RPD Research: What can Gamefi learn from traditional games' payment models
July 28th, 2022

Writen by yuyang,Researcher @ RPD, twitter:@aptx4869yuyang
Edited and proofed by Professor Cao, twitter: @charlie_cao

From paying to Earning

You have to pay to play the game at the beginning.

The original game industry was built on a pay-for-play basis, known as buy-out games. Whether the arcade by the hour to play, or buy the game console cassette, are a form of payment for the game. Even today, mainframe platforms and Steam are the home of all paid 3A blockbusters. By the age of online games, game time card has become an important way to pay for the game, but the same stays true: you have to pay to play the game.

With the Internet dominating the game industry, and because of China's rampant piracy situation, attracting users with lower and lower barriers to entry, or even free, has become almost the only path for game makers. In this context, “The Legend of Mir 2” became the first phenomenally free online game in China, creating a game path that belongs to China. The idea of making money with free in-app purchase has also left a spark of hope for China's game industry. From League of Legends to Honor of Kings, Game for Peace to Genshin Impact, almost all of the most popular games around us today are free.

With the rise of Web 3.0, the game business model seems to be moving in a more radical direction. If Game 1.0 is user-paid, Game 2.0 is free, and Gamefi that become game 3.0 shout out the strongest slogan: Play to Earn. However, it was a pity that compared to the long game cycle of traditional games, blockchain games currently fell into the spell of a 3-month mini-crash and a 5-month big crash. No matter how successful the early stages of Gamefi were, the ultimate fate is just a flash in the pan. Ironically, the total cost for a free game is much higher than for a buy-out, players who hope to make money in a blockchain game can end up losing money.

So, we want to comb through the business model changes of traditional games, hoping that Gamefi can learn from them.

Game Classification

Before we begin to introduce the game payment model in detail, let's first give the game a general category.

Combat Game
One of the big categories that I call combat, MOBA games like Honor of Kings, including FPS like Game for Peace, recently, there have been several battle Gamefi such as Thetan Arena and Blast Royale. Brawl Stars in traditional games is very similar in terms of gameplay and is a simplified MOBA game. This game category takes a lot of operations, and the player's pleasure source usually is to kill the enemy.

Card Game
Another type of games do not require much operations from the players, so they do not require much game balance. Although there might be battles, the battles were usually round-based, and therefore, there is no high-capacity operational requirements as in combat games.In general such games can be played by "Clumsy-Handed Players". Although there are a large number of non-combat games that can be considered in this category, card games are arguably the most successful commercial form of non-combat games. Card games are also the initial reference of Gamefi. To facilitate the follow-up analysis, we will focus on this category of games.

Classic card games include FGO, Onmyoji, and others. Gamefi in the form of card game are even more abundant. Not only are there games like CryptoMines and Starsharks, even Stepn and Melody are essentially card games with a sports/entertainment app shell, and none of them escape the basic card game framework created by Axie:
Trade and upgrade the cards, and the more advanced the cards, the more tokens you can earn.

The card can be a monster, a shark, a running shoe, or a microphone. Common elements of traditional card games and Gamefi include: gathering (purchasing/swiping materials/swiping equipment) , upgrading (cultivating/upgrading equipment) , gambling (unboxing/Mint) , resource allocation (NFT transactions/leasing) , etc. .

Business model changes for free games

1 Recharge to become stronger
In the early days of online games, players would be charged by game time cards. Players would have a chance to get high-level equipment through a long gaming time, whether they experienced combat or completed a mission. The equipment also has the attribute which can be exchanged freely, therefore there is a possibility that the player can recoup long-term time card investment through equipment trading.

This form of equipment is actually the value embodied in player time cost plus player time card cost. The equipment was tied to the player's game time, ensuring that the total amount of equipment would not be suddenly increased. The player's game time had to be supported by game time card, so the equipment has a value base. The player pursues “stronger” ability, and rare equipment, which also become the equipment direct demand. With the above, the closed-loop economy of early online game is also formed. Due to time and cost constraint from time card, the inflation of the game economy in this period is very slow, and the equipment can keep its value for a long time.

The idea of Gamefi/Metaverse also came from the form of online games in this period. Instead of freely exchanging equipment, we go a step further and pass ownership of equipment to the users through the blockchain technology, which facilitated further the free trade of money/equipment.
Blockchain technology + high-quality pay-for-time online games + players who are willing to invest time and in time card

If the above three conditions are satisfied at the same time, then there will undoubtedly be a successful Gamefi. Unfortunately, because of the discovery of the “In-app Purchase” secret, the entire game market into the free era.

The earliest commercial model for free games was actually a pirated game. Back then, The Legend of Mir 2 was still a paid game that required time cards to play. Because the source code leaked, the game private server is rampant. The private server's time cards were extremely low in cost, even free, but they could make money by selling props. The income from this mode even surpassed the income that the legitimate version of The Legend of Mir 2 could bring.

At first Shanda is just through legal means to combat private server, but since there is such a strong demand for props, why keep a negligible time card income, rather than directly participate in more lucrative props trade? Then there are all kinds of in-app purchase consumption, including selling upgrade speed, experience, game currency, skills, pets, and weapons. In-game virtual values and virtual items are no longer subject to the constraints of the player's game time: to reap higher profits, there is nothing that can not be unlimitedly distributed.

In the later stages of the game, the game started to bind the props and forbid players trading. The game no longer had the soil for equipment trading. In short, the game company wanted to turn all the assets that used to belong to players into its own. The game at this point is no longer an economic ecology.

It wasn't just the economy that was hurt. The logic of 'money = combat power' completely upset the balance of the game. If one wanted to get the most out of the game, then topping up was the only way out. So why do low-fee players stay in the game when they can't enjoy it? Why do whales stay in the game when they've lost objects they can hack and a show of force at will?

2 Appearance Fee
Online games, which can become stronger by charging, eventually declined. The business model of the game ushered in a brand-new revolution. The mobile game era, which focused on maintaining the general experience and stressing the fairness of the game, began. Paying for the look has become one of the most important payment models of the gaming age.
Revenue = player base X payment conversion rate X paid amount

This revenue formula became the axiom of all free-to-play mobile games. Without destroying the core gameplay, the game makers were trying to optimize these three revenue factors, trying to squeeze each to the limit.
Expand the user base diligently
Strengthen the skin needs to give the appearance more connotation,
Take the Honor Of Kings for example:
Over 200 million users, with daily activity peaking at 100 million and over 50 percent female users.
New heroes, new skins, and even League of Legends CP Bars appear every month.

3 Battle Pass

Pay rates in recharge-to-become-stronger games are very low, and the game's main revenue comes from super high fees from whales that account for less than 1%. The size of the user who paid for appearance was larger, but the appearance demand was elastic, so the payment rate would not exceed 5%, and the gap between large whales and medium whales is smaller. We've seen a huge increase in user base and a relatively healthier amount of payments from recharge-to-become-stronger games to appearance-fee games. The ultimate bottleneck has been to optimize payment rates. A more advanced business model emerged--Battle Pass. Fortnite, the first game to successfully use the Battle Pass model, achieved great success in commercialization with a 70% subscription rate.

The opportunity for Fortnite to use the battle pass is this: the new battle royale mode that was added at the end of September 2017 was very popular, but it didn't generate the kind of revenue associated with its traction and popularity. At the end of October, they added a season to give users long-term game goals, but the revenue boost was limited. At the same time, the temporary winner of the Battle Royale, commonly known as chicken-eating PUBG, was trying to learn from CS:GO , which featureed a gun skin and character fashion as its core, a payment system that sets the price of such equipment on a market for users. CS:GO continued to benefit from this system, but PUBG had a few problems: in this third-person shooter game, players have less need for their own firearms and clothing than first-person CSGO, and are less willing to buy fancy fashion to make themselves more visible to the enemy.

So, on December 14, 2017, the second season of Fortnite arrived, along with the Fortnite version of Battle Pass. It's similar to Dota 2's design, but there's only one key difference: if players don't have a Pass, they can play the whole content with a“Free Pass.” They also have the same combat points as those who bought a Pass this season. But when a player makes up his mind to buy a Pass, he gets all the rewards he's won! In Dota 2's“Spend money to buy a burden”, it immediately became“Spend money to buy a reward”!

4 Card Game

If the path from appearance fee to battle pass is an exploration of respecting the balance of the game, card game in-app purchase can be considered another direction of effort.

In-app purchase card games were not originally designed to be fair. To improve on recharge-to-become-stronger games, game designers introduced probabilities to break the direct link between being strong and being rich. A small number of low-payment players also have the opportunity to get powerful equipment and have the power to fight heavy-paying players.

Apparently, in-app purchase game was to completely abandon the competitive nature of the game. For example, Fate/Grand Order, the world's most profitable card-drawing game, is a standalone game with no social interaction between players. The player is paying for its outstanding story, character design, formative experience, and activity design.

Tips For Gamefi

STEPN's revenue in the first quarter of this year was negligible compared to other successful games. But with the project's popularity growing, in May, the contract revenue reached $170 million. High daily income can reach $50 million, very close to the Honor of Kings. The current problem with Gamefi is that good revenue scale does not match the game life cycle, because high revenue is completely unsustainable. So what can we learn from the development of traditional games?
1 Respect the Balance of the Game
The economic model of blockchain games such as Thetan Arena still follows the logic of Axie's card games, which was extremely harmful to the balance of the game. We think the right means to design combat games is to find the“Battle Pass” mode for Gamefi. NFT minting can be used as a “Battle Pass”.

The core purpose of a combat game is to win the game. Originally, these items, skins, and achievements are secondary needs, and it is difficult for players to pay for them alone. However, the magic of the Battle Pass is that it provides a “permission” for players to play games. Is it more appealing to be motivated by “giving away” related items, because, anyway, these games are what you would have done anyway (the core purpose of the game). Wouldn't it be a loss not to buy this cheap “Pass”?
2 Endow NFT with Sufficient Emotional Attributes
For the card Gamefi, in the current economic model of basic run-through situation, the core problem is that user sentiment can not support the high value of NFT. In the basic game of cards, empowering NFT with more story attributes, social attributes and other high-level play is the real way out.

In the trending of female-oriented, two-dimensional games, players' emotional attachment to the“Paper Husband/Wife” has become too strong to be ignored. Game suppliers find that games, that can bear the emotional works of players, can grow to a high-ceiling game with only development around game role. The two-dimensional work represented by FGO showed the industry a popular IP. With the gameplay almost zero, it could even get players to pay for their beliefs.

Take Melody, for example. If it follows the same model as before, it will still end up with a death spiral. Via songs/stars/concerts or other music-related means, giving users enough emotional/story recognition can be a path to innovation.

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