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Last week was full of hope and anticipation, as gamers got a look at some upcoming big titles, and a number of touted web3 games launched their playtests:
- May continued to be playtest heavy for web3, with Illuvium, Superior and The Phantom Galaxies among those jumping into the fray.
- Old staples were vying for gamer attention with new installments on the horizon for: Diablo 4, Genshin Impact and Mortal Kombat 1.
- Overwatch 2 will not get a PvE Hero mode, while Take-Two canceled a number of unannounced games.
- Sky Mavis strengthened itself as a gaming ecosystem with broad appeal, finally getting Axie Infinity on the Apple App Store and launching Mavis Market.
- Gala Games tried to defend its ground with a wave of token burns.
- Data from GameDiscoverCo showed surprising results for hype vs conversion on Steam, while Data.ai analytics reinforced the importance of ad revenue for games.
- ERC-6551 made some noise, promising to make NFTs dynamic.
Let’s Dive In!
New Games to Test in the Web3 Space
Illuvium, Superior and The Phantom Galaxies join the ranks of games inviting games (closed or open format) to test out their playable builds. The feedback from gamers will be incredibly important as the “second wave” of web3 games gets ready for their launches, with many aiming for Q3-Q4 releases.
These playtests are usually targeted towards the web3 native communities, but the studios always need to keep the average gamer in mind. This means being incredibly careful about when and how web3 terms are introduced. It can be as simple as using “connect” vs “connect wallet”, but it is critical for getting the attention of mainstream gamers.
However, as Ledger found out, trying to make things easier can also backfire. The company’s new feature, Ledger Recover, was (hopefully) intended to make hardware wallet management simpler for the average user, by adding a social recovery feature.
Instead, it raised concerns about the manufacturer’s handling of user keys and the overall safety of the devices. Studios must navigate the web3 waters, while minimizing friction for those just entering the space, or risk alienating crypto natives or the mainstream gamers.
Fighting for Gamer Hours
While the internet is still buzzing about the new Zelda game, there are waves of information coming about the much anticipated titles such as Diablo 4, the Genshin Impact 3.7 update and Mortal Kombat 1. They will come as new installments to storied franchises with large and loyal gamer bases.
On top of that, two spin off games have been announced for Dead by Daylight, and Amazon will be building a Lord of the Rings MMO. The latter makes a lot of sense, given the amount of money the tech giant has poured into building out its own LOTR ecosystem.
With all this in mind, studios building in web3 need to start thinking about scheduling. Many of the conversations around timing concern token release and crypto market conditions.
However, it will be critical for studios vying for mainstream adoption to pick opportune moments for their releases, so as to not compete head to head for the attention of gamers with big budget AAA studios.
This is especially important as companies like Amazon ramp up their gaming and web3 efforts, while big studios continue to experiment with web3 tech and NFTs in particular. For instance, Ubisoft will be introducing NFTs to the Assassin’s Creed franchise.
Time is important and studios in the web3 space looking to launch in the next 3–9 months need to consider the broader gaming landscape in their plans.
AI and UGC Can Help Games Recover
Unfortunately, it was not all good news last week, as it became apparent that a number of Take-Two’s unannounced titles will never see the light of day. However, most disappointing was the announcement that Overwatch 2’s PvE Hero mode will not be happening.
Big studios appear to be struggling with developing content fast enough at a high enough level, leaving them stretched with liveops and developing new experiences.
AI can help with reducing cost and time of production.
As you can see from the paper we published last week, AI can have an enormous impact on the gaming space. Most recently, Skillprint AdaptivePlay AI, went into private beta, offering game developers an opportunity to dynamically personalize gaming experiences for players.
Still, as exciting as this potential is, AI has a very limited application in the gaming industry today, as can be seen from the comments from the president of Blackbird Interactive. The quality is just not there yet.
UGC may be able to provide more immediate relief. Games like Roblox and Fortnite have demonstrated the tremendous impact UGC can have on player engagement and ultimately the bottom line.
However, games utilizing web3 tech may be uniquely positioned to take advantage of this growing trend. The ability to provide creatives and gamers with true ownership and programmatically enforced royalties may be a game changer, assuming a fun game at the core.
Engaging the community to create (everything from skins, to maps, challenges, levels and story tracks) content should help studios scale content development. Moreover, this would align perfectly with the web3 ethos, and our vision for citizen rights for players in gaming worlds.
At Sanctor Capital, we strongly believe in the power of UGC, and so have been an early backer of Sandstorm, a marketplace that helps catalyze development of content in virtual worlds. Recently, one of our portfolio companies, Grow Your Base, launched Slingshot DAO, a platform to help populate virtual worlds like, The Sandbox, with games.
We expect UGC to play an increasingly bigger role in the gaming space, especially as retail friendly AI tools involving text to image and text to code become more polished.
The Ronin Ecosystem gets Ready to Blossom
Sky Mavis continues to build out its ecosystem, now bringing Axie Infinity to the Apple App Store. Despite the currently limited regional availability this is a big move for the game. It increases the games reach by opening up to a mobile user base, which plays to the games regional strength in the Southeast Asian and LATAM markets.
As more and more games start to figure out how to navigate Apple’s policies, web3 games should become a more organic part of the gaming landscape. Cross the Ages is already scaling the App Store charts, and we can expect more games to do the same.
Additionally, Mavis Market launched on Ronin to give the ecosystem an aggregated NFT marketplace. Despite all of the challenges, Sky Mavis has been steadfastly validating a major thesis that games catalyze ecosystems.
Only a few years ago, every chain tried to build a DeFi ecosystem, but DeFi transmits value, while games generate it. Sky Mavis used Axie Infinity to catalyze its ecosystem. Then we saw Ronin, and now after the builders and the new IP titles have started to yield their fruits comes Mavis Market.
Every L1 and L2 ecosystem under the sun is trying to create a gaming ecosystem, but Sky Mavis was and remains a trailblazer.
Gala Games Plays Defense
This month was supposed to be about May Mayhem for Gala Games. The company that’s trying to build out its own gaming ecosystem, was looking forward to showcasing its lineup of titles and their progress.
However, with the mixed reception of V2 and other oddities, like the Mirandus video take down request to Jake Browatzke, the positive narrative got diluted.
It looks like Gala Games wanted to right the ship, and burned $600M+ worth of their ecosystem token to do it. It is unclear whether this calmed everyone’s nerves, as the price chart registered only a short term spike, but the company probably hopes the focus can shift back to its games.
Strength in Numbers
Gaming data remains scattered and hard to work with in the web3 space. However, companies like Helika, which recently partnered with Yuga Labs, are trying to make major improvements in that area. The founder of Helika, spoke on one of my recent WaypointWeb3 spaces, when we discussed Gaming Data.
While that remains a work in progress, there are a lot of lessons that can be learned from studying data from traditional gaming companies.
For instance, GameDiscoverCo analyzed Steam data to find how hype converts for PC games. Among unreleased games the genres that generated the most hype were: Roguelike Deckbuilder, Survival and FPS. If you look at the web3 titles generating buzz, you’ll see a lot of parallels.
However, the genres that convert hype the best were: Escape Room, Sports and Psychological Horror. Survival could curiously be found towards the bottom of the list. Understanding these trends can maybe help new studios search for the “unbeaten path”, and studios getting ready to launch have a reality check.
Alternatively, Data.ai focused on mobile apps in their report. It appears as though roughly 35% of mobile ad spend is being generated by games. Studios, in turn, see ad revenue as just over a half of the total take in. Curiously, around 66% of the app store spend ends up being one time purchases, which may be a welcome sign for NFT sales.
Moreover, the report underscores the importance of revenue stream diversification. If the marketplace fees model works out, it will become a new revenue option in the mobile app space.
NFTs Look to Become Dynamic
Just as the industry finished digesting Limit Break’s proposal for programmatically enforced royalties, ERC-6551 popped-up. The new standard enables NFT to own other NFTs, and would in fact make them dynamic.
It’s not hard to see how this can have a variety of utilities in gaming, and in fact one example, “ the accumulation of assets and abilities” by a character in an RPG, can be found in the text of the proposal draft.
A number of people in the space got excited about the possibilities, but it is important to remember that it’s not always easy to find adoption for standards. Just look at the story of ERC-1155 vs ERC-721. What may help this new standard is its backwards compatibility.
The functionality being offered can be quite useful for games, but it remains to be seen if this will be the solution that will be picked up by the studios.
This wraps it up for this entry. As always, if you are working on something exciting in the web3 gaming space, or are a traditional gaming team looking to explore the possibilities, don’t hesitate to reach out to any of us at Sanctor Capital. Have a great rest of your week!
Ilya Abugov (@AbugovIlya)
Disclaimer: This commentary is not investment advice. It does not purport to include any recommendation as to any particular investment, transaction or investment strategy, or any recommendation to buy or sell any investment. It does not reflect any attempt to effect any transactions or render any investment advice.
This post is solely for informational and entertainment purposes. It is inherently limited and does not purport to be a complete discussion of the issues presented or the risks involved. Readers should seek their own independent legal, tax, accounting, and investment advice from professional advisors. The views reflected in this commentary are subject to change at any time without notice.