Hot Business Models: Revenue in the Gaming Industry

No longer an arcade machine you’d drop some pennies in, video-game revenue models have evolved.

In an industry still young, a lot of us have been able to witness the first steps from the traditional pay-to-play model to the recently popularised free-to-play model used in freemium games such as Fortnite and Counter-Strike: Global Offensive that grant players (partial) access to their content.

Adopting this free-to-play model exposes these games to players who might otherwise not have bought them, creating a larger customer base for profit through additional downloadable content (DLC) and increasing advertisement reach.

While it has shown to be very successful for some of the world's most popular games, the model requires delicate balancing of DLC and free content to avoid a pay-to-win scenario. This is in fact one of the biggest areas of criticism by the gaming community who, at times, finds it hard to remain competitive with those who heavily invest in DLC.

Still, the free-to-play model is viewed as a win-win, benefitting companies and gamers alike; it is not, however, the final form of the gaming industries’ ever-developing business model, as a new generation of games and accompanying models is already gaining traction.

Backed by blockchain technology, these games operate as user-generated content ecosystems: platforms for players to play and create games, purchase and design in-game assets such as buildings, characters, animals, vehicles, weapons, etc., and monetise or even trade these assets — stepping things up a notch or two from the free-to-play model.

One of the leaders in this newly found space is The Sandbox, a virtual world in which users can build, own, and monetise their gaming experiences on the blockchain. Similarly, Decentraland is a massive virtual world that is owned by its users. For simplicity, I shall use the former to shine a light on this emerging business model.

Built by the seasoned team behind The Sandbox (2011) and The Sandbox Evolution (2016), two games that together reached over 40 million downloads across iOS and Android app-stores, the blockchain-backed edition has already attracted the likes of Atari and Binance, as well as IP’s such as The Care Bears and The Smurfs.

So, earn-and-play... How would that even work?

Alice, Bob, and Carlos have a couple of ideas.

Veteran game designer Alice has decided to purchase a few plots of LAND to build her next game on. Hoping to benefit from the high traffic in the area, she goes for LANDs bordering the Atari estate.

Alice is creating a jungle on her LANDs with various mini-games and over 50 rare animals to discover; each with their own unique character traits and animations.

Now, Alice could decide to monetise the game in its entirety, staying true to the traditional pay-to-play model, or keep it free-to-play and allow gamers to buy additional content that could assist them in finding the rare animals (night-vision goggles, magical whistles, etc.). Being a smart gal, Alice decides to go for the latter.

Trader Bob really wants that whistle and buys it on the marketplace as it has already been sold out in Alice’s store. With this special whistle, Bob is able to venture deep into the dense jungle and call and find the rarest animal in the game: the elusive Winged Tiger.

Bob can then choose to keep the legendary bird as a collector or sell it on the in-game marketplace to other traders and collectors. Of course, Trader Bob decides to go for the latter.

Similarly, Alice can head to the Sandbox Marketplace to sell individual components like her jungle animals, which can then be used by other game designers to create their own worlds.

Carlos, a creative beginner, is building his first game and goes to the marketplace to purchase a giant tree and a few of the animals made by Alice to use for a special area in his game: an interactive Sandbox safari to which Sandbox players can sell (or donate) rare animals and other safari valuables.

Having sold the rare Winged Tiger (not to Carlos, sorry), Bob is browsing the marketplace in search of the next opportunity. He eventually finds a plot of LAND next to Carlos’ promising game. Believing that Carlos’ game will attract a lot of players, Bob decides to purchase the LAND to sell at a mark-up once the demand for it has risen. He is confident in his purchase and thinks there will be many buyers for it: advertisers and game builders looking to settle in the area, or even Carlos himself looking to expand his game in the future.

Amazing.

Games like The Sandbox are revolutionising industry business models by allowing for trust-less monetisation and trading of in-game assets.

In The Sandbox world, all in-game transactions are executed with its native currency: the $SAND token. While tokens are not new to gamers, they are for the most part limited to the games they’re built for, i.e. Fortnite’s V-Bucks and the FIFA series’ FIFA Points.

Blockchain-based game tokens like $SAND retain their value outside of the games they find their origins in and can be traded on cryptocurrency marketplaces. Drivers for the value of the $SAND token include governance, speculation, and interest.

Staying true to the DAO methodology, The Sandbox is governed by its stakeholders: The Sandbox team, partners and investors, and of course its users, the main value contributors to the content ecosystem. 

The size of your stake, or the weight of your vote, is determined by the amount $SAND you hold. By holding the token, stakeholders earn a % of the fees generated on the marketplace. 

Earnings from the marketplace are also used to fund game and content creation:

On the surface, blockchain-backed games are no different from the usual. Nonetheless, the added layer of trust is truly a game-changer, and not just for games: blockchain technology is disrupting industries without discriminating.

Shaking up the advertisement industry, blockchain-based projects such as Basic Attention Token are paying users to watch ads, and in due time, we shall see such ads make their way into The Sandbox, Decentraland, and other games as billboards and bus ads.

Looking past the traditional pay-to-play model, beyond free-to-play and The Sandbox’s earn-and-play setup, we can catch early glimpses of the next and possibly ultimate model: paid-to-play.

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