2023 Annual Survey of the Blockchain Gaming Industry: Acquiring New Users is the Biggest Challenge, P2E Model Still Has Room for Development

Original Title: 《The BGA 2023 State of the Industry Report》

Original Author: BGA

Compiled by: Zen, PANews

The "BGA State of the Industry Report" has been released for the third consecutive year. Initiated by the Blockchain Game Alliance and written by the Web3 consulting firm Emfarsis, the report involved 526 blockchain game professionals participating in the survey. It provides comprehensive resources for industry stakeholders, offering important insights into the current state of the industry, potential growth, and emerging trends.

Compared to the peak of the 2021 bull market, the activity of all Web3 games has significantly declined, but projects have shifted their focus to improving onboarding and player retention, while blockchain has been developing infrastructure for secure, scalable, and smoother transactions. By collecting data through online surveys, the report aims to assess blockchain game professionals' views on the current state of the industry, reflecting the collective outlook of the industry two years after the current cryptocurrency winter, identifying challenges and opportunities for 2024.

Advantages of Blockchain Games

In the 2023 survey, 76.2% of respondents believe that player asset ownership is the greatest benefit that blockchain can bring to players. This has been a common consensus among industry professionals since the survey began in 2021.

In Web2 games, while players can own in-game items and trade them on dedicated markets, the terms 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 truly 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 genuine property rights and ownership, an area traditionally controlled by game developers and publishers, opening up various possibilities for interoperability between games, game composability, new business models, and monetization strategies.

Following asset ownership, new revenue models and player reward models were considered the second and third greatest advantages of blockchain games in the survey. In the three surveys conducted since 2021, these two advantages have consistently ranked second or third. There are subtle differences in the perception of these two advantages across different regions. Respondents from the United States, Europe, and Oceania believe that new revenue models should be the second greatest advantage, while respondents from 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.

Challenges of Blockchain Games

More than half of the respondents indicated that acquiring new users remains the biggest challenge facing the industry. Despite adopting free ownership and free-to-play (F2P) models and making blockchain elements optional to improve accessibility, the issue of attracting new users continues to hinder industry momentum.

Poor gameplay is another significant issue, as Web3 games often lack in functionality and gameplay compared to Web2 games. However, in 2023, some Web3 games began to break the deadlock and this inherent perception. Games like "My Pet Hooligan" and "Illuvium" have garnered attention for their high quality. The upcoming "Star Atlas," which uses Unreal Engine 5, is also highly anticipated by players and has the potential to rival world-class games like "Star Citizen" and "EVE Online." Other well-received Web3 games include the collectible card game (CCG) "Cross the Ages," which features a story mode and player-versus-player mode, similar to Web2 CCGs like "Hearthstone"; and the simulation game "Upland," where players can buy and trade virtual properties representing real-world landmarks.

In 2023, regulation has once again become a key focus for the industry, rising from 10th place in 2022 to 5th place. Given the frequent dialogue and disputes between the cryptocurrency sector and regulators over the past year, it is not surprising that this aspect has regained attention. However, in the first industry survey conducted in 2021, regulation was considered the number one challenge facing the industry, with concerns that if countries began to implement stricter policies or compliance measures, the pace of cryptocurrency adoption would slow down. Additionally, Web3 founders find it difficult to maintain clarity or confidence in an uncertain regulatory environment, which is a normal reaction of that era, as the earliest blockchain games were highly financialized.

In two consecutive surveys, respondents unanimously agreed that the "cryptocurrency winter" has had the most negative impact on blockchain games. With the arrival of the bear market, the public and media lost interest in Web3, and even those who continued to play games actively may have developed some fatigue due to the stagnant market. According to DappRadar, the number of active players in Web3 games in 2023 slightly decreased compared to 2022, with an average monthly active user (MAU) of 2.2 million in 2023, down 15.4% from 2.6 million in 2022. Nevertheless, companies are still using this time to build solutions to enhance the gaming experience and facilitate better onboarding for players. As monthly active users began to increase to 2.6 million in October 2023, the situation started to improve, indicating positive developments for the coming year.

Next, the issue of macroeconomic events is of greatest concern to respondents. Global macro events such as economic recessions create an environment of financial instability, limiting capital acquisition and exacerbating challenges. Additionally, geopolitical tensions further complicate matters, making it more difficult for emerging enterprises to navigate and grow in the global market. The cryptocurrency winter and global macroeconomics are external factors affecting the industry. Overall, they are the strongest forces putting pressure on blockchain games, with 51.3% and 45.2% of respondents mentioning these two factors in 2022 and 2023, respectively. This indicates that professionals in the blockchain gaming industry believe that once the market improves, their companies and projects will rise strongly.

The only internal challenge recognized within the Web3 space is the ban on NFTs by traditional game studios. This has ranked third in both 2022 and 2023, accounting for 8.7% and 11.0%, respectively. Notable bans over the past year include the ban by Mojang Studios, the developer of "Minecraft," which expressed concerns that NFTs could impact the inclusive community experience of the game, as not all players can use NFTs; and Rockstar Games, the developer of "Grand Theft Auto," prohibiting the use of NFTs and cryptocurrencies due to concerns that game ownership could be distributed and monetized without the publisher's explicit consent. Due to the speculative nature of NFT games, South Korea has also explicitly banned NFT games.

Misunderstandings About Blockchain Games

Since 2021, respondents have identified the biggest misunderstanding surrounding blockchain games as the perception that they are scams or Ponzi schemes. In 2023, 70.0% of respondents believe this is still the biggest misconception about the industry. This figure was 69.5% in 2022 and 59.0% in 2021, indicating that blockchain game professionals are increasingly concerned about this misunderstanding.

While some fraudulent projects have emerged in the field, these bad actors do not represent 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 before participating, conduct thorough research, and understand the potential risks. It is equally crucial for the industry to adopt best practices and regulatory measures to build trust among users.

In 2023, another misconception mentioned by 46.4% of respondents is the persistent association between cryptocurrency and the dark web. This seems to be an increasing concern among blockchain game professionals, as 38.0% of respondents highlighted this issue in 2022 and 38.2% in 2021. Mainstream media reports about cryptocurrency being used for crime and funding terrorism may have fueled this perception. The industry needs to strengthen education on this matter, showcasing blockchain's transparency and how it can assist law enforcement in tracking crime-related transactions, further promoting the advantages of blockchain to mainstream audiences.

Transition of Web2 Game IPs and Practitioners 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 perspective may be the comparison of newly funded Web3 games with the works of Web2 studios that have been developing games for decades. When asked what would have the most positive impact on the gaming industry in 2023, 19.8% of respondents believed it would be traditional game studios launching NFT games, while 15.2% thought it would be the transition of Web2 (or traditional) games to Web3. Overall, 35.0% of respondents believe that the positive impact from Web2 game studios transitioning to the Web3 space comes from the talent, experience, brand recognition, and large mainstream audience they bring.

Large game studios have been exploring and experimenting in this area, many of which see the potential of blockchain games to promote the development of the entire gaming industry. Some Web2 studios have been developing Web3 versions of popular IPs or creating new Web3 games under their studios. This includes, but is not limited to, traditional gaming giants like CCP Games (EVE Online), Nexon (MapleStory), Ubisoft, Square Enix, and Bandai Namco. More than one-third (37.8%) of blockchain game professionals believe that the adoption of blockchain by large Web2 game studios can drive industry development.

Driving Factors for the Development of Blockchain Games

In addition to the adoption of Web3 by large Web2 game studios, game improvements are another major driving factor, accounting for nearly one-third of the survey responses. Since 2021, these two factors have consistently ranked first and second, and they complement each other—large traditional studios can bring experience and talent to push more Web3 games to market and elevate more Web3 games to the same level as Web2 games.

Beyond the top three, considerations for improving onboarding and accessibility have significantly increased, accounting for 27.8% of total responses, ranking fourth. In 2022, it only ranked 10th, indicating that the industry is increasingly focused on making blockchain games easier to access. Another notable trend is that respondents believe that releasing more blockchain games is an important driving force for the industry, rising from 12th place in 2021 to 6th place in 2023. In summary, one in four respondents (25.7%) indicated that they believe releasing more web games will help drive industry development, as more games mean a richer variety to cater to a broader range of preferences.

The P2E mechanism has lost its significance as a driving force for the industry, dropping to 8th 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, treating these games as work because they could earn token rewards that could be exchanged for cryptocurrencies and fiat currencies. However, the sustainability of these virtual economies quickly came under scrutiny as token prices fell, leading economically motivated players to exit first.

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

When discussing the factors driving industry development, the priorities for reducing transaction costs and lowering NFT costs have declined. They now rank 12th and 15th, respectively. One possible reason is the improvement in scalability of L1 and L2. One example is Polygon's transition to zkEVM rollups, which significantly reduces transaction latency and aggregates 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 rebounded from the bull market, the cost for new players to purchase NFTs on the secondary market became increasingly high. Today, most games adopt a free-to-play model, allowing players to start playing without having to purchase NFTs upfront. Therefore, the cost of NFTs is no longer an issue, as most web games no longer require players to buy NFTs or NFTs to start playing.

Achieving Web3 Growth: UA, Distribution, and Expansion

The life and death of a game depend on 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. By advertising on Facebook, Twitter, YouTube, and Twitch, as well as through in-app recommendations and email promotions, Web2 games have employed a reliable set of methods to launch and scale products and attract 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 provable community engagement, decentralized governance, and token incentives. Users are not only viewed as consumers but also as active participants contributing to the development and sustainability of the network. This approach aims to foster a sense of ownership and collaboration by redistributing value and decision-making power among participants, thereby creating a more inclusive and equitable digital ecosystem.

Challenges in User Acquisition for Web3

In 2022, acquiring new users and accessibility were the biggest challenges facing the industry, with 51.0% of respondents identifying it as the primary issue. This trend continued into 2023, with 55.1% of respondents again listing it as a primary concern. There are still many barriers hindering blockchain games from entering the mainstream. For example, Steam, the largest video game distribution platform in the PC gaming sector, prohibits any form of cryptocurrency or NFT transactions. Web3 games must redirect any transactions outside of Steam or use third-party programs, making the transaction process more cumbersome. This ban is not permanent, but it has harmed the entire industry by closing off a Web2 giant's discovery channel for Web3 games.

App stores are also imposing restrictions. The Apple App Store treats all Web3 and NFT projects the same as traditional applications, charging a 30% commission on all transactions completed using its marketplace. On the other hand, Google Play has been slow to support Web3 games. Google itself has been supportive of blockchain technology and recently changed its policy to allow blockchain applications to run on Google Play. However, this change did not occur until mid-2023, meaning many developers only began developing blockchain games for Android devices then.

Opportunities for Major Players in Web3

The Epic Games Store has already 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 studio and the game "Brawlers" to offer exclusive in-game items and physical prizes. The game "Mojo Melee" has also entered a six-month collaboration with Amazon Prime Gaming, providing prizes each month.

New Methods for User Acquisition

Blockchain technology offers unique possibilities for user experience. One of the earliest attempts was the highly popular "P2E" model in 2021. Players could earn reward tokens and airdrops while continuing to play the game. In 2021, as many as 67.9% of respondents believed that "P2E" was the biggest driving force in the industry. This model was unique when the gaming industry was just emerging, prompting many players to give it a try.

While "play-to-earn" is no longer seen as the primary driving force in the industry, it has indeed opened up possibilities for new user acquisition strategies. Many BGA members are exploring the following Web3-native methods for 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 directly inviting addresses helps with user acquisition and expansion. Companies and developers can also utilize data tracked from players' on-chain activities to gain more specific insights into 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 a reputation online. Others will be able to see in-game achievements that are permanently and verifiably attached to the player's wallet. This gives players the chance to showcase their credibility.
• Web3 launches: Releasing on dedicated Web3 platforms helps increase visibility and target the audience companies wish to reach. Additionally, many large companies from both Web3 and Web2 are now beginning to offer projects to help develop this ecosystem.

Looking Ahead to 2024

More Web2 Studios Transitioning to Adopt Web3

Many Web2 studios have been experimenting with blockchain technology. Some companies are more openly attempting this, such as Square Enix and Ubisoft, while others take a "wait-and-see" approach. As these studios begin to consider the iteration of technology, they may gradually venture into 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 critical aspects such as onboarding and user experience. Some studios may attempt to use on-chain assets, and due to the lingering negative sentiment towards NFTs and blockchain, some developers may treat them as technical applications rather than explicitly promoting them as NFTs, blockchain, cryptocurrencies, or Web3.

Artificial Intelligence in Blockchain Games Becomes a Hot Topic

Artificial intelligence has dominated discussions in many industries this year, including blockchain gaming. With the popularity of generative AI and large language models (like ChatGPT), some respondents believe that blockchain games are already testing AI for Web3 games. For example, behavioral AI can make NPC dialogues richer and interactions more engaging while enhancing their decision-making abilities. However, some are concerned that the ability to create games using AI may lead to a flood of low-quality assets and collectibles. On the other hand, AI can unleash unprecedented creativity.

Development and Launch of Major Web3 Games

With ongoing development over the past two years, there is potential for a large-scale blockchain game hit to emerge in 2024, triggering a chain reaction that attracts millions of new players to Web3 and changes the perception of most people. Historically, such games are likely to be adopted and promoted first in the Eastern world before being accepted in the West. This is similar to the widespread adoption of free-to-play games (like "League of Legends") in Asia in the early 21st century, which had already been widely adopted before being accepted elsewhere globally.

Blockchain Games Will Simply Be Called "Games"

Currently, there is a separation between Web2 and Web3 games, but this is expected to change. As more Web2 studios explore blockchain technology, they may strive to integrate blockchain technology into existing game elements, making it almost imperceptible to players, ensuring that it becomes part of the game rather than an additional feature, thus maintaining the overall experience's appeal to the existing player base.

The End of Predatory Revenue Models

Free-to-play games have eliminated barriers to entry, fundamentally changing the gaming industry. However, it has also led some developers into predatory practices, trying to extract more profit from players, whether through pricing game features or imposing time-limited offers to evoke players' fear of missing out. As more games adopt blockchain technology, 2024 marks a shift towards a transaction-centric environment that benefits both developers and players. With this new model, we will see the end of predatory practices in games.