The game industry is growing like it’s on steroids. It jumped from $65 billion in revenue in 2011 to $137 billion in 2018. People like to spend money on entertainment and access to our affordable, yet powerful mobile devices only fuel this trend — more than half of this year’s revenue comes from mobile platforms. There’s clearly a growing trend and more people are entering this market each day.
At the same time, however, the growth of Steam (the world’s leading PC video game platform) is slowing down significantly — the number of its users isn’t growing as fast as the market is, with only a 4% increase compared to the previous year. It looks like it hit the ceiling. Are mobile platforms going to be the ones to overtake this market and dethrone Steam? The problem is that the true heroes, game developers, start seeking other models of distribution, because the intermediary distributors (such as Steam) cut too much from their revenue. In this case, developers might skip over the innovation ladder and go directly to blockchain solutions for game distribution in order to solve this inequality. How grave are the problems facing the modern gaming industry, and what are the alternatives to Steam for game developers?
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Games People Play
In 2018, 2.3 billion mobile gamers from around the globe are anticipated to spend $137.9 billion on games according to a Global Games Market Report. As mobile gamers follow game narratives and share their in-game score results to be awarded, the number will reach 2,6 billion users by 2021, according to the Interactive Advertising Bureau (IAB), and the number of active video game players worldwide is predicted to rise from 1.8 billion (2018) to 2.7 billion (2021).
The mobile game market is to generate 51% of the revenue for the game industry that is almost twice as much as the PC game market (24%) and the console game market (25%) if taken separately.
Right now, over 71% of internet users from the Asia Pacific region play mobile games on a daily basis that defines the way they think, live, and communicate. These strong communities of gamers even created their own languages to bring the virtual world to life. Mobile games are becoming more popular as they can make routine tasks in a daily life fun. Thus, tracking budget loan in an interactive app might encourage to save more. Mobile games are developed to accelerate the traditional world with a new powerful engine that gives scores for accomplishing daily in-game tasks.
Exchange rate for a game currency
The market is now flooded with applications designed to make a user spend the money rather than to enjoy the process. Thus, players are losing interest in downloading new applications according to a survey conducted by Deloitte that show a decrease in trust in Internet advertising. Steam has started losing The game market is the first industry that started monetizing intellectual property stored in an algorithm right after the Internet was invented.
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Each game developer has been starting with indie development being driven by a motivation to develop the best game for people to play in. A group of enthusiasts is able to develop ‘the best app’ if players are not hidden by marketplaces under recommendation algorithms aimed at revenue generation. However, traditional markets are well-known for information asymmetry that gives a space to intermediaries for taking money off the top.
A game follows a long path from developers and passionate creators to users:
- Investors and funds take a share from the annual revenue;
- Publishers promote a game for a fee;
- Market places charge for placing a game or take a share from the total revenue.
The larger the number of intermediaries, the less tangible the connection between developers and users is. This path is crossed by publishing houses that resell digital instead of creating them. These are oriented at making money rather than enhancing the product. That’s not what developer want, though. According to the Developer Satisfaction Survey conducted by International Game Development Association (IGDA) game developers rated ‘Advancement in game design’ to be the most important factor (62%) to the growth of the industry having left ‘monetization’ as one of the least important (21%). This is derived from the economy theory that states media and art products to have a low elasticity on demand meaning that if a digital product is really good, users will be willing to acquire it even if the price rises.
Intermediaries are thriving while game developers can barely survive
The Entertainment Software Association of Canada (ESAC) reported the game industry to add $3,7 billion to Canada’s GDP annually. This GDP contribution makes a 24% increase from the total impact on the Canadian economy from 2015. The video game industry has grown significantly faster than the rest of the economy. As the game industry started contributing a significant share to country’s’ economy, traditional market agents set their rules to distribute and to take a piece of the pie.
In 2017 Apple reported $11.4 billion to be generated through its marketplace. An Apple Developer Licence gives access to publishing an app in the App Store and costs $99 per year. Paid apps are free for developers to publish with the 30% fee for utilizing the platform. Google Play charges annually with $25 for submitting an app. AppStore, as well as GooglePlay, turned from marketplaces they were designed to be to intermediaries that withdraw revenue from the development process.
The publishing platform Steam generated $ 4.3 billion in sales revenue in 2017 charging a fee of 30% for using the platform. Steam provides digital rights management (DRM), matchmaking servers, video streaming, and social networking services for developers to equip the game development process with ready-made solutions. This brings developers and users closer to each other, the gap is still in presence as none of them interact during game development.
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Kickstarter approaches the problem with a more elegant solution by giving a platform for raising funds before game development begins. Developers have a direct access to their potential players, although they don’t interact with them during the development process. In 2017 the amount of funding pledged towards successfully funded gaming projects on Kickstarter equalled to $163 million. It is over twice as much as a total funding of game projects in 2012 ($74 million). A total of 40,334 projects from game industry raised funding, some of them didn’t release a product though. From each published project Kickstarter received a commission without a direct impact on the game development process making gamers wait for the release.
Traditional marketplaces hinder, undermine and suffocate creativity by withdrawing efforts spent on fighting with rating algorithms. How many beautiful games might have been created with lost resources?
Develop New Rules By New Rules
The digital ecosystem powered with blockchain gives creators a chance to develop a new reality for players without any intermediaries. In this new reality, intermediaries don’t have the power as they are not a part of the process. For the past 12 months, 337 ICOs from the entertainment industry raised $1,2 billion with an average amount of investments $3 million according to the recent report published by ICO listing site. The industry is striving for digitalization as the amount of generated data surpasses human capacity to analyze it manually.
A software development firm Hyperbridge Technology was established in 2017 to solve the biggest challenges in the blockchain, IoT, and AI. In one year they built a blockchain powered platform BlockHub to connect developers and consumers via protocol-driven platform providing developers with an out-of-the-box solution to fundraise and publish games. This out-of-the-box solution facilitates the development process with a fundraising mechanism that is maximizing intellectual resources to create unique game experiences.
BlockHub is to provide at a noise-free environment for users to browse games and for developers to interact with users during the creation process. Within a digital platform powered by Hyperbridge protocols, a new form of decentralized micro-economy backed with Ethereum is established. Working as an ecosystem, BlockHub plans to take revenue from token transactions maximizing collaboration processes between developers and players removing intermediaries with an aim to enhance game experience techniques. The new form of interaction doesn’t compete with other platforms as it is expected to bring developers and game players to a new level of collaboration.
Some other projects are attempting to solve the problem of collaboration between a developer and a game player via network solutions. Thus, Enjin game network is stating a fight with corruption in its manifesto to “help game developers utilize ethical monetization models” by bringing fair wealth distribution to gaming. Another project Abyss is developing a crypto award ecosystem with a referral system for game players to earn from social activities and in-game purchases.
Coins in the Real World
As game industry fosters traditional industries while engaging users in a new reality, the intermediaries are anticipated to be squeezed out from the developer-to-player interaction. The opportunity to provide game developers with data from other industries via blockchain-backed platforms gives a solid reason to recalculate the market and to start playing by new upgraded rules.
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Blockchain powered platforms have already started restructuring the market. Thus, BlockHub sets a goal to have a 2 million monthly active user base in 3 years. With a 25% monthly growth rate BlockHub has a potential to acquire users from traditional platforms. Thus, the increase in number of new users on Steam in 2017 fell to +4% in comparison to +26% in 2016 and +29% in 2015. This trend is supported by a developer’s focus on bringing diversity in game content (58%) rather than concentrating on monetization. This is possible if they have a direct access to data generated by game players to explore insights and to implement best practices in a real time. In this environment, BlockHub foresees 30% of users to participate in a paid membership program.
Blockchain-backed solutions create an ecosystem for developers and game players to enjoy the game process rather than to scroll catalogs for ‘the best app’. This new type of collaboration could change the rules and unlock the potential for the industry to reach new scores in the upcoming future.
About the author:
Kirill Shilov — Founder of Geekforge.io and Howtotoken.com. Interviewing the top 10,000 worldwide experts who reveal the biggest issues on the way to technological singularity. Join my #10kqachallenge: GeekForge Formula.