely to be implemented to assert control on in-game economics, limit exposure to KYC/AML requirements and to maximize profits. These bans prohibit the individual gamer’s ability to realize value from assets they’ve purchased or earned through gameplay. By prohibiting exchange, players can’t resell assets they’ve already purchased, illustrating the fact they don’t really own anything they buy. These practices have driven some players into the grey markets to seek exchanges where they are exposed to counterparty risks and account bans that strip the assets away if discovered.

Without a legitimate, transparent exchange of goods; it becomes nearly impossible for players to recover some of their costs from prior purchases, let alone earn a profit on their accounts and virtual goods they’ve earned while gaming. Ultimately, these closed systems may be limiting the economic potential of these game communities; as the game publishers are the ones who own participation in their growth.

But with the proliferation of blockchain technology throughout the world, new game economic models are starting to emerge. In 2020, The Philippines saw a huge number of non-traditional gamers migrate to crypto-based video games as a way to earn income during the COVID-19 lockdowns. The country saw grandparents, single mothers, and taxi-drivers all turning to a video game to supplement income - playing, crafting and trading digital assets which they could then sell on public blockchain exchanges, to transfer into cash. What makes these games different from MMO Gold Farming are games designed around open economies, the elimination of restrictive ToS, and new technology utilizing Non-Fungible Tokens (NFTs) operating on the blockchain. These new models give power back to individuals by facilitating ownership of assets they purchase and earn.

Gaming The System

As early video games evolved from packaged goods to continuous-play online services, some aspects of game design changed with them. Online games developed long term experiences for their customers which required business models to evolve. Subscriptions, and later, micro-transactions were introduced, providing incremental on-demand purchases. Unfortunately, some aspects of game design retained elements that were incompatible with these new models. Randomized “Loot Boxes” provided motive and reward in early video games but were not tied to monetization in single purchase, packaged goods game cartridges.

When sold as microtransactions, these randomized game assets could be exploited for monetization by some publishers. Taken to the extreme, this practice can be labeled a form of gambling. More commonly, successful “Free to Play” games focus on engaging their most dedicated players by allowing them to accelerate their game progress. Unfortunately this can cause frustration for some players leading to insufficient motivation to pay and putting the revenue streams burden on a tiny fraction of the player base to support the game. Gameplay that favors big spenders can further aggravate and stratify the player base.

So what do players like? It turns out, the virtual world mirrors real life. Players love to collect limited digital assets and express their social status by customizing their identity and their virtual environment. The cosmetics market alone is worth an estimated $40 billion per year, and keeps growing each year. The introduction of blockchain to paid cosmetics and virtual goods has the potential to drive new economic models for the gaming industry - a model that is likely to be dominated by NFTs, giving players ownership over their purchases while sharing resale revenue with the developers and adding economic value to the game community. 

What Does This Mean for Investors?

While many investors are looking to large, publicly traded companies for market direction, the smart industry players will be watching and waiting to see how newer, more agile companies perform before committing to these new approaches to market. These types of investors are likely to take a wait and see approach - letting the independents take risks and validate proof of concepts. Their strategy is to often move in later by buying and adopting the new models after they’re proven, and profitable.

For entrepreneurs, independent developers and investors, this represents an unusual opportunity to get in at the ground floor. Creator based economies are not new, but blockchain technology has the potential to open these economic models up and drive growth to unprecedented levels. Cryptoeconomics has the potential for gamer communities to participate in the success of the games they love.

The world is watching the current crypto and NFT hype and wondering what will happen in the next 12 months. In reality, smart investors and developers will be looking at 3-5 years, which will be the ‘make or break’ period for this technology, and the new business models that accompany them. Provided we see high quality games come to market, blockchain enabled open economies could become the fastest growing segment of what is approaching a $200 billion market.

About the author

Randy Breen is an advisor to Bright Star Studios and a gaming industry veteran. His career began at Electronic Arts, where he developed into an Executive Producer and Creative Director.He went on to become Head of Development at LucasArts, where he guided many beloved original IP and Star Wars games to PC and console markets, including Star Wars Battlefront, MMORPG Star Wars Galaxies and BAFTA award-winning RPG Knights of the Old Republic. He went on to become CEO of mobile game company SGN and later to work with ConsenSys as an EIR on consumer blockchain applications. Most recently he has signed on to become an advisor to Bright Star Studios; the makers of Ember Sword, an innovative play-to-earn MMORPG economy powered by the blockchain. Ember Sword is a love letter to the gaming community, dedicated to increasing ownership of digital assets of its players and empowering players across the world through access to a play-to-earn economy.

Bright Star Studios recently secured $2 million in funding from multiple investors and successfully completed a $1.5 million in a virtual land sale last month - giving its player base true ownership of its in-game economy. You can read more about how virtual land impacts its blockchain economy here

Randy is based in the San Francisco Bay Area.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.