2023 was a promising year for gaming, as chip shortages largely subsided and gaming hardware continued to improve in both performance and affordability.
Mobile gaming is leading the way in this regard and it is projected to grow 1.7x faster than the overall gaming market. But there is a new major market emerging – Web3 gaming.
Traditional Gaming Market
The global gaming market was valued at $273B and it is expected to grow by nearly 10% annually over the next five years.
As we can see, the number of active gamers has grown consistently over the last decade, as shown below.
Gaming can be broken down into three broad categories:
- Mobile Gaming
- Console Games
- PC Gaming
Mobile Games
Mobile Gaming has quickly become the largest piece of the gaming pie, with over 50% of the global gaming market share.
The number of active mobile players is around 2.7 billion globally. A number that is equal to over 35% of the world’s population.
RPG games are the frontrunner, accounting for about 30% of in-app purchase spending, driven by MMORPG.
In contrast, Hyper Casual leads in downloads, making up 29% of all mobile game downloads. Additionally, 21% of Android apps and 25% of iOS apps downloaded are mobile games, with 55% of mobile gamers being female.
Puzzle and matching genres seemed to be favorites among female audiences, whereas strategy, sports, and shooting interested male gamers.
For the past few years, Tencent, a Chinese multinational tech conglomerate, has grown its gaming empire.
As of 2023, it was the largest iPhone gaming app publisher globally in terms of revenue.
Geographically, China spends the most, but Japan spends more per capita than any other country. Both countries are home to some of the biggest mobile games, such as Honor of Kings and Genshin Impact.
However, crackdowns on playtime by the Chinese government in recent years and regulators issuing almost no gaming licenses have put pressure on the gaming industry in the region.
PC Gaming & Console Gaming
Although PC Gaming represents the smallest segment of the gaming industry in terms of revenue, it has far more users, with 1.8B PC players compared to approximately 600 million console players.
Console gaming has also seen constant growth throughout the last decade, as Consoles have become cheaper and seen performance gains.
Research shows that PC gaming and Console gaming are beginning to stabilize, as growth slows down and user metrics begin to even out. In the past few years, games have shifted away from a “buy once” model towards a “Gaming as a Service” (GaaS) model.
Under the GaaS model, publishers find a way to monetize games after their initial sale through microtransactions or other purchasable content.
Recent examples of this include Fortnite’s Battle-Pass system (which has since been copied and used by countless games), where-in free-to-play games offer purchasable content every “season” which often includes cosmetics or in-game currency.
“Loot Boxes” have also been prevalent in the last five years in games like Counter-Strike, Overwatch, and League of Legends, wherein users can pay in-game or real-life money to essentially gamble on in-game currency or cosmetics. This model has faced regulatory concerns in the past, with Blizzard Activison facing a lawsuit over their loot box system.
Web3 Gaming companies follow these models, and have the additional benefit of ensuring security and “ownership” of their users’ in-game items, which can potentially then be re-sold on a secondary market.
One particularly interesting example of this in traditional gaming would be Valve’s Counter-Strike Global Offensive (CSGO). CSGO has a loot-box system where players can purchase “keys” to open loot-boxes for $2.49 each.
Reports have found that Valve could be making upwards of $54M per month just through its sale of keys.
But there’s more, as it offers a “community marketplace” where players can “sell” their items for Valve’s own currency, which can be used to purchase other games or items on their steam marketplace.
Difficulties for new entrants
Starting a video game studio poses a multitude of challenges, just ask Curt Schilling.
From a financial perspective, the high initial costs for equipment, software, licensing, and hiring qualified talent can be substantial. Creating a new game requires immense technical expertise in a highly competitive market, which necessitates all of the aforementioned.
Further, there’s a need to continually adapt to rapid technological advancements and consumer preferences.
Then there is also the issue of market saturation, with a nearly infinite number of games being released annually, making standing out and achieving market penetration exceedingly difficult.
Going Mainstream
Several major game publishers have announced development and/or partnerships with Web3 gaming projects including Nexon, Square Enix, and Ubisoft.
Nexon
Nexon, a leading global gaming company, is venturing into the web3 space by creating a blockchain-powered ecosystem for its 20-year-old game, MapleStory.
This ecosystem will allow players to trade in-game assets like outfits, equipment, and virtual pets as non-fungible tokens (NFTs). Despite the short-lived success of many blockchain games, Nexon is committed to developing more sustainable crypto games. The company’s first blockchain game, MapleStory N, and its NFT ecosystem, MapleStory Universe, are based on the original game’s intellectual property.
Nexon anticipates that these new platforms will be popular among the game’s existing user base, which exceeds 180 million globally.
To facilitate its transition to web3, Nexon is partnering with several companies, including Polygon, an Ethereum scaling solution, and Haechi Labs, a crypto auditing and wallet solution provider.
Haechi Labs’ Face Wallet feature will allow users to log into crypto games like MapleStory N using their existing accounts with Google, Facebook, Apple, Discord, and Kakao. This feature aims to make self-hosted wallets more user-friendly by allowing users to log in with a six-digit password and offering options for passcode recovery.
It is seen as a significant step in making blockchain and crypto games more accessible and user-friendly.
Square Enix
Square Enix, a major gaming company, is partnering with web3 gaming platform Elixir to promote blockchain games to traditional gamers, despite the general disinterest in blockchain, NFTs, and web3 among gamers.
The partnership aims to generate visibility and adoption of web3 games among traditional gamers. Elixir, a PC games distribution platform, presents web3 games and regular games side-by-side, with little to distinguish between them.
Square Enix’s commitment to blockchain technology and NFTs is nothing new.
The company’s vision for 2023 included “aggressive investment” into these areas. Even after the departure of then-president Yosuke Matsuda, this vision appears to have remained intact, as demonstrated by a recent set of Final Fantasy 7 NFT trading cards.
Despite the controversy surrounding web3, blockchain, and NFTs in gaming, and the backlash faced by many studios and publishers for using the technology, Square Enix is steadfast in its commitment to these areas.
Ubisoft
Ubisoft, the studio behind the Assassin’s Creed and Just Dance franchises, is the first major video game publisher to release in-game NFT items.
The French game publisher continues to expand its footprint in the Web3 space with the launch of Rabbids NFT avatars for the Ethereum metaverse game, The Sandbox.
The NFT release comes a year after Ubisoft announced plans to bring its popular Rabbids characters to The Sandbox. Ubisoft is releasing 2,066 of the Rabbids avatars via Polygon, an Ethereum scaling network, with each NFT selling for 100 SAND, approximately $78.
Ubisoft continues to invest in the crypto industry, supporting NFT game projects like Axie Infinity and Nine Chronicles, and investing in firms like metaverse investment firm Animoca Brands and game maker Horizon.
Web3 Native Projects
Axie Infinity
| Year Founded | 2018 |
| Headquarters | Ho Chi Minh City, Vietnam |
| Employees | 303 |
| Funding Stage | Series B |
| Funding | $150M |
Axie Infinity is a blockchain-based game where players collect and battle digital creatures called “Axies”. Developed by Sky Mavis, it operates on the Ethereum blockchain and offers a play-to-earn model, allowing players to generate income by earning in-game rewards that can be converted into real-world currencies. Axie infinity is supported on Android/IOS, as well as PC/Mac.
Dapper Labs (Crypto Kitties)
CryptoKitties is a blockchain-based game that gained popularity in 2017 as one of the first decentralized applications (dApps) on the Ethereum network.
It allows users to collect, breed, and trade unique digital cats represented as non-fungible tokens (NFTs). Scarcity and rarity driving their value, as players engage in auctions and sales to acquire, breed, and sell these virtual felines. Crypto Kitties is supported on Web browsers and Ethereum.
| Year Founded | 2018 |
| Headquarters | Vancouver, British Columbia |
| Employees | 361 |
| Funding Stage | – |
| Funding | $725M |
Blocktackle
Block Tackle is a San Francisco-based studio dedicated to creating the first generation of fun-first blockchain games.
Their first title, SkateX, is an extreme sports MMO that uses NFTs for true digital ownership. Players can own their skateboards, gear, and clothing in the form of NFTs, which use the blockchain to authenticate unique digital items. This allows players to truly own their digital identities and have full control over their in-game assets. Block Tackle is also actively building an engaged community around SkateX, and plans to release more NFT drops and high-profile collaborations in the future.
Block Tackle is founded by gaming industry veterans from EA, Kabam, Supercell, and more.
| Year Founded | 2022 |
| Headquarters | San Francisco, California |
| Employees | – |
| Funding Stage | Seed |
| Funding | $5M |
Web3 Payments
The integration of Web3 Payments into games involves leveraging blockchain and cryptocurrencies to enhance player engagement and create new revenue models.
Web3 payments provide a seamless, secure, and efficient way of transferring value. Players can use these payments for in-game purchases, such as skins, accessories, power-ups, or additional levels.
This simplifies transactions by reducing the need for intermediaries and expands possibilities for micro-transactions, introducing the potential for real-world financial value to be derived from in-game activities.
Overall, Web3 payments facilitate the development of player-driven economies within games, giving players the opportunity to buy, sell, or trade assets with other players.
In this way, unique or rare in-game assets can appreciate in value and be exchanged for cryptocurrency, creating a new economic dynamic within the gaming world. This feature can also enhance the gaming experience, incentivizing longer play and deeper engagement. This radically transforms the gaming experience, providing an avenue for players to generate income, and making gaming more than just a pastime or entertainment.
One prominent example of this is Zebedee. Zebedee provides software and infrastructure to support Bitcoin and Lightning payments in gaming.
The company’s platform allows players, developers, streamers, and watchers to interact and instantly exchange value frictionlessly.
Zebedee’s platform offers its users a number of benefits.
For gamers, Zebedee’s platform provides a secure, fast, and affordable way to make in-game purchases and earn rewards.
For developers, Zebedee’s platform makes it easy to integrate Bitcoin and Lightning payments into their games, which can help to increase player engagement and revenue.
For streamers, Zebedee’s platform allows them to accept Bitcoin tips from their viewers, which can help to generate additional revenue.
Zebedee’s platform is already being used by a number of popular games, including Bitcoin Miner, ViperPlay, and Zebedee Live. As the adoption of Bitcoin and Lightning payments in gaming continues to grow, Zebedee is well-positioned to become a leading provider of this technology.
Gaming Companion Companies
The gaming companion app industry consists of mobile or desktop applications that serve as a companion to console, PC, or mobile video games.
These apps usually enhance the overall gaming experience by providing secondary features that integrate with the main game, such as social networking features, game statistics tracking, player-to-player communication, second-screen gameplay, maps, strategy guides, inventory management, and more.
Social Networking and Communication
Social gaming companion apps are a growing market that offer a variety of benefits for both gamers and businesses.
These apps can help to increase social interaction by integrating third party “challenges”, which can allow players an additional layer of competition. They can also help to increase immersion in a game by providing additional information and features that are not available in the game itself.
For businesses, social gaming companion apps can provide a new way to reach and engage gamers, as well as collect data about their gaming habits.
GamerGains for example, is a gaming companion app which enables gamers to earn cryptocurrency while playing their favorite games.
The platform uses a variety of methods to reward gamers, including in-game challenges, tournaments, and wagering. For gamers, GamerGains provides a way to earn real money while they play games. This monetization layer provides an additional real-world incentive for gamers to play games, increasing engagement and overall play time.
Overall, Web3 Gaming offers users added security and true ownership of their in-game items, making it a growth market.
If you found this insightful, you may also like The Case for Decentralized Social Media or Thoughts on Generative AI.
If you would like more information on our thesis surrounding Web3 Gaming or other transformative technologies, please email info@cadenza.vc
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