Game Monetization, Part 2 - Lessons to Learn for New Beginnings

Part 2 is forward-looking piece, highlighting possible web3 monetization strategies

In Part 1 we explored the history of video game monetization. In Part 2 we delve into how crypto can bring about entirely new monetization frameworks that can better align incentives between players and developers. 

This piece will be split into four sections:

1. Short History of Individual Web3 Game Monetization

2. Upcoming ways to monetize (and their benefits!)

3. Monetization beyond Individual Titles/IPs

4. What are some general metrics to measure in web3 games for efficient monetization?

History of Web3 Game Monetization

Here is a look back at the short but colorful history of monetization in web3 gaming thus far.

Rise of Axie Infinity + P2E Games

The overwhelming success of the game in Q2 of 2021 in terms of player acquisition, media coverage, and revenue generated launched itself and crypto games as a whole into the limelight.

When talking about monetization with crypto games that have a Treasury, it is crucial to split up what the DAO Treasury earns versus what the company earns. In Axie’s case, it would be Axie Community Treasury vs Sky Mavis’ bottom line. The separation is important because all of Axie Infinity’s revenue is captured and stored in the Axie Treasury; Sky Mavis technically has no access to that, as they can only govern and sell their portion of AXS based on the pre-determined unlock schedule.  

However, because the game is still early in its development and decentralization of the DAO treasury is not yet established, the 5.25% (previously 4.25%) ETH market fee and flat AXS breeding fee that goes to the treasury is essentially Sky Mavis’ revenue. Instead of selling a premium game or a subscription, Axie monetizes on marketplace activity and community interactions.

 (Note: the ecosystem fund portion of the unlock is also theirs’ to use until it gets integrated with their DAO’s Treasury.)

Seeing their success, games like Crabada and Pegaxy capitalized on the hype that this new trading based revenue model powered by scholarships and launched themselves into the space as competitors of Axie.

Issues

Despite the early success of these early web3 games, many of them suffered from poorly designed economies, mismanagement of the said economy by the dev team due to lack of experience, and/or too much speculation. Many games were accused (and usually rightly so) of being a reskin of a Defi protocol with gaming overlay. Furthermore, nearly all games that had dual token economy suffered from rampant inflation, unclear timelines with decentralization, and underestimation of how value-extraction-focused gamers can get when given a chance to do so (we dive deeper on this in another Metaportal article on this issue).

As for pre-selling NFTs through land sales and NFTs, it caused a multitude of issues like rampant speculation, gas wars, rugging, and misalignment between gameplay and asset offerings. On the monetization end, while it helped the dev team to set an expectation on supply and potential revenue it could earn from a presale, it also anchored the value of these assets far too early which kills off price discovery (arguably a meta-game in of itself) and potential further upside.

Ryan {👾} SF 29th Oct - 6th Nov @0xRyze

FREE-TO-OWN

Anchoring the price made people hyper-aware of their cash PnLs and opportunity costs, which makes for an inherently un-game-like experience. As the prices were too clear, most people became invested in the game assets and their prices rather than in the game itself. An economy that is too shallow and transparent (something inherent to blockchains) makes optimization too easy, which removes any part of the “fun struggle” a player has when they uncover a new game mechanic or strategy. All this combines into attracting mercenary users 

Upcoming/Newer Models to Monetize in Web3

Free-to-X

Learning from the failure points of NFT-gated P2E games, many game developers have decided to adopt a more traditional web2 model of Free-To-Play (F2P) with NFTs and/or tokens. This transition stems from the need to make web3 games more accessible, as UA has been an uphill battle for most web3 projects.

Levan Kvirkvelia @LevanKvirkvelia

ok, now let's move on to the games. they are also not growing! but when we look at the retention rate, we see many games with a retention rate of 10-30% for several months! @0xSunflowerLand @AaveAave @TheSandboxGame @playdapp_io @Planetix0 @Era7_official

Newer games on the market began to experiment and redefine the purpose of NFTs and tokens in games to attract more users, up retention, and differentiate themselves from the initial wave of web3 games. So whether the NFTs will simply be a bragging cosmetic piece or a tool to shape the economy is entirely dependent on the game. By adopting F2P elements, newer games can avoid some of the aforementioned pitfalls that plague mandatory NFT games. However, devs will now have to solve the age-old F2P question of how to make free players into paying customers. Implemented correctly, NFTs can enhance player immersion and attachment to the game whether through its tradable or time-sunk value.

There have also been examples of games that we’ve had conversations with that are exploring a combination of an off-chain token that behaves like a utility token, an in-game earned token with classical F2P type sinks, that under certain circumstances of excellence can be converted into a premium token traded on the free market. Overall we are seeing a convergence of NFT, crypto-based monetization, and learnings from traditional F2P. Monetize the infrastructure, and align incentives through ownership but also live-ops events and engagement systems like battle passes and daily rewards. 

Shifting Paradigms

While not exactly monetization, transforming costs like UA, marketing, conversion, or retention to better align incentives between the gamers, the game, and the dev team to be more efficient is also something web3 offers with untapped potential.

We touched on this briefly in the section on Axie and how they transformed their UA budget into a pay-per-user flywheel using crypto and we cannot overstate how monumental this shift could be for the gaming industry. While it’s true that there was an execution problem, the inherent idea offers new and fresh ways to engage gamers.

For example, revenue distribution is a way to transform a marketing cost. Revenue distribution is nothing new; Dota 2 has been giving a percentage of its revenue to its championship prize pool for the last decade. Valve’s decision to distribute a portion of the game’s revenue acts as an incentive that is driving higher-level competition, garnering viewership from the existing player base by giving an illusionary sense of co-ownership with the players, and driving general public attention to the matches (Dota has consistently held record high prize pools in e-sports). So rather than spending money on ads and campaigns to attract new players or converting F2P players to paid players, that money is used to organically create the same result. 

What a monstrous prize pool

Similarly, Omega Striker’s recent ascent to a top 100 game on Steam and their decision to do a revenue distribution has taken the gaming space by storm. TLDR, the OS’ dev team decided to share 3% of their net revenue with the top 3 teams on their content creator leaderboard (2% to 1st place, 1% to 2, and 3rd). To participate, content creators can form a team through an official KYC process to receive approval and payment. Players can choose a single content creator to support, and all their games played will contribute to the total score of that content creator on the leaderboard. This campaign has generated massive hype, with top content creators calling on their communities to action to play for them, which has acted as a hugely successful marketing and conversion campaign. Players get to enjoy their matches while knowing their money and time are benefiting their favorite creator (and also helping themselves as it gives their content creators more content), fostering a wonderful sense of community.

So it is clear that web 2 can do rev distribution and realignment of incentives, but we believe that web3 can unlock this on a different scale.  As the author of this article on Omega Strikers says, “...a creator’s fan base will help them earn even more money without the players getting a cut. You would think some of that split would go to the actual people putting in the work.”  In web3, you will be able to do this easily, primarily for these 2 reasons:

• A secure payment rail solution + abstracting away trust-problems 

• A way to bypass regulatory red tape (for now) 

One can only imagine how painful it would be to set up a payout system using traditional payment methods. It would require game companies to collect financially identifiable information, store it securely, pay high fees, and do it across multiple jurisdictions if it’s a global game. Crypto removes all that noise, with the added benefits of transparency and autonomous smart contract enabled payouts for fair and trustless transactions based on tokens, score points, holders of certain in-game assets as NFTs, and more.

For the second point, we are admittedly working in the quite unknown gray territory. Distributing some sort of dividend to unidentified individuals is primed to trip up securities law in jurisdictions around the world. There are reasons why Omega Strikers only allow creators who can do an extensive KYC process to receive the revenue distribution payout.  Also, adding gambling or gambling-esque gaming mechanics to these payouts will push regulators over the edge. Regardless, we see that the hungriest teams will ask for forgiveness rather than permission, and already see governments taking notice of this crypto game payment phenomenon (note: regulation is not always a bad thing).  

Ultimately, crypto is just a tool in video game monetization, whether all of this is good or bad depends entirely on the game and its implementation. While we are not saying to eliminate the marketing budget, this shift gives game devs more tools and flexibility on how to publish games. We will cover this topic more in-depth in a future series. 

UGC

UGC without a doubt is the holy grail for many web3 games, for five primary reasons:

1.      Content is king, and any game that can attract talent to keep creating mods, videos, artwork, spin-offs, guides, etc. will remain relevant for years to come

2.      The fans of any half-decently sized game will outpace any content developers by multiple folds  

3.      Composability, clear ownership, and easy payment rails enabled by blockchain tech means there is a clear guideline on who, where, and how much gets paid + royalties to original developers

4.      Because of 3, it rewards creators more fairly compared to web2 platform vs creator dynamic, which means there is a greater incentive for creators to create better content knowing that they will be rewarded for it

5.      Current games that monetize through UGC like Roblox are exploitative financially and legally for creators, which makes the space is ripe for disruption

UGC allows games like ESV: Skyrim, Gary’s Mod, ARMA 3, GTA V, and the like to remain popular and even grow nearly a decade after their release. It is also why games that not only embrace but thrive on UGC like Roblox and Minecraft can generate such large dedicated fanbases.

The real competitor to Web3 games

While we cannot offer how to set up individual games’ UGC monetization rates and strategies as that would be far too specific, here are some things to keep in mind for games that do want UGC to be a cornerstone of their product:

1.      Makes tools accessible, able to solve complex issues but with simple interfaces  

2.      Make it easy and fun to share and collaborate with other fellow UGC type-players

3.      Have SDKs, plugins, and other more complex tools that are hidden away to not scare away beginners, but are there for more experienced creators

4.      A dedicated platform and marketplace for creators to share and advertise their creations, or choose a third-party platform that suits your needs 

5.      Best to have no limits and rules for what players can create - but have clear backup plans and moderation tools on how to deal with IP clashes or extremely sensitive material because it will eventually happen

6.      UGC web3 take rates will be far lower compared to web2 games (like Roblox’s staggering and deceptive 70%) as there will be far more competition between different web3 games due to the liquid nature of talent and money because of crypto

Web3 games will redefine how players to trade items, interact with marketplaces and create content, which in turn will take UGC to new heights.

Monetization Beyond Individual Titles/IPs

Platforms & Ecosystems, Chains & Subnets

We believe there is going to be a titanic struggle between legacy platform giants like Steam and Epic Stores vs web3 native solutions as web3 begins to scale. A partial reason why developers even consider working in web3 is to bypass the costs and rules of these legacy platforms.  

We believe that this realm of monetization falls under one or a combination (usually combinations) of these categories:

-          Discovery Platform

-          General Marketplaces

-          Hosting Service

We will discuss how current ways, and how we see these strategies play out.

Discovery Platforms: These are the Steams of the web3 like Fractal. is, where their influence and capacity to monetize will stem from their ability to easily onboard users and help them discover games they like. The more helpful and effective these platforms can help users onboard and discover games, the more leverage they have to monetize the games that want to be on their platform and thus more likely to achieve success.

General Marketplace: Includes sites like Opensea and Raible. Over time we believe that these marketplace platforms will have to offer more services like rental, loaning, and other financial services on multiple chains to remain competitive within the web3 gaming ecosystem. Furthermore, the openness of web3 and the ease of switching means they will have to be cautious and justify their take rate. 

Hosting Service/Block Provider: We mainly see this play happening like with AVAX’s game-specific subnets, Polygon gaming supernets, or BnB’s focus on attracting games. L1 blockspace is only going to become more expensive over time, so moving computation to an L2 or game-specific blockchain is a no-brainer. 

Providers of blockspace can monetize via charging network fees, mandatory token staking, charging for cross-chain transactions, and more. Though they have not elected yet to do so, blockspace providers can also develop key infrastructure on the application level for the ecosystem and monetize there. 

At the moment, these solutions are competing on the offerings of high tx speed, low cost, and customizability (ie. the ability for subnets to use their own gas tokens that have their security assumptions). However, in the long run, we believe hosting services that can attract the best IP to their ecosystem will stand above the rest. Though they may not be the flashiest of the 3, being the core infrastructure layer means they can leverage their position to demand token engagement and taxes. 

Wombo Combo?: This will be akin to Sky Mavis’ vision for Mavis Hub, where it will become a one-stop shop for all things related to Axie Infinity. Axie marketplace is already functioning as the sole place to buy/sell/trade Axies that are required to interact with Axie’s games. Axie Origin itself acts as the core IP to drive player attention, retention, and liquidity. The hub will act as a discovery platform both for their own games like Origin and future UGC from their Axie Builder program. Their Ronin chain is the hosting service while $RON will be the liquidity infrastructure for other games on Ronin (whether they be Axie’s games, Axie UGC, or entirely other games that want to join the Axie ecosystem in the future). This is Axie’s way to build a cohesive ecosystem that allows them to place multiple monetization schemes throughout the system. It’s also similar to IMX’s goal to combine a marketplace, gas-less L2 block provider, and a discovery platform all at once for Ethereum-based games (a potential contender as a major Web3 publisher if they can streamline the process). 

Not all web3 products will or can become all 3 and that’s okay. The essence of this platform-type monetization is to control key IP, infrastructure, data, and liquidity. We believe that projects that have a focused vision and a clear idea of what elements to include (or exclude) that would be most beneficial to them will likely outcompete others.

What do you need to measure?

Billion dollar revenue games are not built overnight, looking just at your ARPU for monetization does not give you many contexts or actionables as an operator. This would be analogous to saying “I’m super broke” and then simply staring at your bank account balance to look for answers, rather than finding out how to earn more money or why you’re losing money in the first place.

We all know the basic equation of LTV (rev) > CAC (cost), but what we need to understand and measure are the underlying drivers behind this unit economics model. It’s a combination of engagement, conversion, and game economy contribution. With careful optimization, you can have an efficient funnel that will drive monetization while steering players toward your desired behavior.

In the section below, we will dive into these three concepts (as well as a bonus tip!) of what you should be measuring and examples of how you can turn each of them into actionables.

Please note that since each game is designed differently with unique game mechanics, we will highlight the concept of the metrics instead of focusing on the specific ones. The example cases are for illustration purposes only, please take reference into consideration of your unique game mechanics and design (or send us a DM here to chat about your game if you’re interested in our opinion!) 

Concept 1: Engagement Segmentation

Engagement should always be your first point of contact when it comes to game management and monetization. Engagement is defined by how your player base interacts with your core game loop. Without any measurement on engagement, you won’t be able to drive any form of scalable and sustainable monetization. However, most operators are focusing only on surface levels of engagement such as player retention, session length, etc, all of which hardly give you any actionable tasks for optimization. We encourage developers to look at engagement by segmenting both game-centric items like player progression, play style, and/or meta-game activity and demographically based items like age and location. The isolation of player profiles would be able to give you clearer parameters when adjusting game mechanics or design for optimization.

Illustrative Case: One of the most important engagement segmentation data points any operator should look into is the first-time user experience (FTUE) funnel. In any game, there should be a tailored onboarding experience for new players to complete. This experience is almost always NOT optimized when it first launches. Operators should continuously evaluate and make changes to the FTUE in finding the best way to educate users in the most time-efficient matter. In addition, FTUE is also a great way to set up an early monetization expectation, such as the utilization of premium tools and features.

Metrics Highlight:

• FTUE completion rate

Concept 2: Conversion

From what we know about games over the last 20 years, monetization at scale does not happen in organic formats; rather it requires a careful design of user experience through identifying stagnation and testing major conversion events and levers. 

With the proliferation of the Free to X model, developers will be forced to take down the expensive paywall. This shifts games from a paying-only player base to a player base that is very similar to the traditional F2P model with most players playing for free while a small portion of players contributes to the majority of revenue income. 

To better fine-tune your conversion, you can use the paying cohort player base to back-solve specifically which events or levers are driving the majority of conversion or repurchasing. You should layer the player base segmentation analysis (like what we suggested in Engagement) on top of the paying vs non-paying player analysis to get even more details and actionable insights on the conversion process for each segment. Cross-referencing conversion analysis between different segments may unlock new undiscovered insight on how to better make players pay. Furthermore, you should also measure the stagnation point(s) of conversion for a smoother step-up experience. Removing some frustrations and barriers strategically (with minimal detraction to the core game loop experience) is a powerful tool to eventually turn F2P players into paying customers.

 The gist of conversion is using data to identify when and what are the special moments in motivating players spending money repeatedly. Aligning the why and when is important because the timing matters in figuring out what makes the conversion process works. While these moments are different for every game, these conversion moments tend to rely on:

• Foot in the door tactic, starting  tiny payments while gradually scaling cost

• Creating a sense of urgency of purchases

• Expectation management of value by anchoring 

• Sense of belonging/community based on player’s perception of skill mastery

TLDR: It is important to know why and when (the timing of both is important) players are/aren’t paying, which can be figured out by examining the difference in behavior/actions of paying vs non-paying players. 

Personally, I nearly finished the entire Battle Pass on OmS before I FOMOed and bought it 

Illustrative Case: Taking reference from a skill base game, one of the magical moments that can encourage players to spend is the feeling of mastering a skill of the game. Looking at the data, the majority of spenders have a certain % of minimum in achieving a task (such as % of making a shot in a basketball game) and the non-spenders % is on average below that minimum %. As an operator that has this data point, we can work with game designers to adjust a part of the experience to improve the probability of non-spender hit rate to create the magical moment for the players while maintaining the balance of the game.

Metrics Highlight

• Step-up stagnation

• Step-up conversion events

Concept 3: Economy Contribution

As game economies are shifting towards the player value generation and UGC creation model, players’ contribution will become a part of the game experience and content creation pipeline. As a game operator, you will need to segment the player base into creator vs consumption players, similar to Youtube content creator vs Youtube video watcher. The end goal is to measure and quantify how much engagement & monetization each of the creators is bringing into the economy of the game.

Illustrative Case: Probably the most straightforward measurements for UGC games are the amount of game content each of the creators is producing. An example would be looking at the owners of Sandbox land and their game content tractions from a time sink and paying conversion standpoint. If measured well, you can precisely determine the scaling requirement on the creator economy to support the consumption players’ demand, a classic supply, and demand model. In addition, the next step would be to isolate the high-value generation creators and identify their traits/attributes to continue growing the game content economy efficiently. 

Metrics Highlight: 

• Game Content Generation / Creator

• Time Sink Generation / Creator

Bonus Tip: 

It cannot be understated the importance of data tracking in improving a live service game’s monetization efforts, even early on in the development process. We understand teams have limited time and budget (and not to mention unsexy) to implement tracking and data gathering measures early on, but we promise that being able to identify levers and conversion stages early will greatly impact how you can shape a healthier game beyond just monetization aspects. You will be identify important questions that will shape the development of your game like, what core game loops/cosmetics/items matter to your audience, is there a difference between what matters vs. what they pay for, how to balance (or pivot if necessary) those around their habits and more. Collecting this data early, or at very least having an idea on how to implement it and what data points to get, will save you a lot of headaches down the line in the game’s life cycle (a problem we see with many early web3 games).

Conclusion

Monetization comes down to knowing what your audience is and isn’t comfortable with paying. A key way to figure it out is through examining data on conversion and engagement.

Nevertheless, no matter how creative we think we can be with monetization, especially now with new capabilities web3 unlocks, we cannot escape human psychology, player expectations, and general principles of economics. We have a vast library of historical points we can learn from, as web2 studios have gotten increasingly good at moving money from their users’ wallets into their own, and we don’t see any signs of that stopping with web3. 

However, while it's undeniable that web3 is another way to make whales whale harder with the promises of web3’s benefits, etc., we reject web3 simply as reskin over web2 monetization mechanics. We want to work with teams that are committed to building great games and new experiences for gamers first, while needing the help to strategize new monetization methods that work best for their game. We cannot wait to see the new crypto-native ways to monetize new forms of gameplay unlocked with web3.

In Part 3, will discuss how to turn F2P players into paying, crypto-engaged consumers.

A Call to Action 

At MetaPortal DAO, our mission is to assist web3 games in designing governance systems and sustainable economies that accrue value.

If you are a web3 gaming studio or project and want to talk to us about your in-game economy, we’d love to hear from you. DM us on Twitter @metaportal_dao

Contributors

MetaPortal DAO is looking for contributors to help drive sustainable value accrual and active governance in web3 games and metaverse ecosystems.

• Anyone interested in solving community governance and sustainable game economics at scale

• Mechanism designers(Machinations or similar tools)

• Data scientists 

• Game economists 

• Game historians 

• Community coordinators 

• Discord mod (lol)

• Any general loveable nerds who have been playing games for the last 20 years and want to help build the future of web3 gaming

We’d love to hear from you. 

Apply here to if you are interested in contributing.

More info: metaportal.wtf