Traditional gaming needs Web3 more than ever

Blockchain gaming is back and bullish. 

The sector grew by 33% in Q4, with trade volume roughly tripling in just six months. But in stark contrast, traditional gaming is on a downward trend. Global mobile gaming revenue is in decline for the second year running as developers face market saturation and stalling user numbers. 

To make matters worse, China unveiled draft rules just before Christmas to curb spending and rewards in video games, leading to an astonishing $80 billion loss in market value for top gaming giants. 

In the face of regulatory and revenue challenges, we should expect traditional gaming studios to design other means of attracting and retaining users — they’ll be moving to the decentralized models of Web3.

If blockchain games truly need “more shots on goal” to win — more innovative titles from skilled creators — then the gaming sector is on the cusp of mainstream adoption.

A saturated market and tight rules in Web2

Even before concerns over the holidays about additional regulations, Web2 gaming faced significant challenges. This is because a saturated market, slow growth and tighter regulation are producing thinner margins. For example, among leading game publishers, Tencent and NetEase — which focus on live service games — saw year-on-year revenue declines.

December’s announcement of new rules in China curtailing gaming spending only added insult to injury. And now, despite attempts to backtrack the decision, (including firing the official who sparked the turmoil) uncertainty lingers.

The problem is that there are even deeper issues across the Web2 gaming sector. First, after rapid growth in the number of users for global live service games and mobile games during the pandemic, user growth is now slowing across various regions.

Second, in the face of a saturated market and similar projects, competitive pressure is up, leading to higher advertising costs and lower profits.

Third, there are other, different regulatory problems at play. Europe’s GDPR and California’s CPA make personal identification more complex for game studios, thereby raising costs and decreasing the effectiveness of brands to reach targeted users. This further reduces the efficiency of user acquisition — an issue for studios as well as ad networks that rely on game advertising revenue. Unity, for example, lost $5 billion in market cap following Apple’s app tracking changes in 2022.

More revenue and less red tape in Web3

As a result, developers, studios and even advertisers in Web2 are all scouting opportunities in the decentralized world of Web3, drawn by the unique benefits it offers each group.

Game developers, for example, can avoid intense competition in popular categories and more easily acquire gamers in a less crowded landscape. Blockchain gaming also boasts community-driven user acquisition methods beyond traditional advertising (like airdrops and in-game assets). And it doesn’t hurt that it’s possible to avoid policy restriction issues in some countries by making a Web3 game instead of a Web2 one.

Read more from our opinion section: Hey gamers, blockchain isn’t that bad

There are also a host of benefits for both games and gamers in Web3 that they can’t get in Web2. Games create and oversee entire online economies, and players enjoy earning digital assets from playing blockchain games: They can aggregate, control and monetize their identity. Beyond play-to-earn, gamers can earn passive income by sharing their information with titles and participating in brand interactions. Watch this space for data-to-earn.  

Finally, advertising networks — whose primary advertisers are gaming companies — can work with game platforms in Web3 to access first- and zero-party data for better targeting, attribution and understanding.

For a gaming sector at a revenue and regulatory crossroads, Web3 promises a competitive edge. Even if only some Web2 gaming players jump ship to blockchain gaming, this would greatly improve the quality of titles, players and ecosystems in the overall gaming space. And importantly, these are the same three elements the Web3 gaming sector needs to go mainstream.

Blockchain gaming is ready for the mainstream

Now, as strong quarterly growth points toward another bull run, blockchain gaming is well-placed to compete thanks to lower entry barriers, top-tier talent and innovative experiences. Buoyed by the entrance of AAA gaming studios and franchises, market maturity will only further encourage adoption.

This is an inflection point. From decreasing users and falling profits to stricter regulations, Web2 is hitting multiple blockades at once. Conversely, blockchain gaming offers a revenue and regulatory lifeline. Expect many more gaming companies and ecosystem partners to take it and create “more shots on goal.”

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.