In a piece aptly titled "Distribution Is Everything," Naavik’s Fawzi Itani recently touched on the need for developers to innovate when it comes to putting their games into the hands of as many players as possible. Competition, poor discoverability, and the self-reinforcing nature of "Top 10" charts on every storefront are making it increasingly difficult for new titles to break through if developers rely only on mainstream platforms for distribution.
As it happens, web3 gaming finds itself in a similar conundrum, albeit for different reasons.
For a long time, many in the industry were betting on web2 leaders ultimately adopting web3’s capabilities and mindset. Incumbents, they believed, simply couldn't afford to miss out on blockchain as a technology or on blockchain-enabled gaming as a business. Traditional companies would have to open their doors eventually, or get left behind as players’ preference for the web3 paradigm grew stronger.
The reality, however, tells a different story. From blanket bans to punishing taxes, web3 gaming has faced plenty of obstacles in recent years and still isn't anywhere close to reaching ubiquity or even what you might consider mainstream visibility. Unfortunately, these distribution hurdles have only added to adoption challenges that inevitably arise from building on the blockchain, making the overall process more challenging even for the most determined teams out there.
In this context, it’s worth taking a closer look at the present and future of game distribution in web3. First, we’ll provide a refresher on where web3 stands with regard to each of the main platforms: PC, mobile, and console. Then, we’ll show how some web3-native companies are taking the matter of distribution into their own hands. Finally, we’ll cover three areas in which we think platform providers can bring the most value to players and developers alike.
The Breakthrough That Never Was
Web3 game developers have had to face a difficult truth: the powers that be weren’t exactly planning to welcome them with open arms. Here, we’d like to recap the various responses that web3 hopefuls have received from today’s incumbents.
On PC, web3 distribution is a mixed bag. On the one hand, Valve took a hard stance on blockchain as early as October 2021 when it banned all NFT-enabled games from the Steam platform. The move was interpreted by many as an attempt to nip in the bud a technology that might allow developers to circumvent Steam's 30% commission.
On the other hand, Epic Games has proven keener to experiment. Mythical Games' Blankos Block Party was the first web3 game to launch on the Epic Games Store in September 2022. As of March 2023, the store featured a total of five web3 games, with "close to 20" others in the pipeline. Still, despite this apparent support, the company is well aware of the space's reputational troubles and has made it clear it will not hesitate to shut down "any bad behavior."
Moving on to mobile, things aren't looking so rosy. In October last year, Apple gave developers a formal green light to allow the "minting, listing, and transferring" of NFTs inside their apps. Unfortunately, the company also announced it intended to treat web3 the same way it does all apps. Since in-app NFT transactions are required to use Apple's payment system, they're subject to the App Store's 30% commission. Because of these limitations, developers are having to rush out browser products that can complement the mobile-native gameplay. Unfortunately, this is leading to often clunky user experiences, which doesn’t bode too well for retention.
As for console, the industry's response has been similarly ambiguous. On the one hand, Xbox's head Phil Spencer has been publicly averse to exploring blockchain-enabled games on the platform — though this hasn't prevented Microsoft from investing in Wemade, a South-Korean developer that has been increasingly involved in web3. Nintendo has been similarly cautious to adopt the technology.
Meanwhile, Sony has made several moves toward web3 compatibility. Last year, the company debuted PlayStation Stars, a legacy program in which players earn points for doing monthly check-ins, completing campaigns, or winning tournaments. The program also includes "digital collectibles," "digital representations of things that PlayStation fans enjoy, including figurines of beloved and iconic characters from games and other forms of entertainment." However closely it may match the definition of NFTs, Sony (at the time) was adamant that Stars didn't rely on blockchain technology. Yet earlier this year, it was revealed that the company had filed a patent for a "NFT framework for transferring and using digital assets between game platforms," both inside and outside Sony's own ecosystem.
Though it may seem like these console incumbents are blowing hot and cold, let’s be clear: at this point, none of them enable NFTs in their ecosystems. which right now more closely resemble Apple’s walled garden approach. In addition, both Sony and Microsoft in the past few years have been pursuing catalog exclusivity (through both content partnerships or M&A), a fact directly at odds with the ideals of interoperability so dear to web3. If there is a wedge to the mainstream for web3 gaming, console looks like an unlikely candidate for the time being.
The path(s) forward
If there's a lesson we can draw from all these contradictory moves, it's that web3 developers probably shouldn't hold their breath when it comes to breaking into the mainstream using a major platform. From there, studios have two options for now.
The first one is to compromise. For example, Axie Infinity: Origin, which Sky Mavis soft-launched in April of last year, includes no SLP or AXS rewards during its Early Access phase. Although the team has claimed it will launch on Android and iOS with both fungible and non-fungible tokens, it remains to be seen how much of these features can be integrated without drawing the ire of the store operators.
Other developers have already taken the same route on Steam, watering down their original concepts with dedicated, blockchain-less versions — MMORPG Kritika Global and Drifter’s co-op shooter Superior come to mind here. The hope, it would seem, is that players will somehow transition from these versions to the web3-enabled ones. If you ask us, getting players to switch business models and, let’s be honest, add friction to the in-game experience will be a hard sell in most cases.
The second option is to stand firm and circumvent the gatekeepers entirely. As we pointed out in our joint report with Delphi Digital, "There is no reason why web-only distribution should hinder the quality of the games developers can build or the players’ experience with them: Axie Infinity was able to hit 2.78 million MAUs when it was only available on web and via an Android APK," a sign that developers can find success outside the main stores.
Both options pose challenges. On the one hand, removing any and all web3-native traits will certainly put games to the test, by lessening the potential for speculation that arguably may have been an initial driver of success. In a blockchain-less version with no quick gains to look forward to, players might not be as patient or forgiving if the gameplay happens to be lacking.
On the other hand, as we wrote in our January guide to web3 gaming, “Being denied from the major platforms and storefronts puts game developers in a pinch, limiting their reach, word of mouth, in-game liquidity, network effects, and, ultimately, revenue. [...] Any title that users have to fetch outside the well-trodden stores, where they find all their other entertainment needs, will logically have lower brand awareness, even though it may be just as good as its better-distributed competitors.”
Which of these two paths developers choose ultimately depends on multiple criteria, including a studio’s runway, values, and financial backing. To put it clearly, no studio can simply wait for the platforms to let web3 in. At the same time, there's no point sticking with a web3 ethos if players can't be bothered to look for your game beyond the main stores. Industry support feels like the one ingredient that could help give teams a fighting chance. A no-name developer without a notable IP to lure players in will no doubt struggle to pull off going direct-to-consumer. On the other hand, a larger publisher leveraging its own IP — Square Enix comes to mind here — will have a better chance at bypassing major distribution outlets.
For the sake of comprehensiveness, we should mention that the Epic Game Store points to a potential third path: one where teams don’t have to shy away from their love for web3 or adapt their games in order to fit in. The platform’s open-mindedness, combined with Epic’s announcement of self-publishing tools last during GDC, could make it a welcoming destination for developers.
For now, however, let’s take a closer look at the progress being made in web3-native distribution.
The State of Game Distribution in Web3
According to Delphi Digital, PC games represent 85% of the current web3 offering (compared with 15% for mobile apps), with browser-based distribution making up 55% of the total and the other 30% coming from client-based methods. Beside reflecting the blockchain’s web-based origins, this dominance underscores the market’s subjection to industry gatekeepers: console, the great absentee, remains out of reach until either one of its leaders starts to open up.
In the meantime, a handful of companies are attempting to facilitate web-based distribution. From so-called “launchers” like HyperPlay and Flame to more fully-fledged platforms like Ultra and Fractal, these services are focusing on curation and working together with developers to build player-friendly environments. Interestingly, some of them are working on bringing web2 to web3, not the other way around: Ultra will feature games from web2 publishers, whereas HyperPlay plans to integrate with mainstream marketplaces including the Epic Games Store and GoG. Below are some of the players currently tackling this form of distribution.
Judging from the table above, differentiation for now is happening mostly through features. This makes sense for several reasons: the total supply of web3 titles is still fairly small. Finished, quality games are incredibly scarce, and web3’s focus on interoperability somewhat discourages exclusivity when it comes to distribution. Besides, adoption is already hard enough that developers shouldn’t try and play “hard to get.”
Still, we don’t want to underplay the importance of the games themselves in determining the future winners in this space. As Gala Games and the Mavis Hub show, publishers with a large and varied enough portfolio of games and existing player bases may have the required “content foundations” to go the platform route. Sky Mavis’s Ronin, for example, has been continuously expanding off Axie Infinity, and now offers numerous bricks that, if or when they’re integrated with the Mavis Hub, could provide great value to third parties. In other words, the winning strategy here may well be to layer distribution on top of existing games and audiences — the same way Valve built off Half-Life and Counter-Strike and Epic off Fortnite — rather than to pull players in.
That being said, we’d like to highlight three areas that we think are worth their attention.
As a business, every game distribution platform is essentially a marketplace, in that it connects players with developers. In web2, however, the analogy stops there. In-app purchases take place on siloed, game-specific marketplaces and typically can't get out of their game of origin. Of course, these purchases are taxed by the platform provider regardless, since they're going through its infrastructure. But because assets can't be exchanged across games, there hasn't been a need to aggregate them into a single interface.
Things are different in web3. Minted as NFTs, in-game assets become universally readable on the blockchain and can be dynamically pulled from a user's wallet to be featured on a player's profile or public marketplace. With the added promise of interoperability, buying and selling individual assets that may unlock exclusive content or access starts to make more sense for players. As a result, an asset-focused marketplace becomes a complimentary building block to the larger title-focused marketplace that is the platform as a whole.
NFT platforms have already gone through a first wave of verticalization, as projects picked specific audiences (generative art amateurs, professional investors...) and built the features and interfaces to best serve them. Within gaming, some publishers have also developed their own marketplaces as a way to integrate not just more of the player experience, but also more of the value chain. One example here is Vulcan Forged, a studio with 10 games whose assets can all be found on a central marketplace, the VulcanMarket. From displaying in-game achievements to themed immersive galleries to facilitating asset rental, there is a lot that platform-level marketplaces can experiment with.
One promising feature is Ultra's plans to enable not just the exchange of NFTs, but the secondary sale of games thanks to "tokenized license rights." Studios will be able to "set an initial no-resale period [after launch], determine a minimum resale price point, and choose the royalty percentage that [they receive]." This represents an entirely new revenue stream, considering they currently don't benefit from resales at all.
But the feature is especially interesting from the player's perspective. For example, savvy sellers could "unbundle" a given title and opt to sell the game itself on the one hand and their associated assets, progression, and ranking (all represented by an NFT) on the other. Conversely, they could opt to package everything into a single NFT, sparing the buyer from the initial grind. All sorts of time-cost arbitrages and strategies become possible.
In web2, game distribution platforms get to shape consumption in various ways. One of them is curation, through special features (e.g., the App Store Awards) and theme- or genre-specific lists. Another is through algorithms, which can direct users to new content based on their stated preferences, past usage, or both. Beside this, however, the platforms usually don't get involved in the rest of the player journey. Once a player has started playing a game, it's on the developer to retain and monetize them for the long haul.
By contrast, web3 platforms appear more involved in the success of the games they host. For example, Fractal currently runs game-specific live tournaments in which players can earn cash prizes and NFTs. Ultra is working on Ultra Arena, "a gaming tournament app" that will "enable players and organizers to engage in competitive gaming and win digital assets" — both Uniqs (Ultra's version of NFTs) and UOS tokens, Ultra's native token.
These initiatives can help with both acquisition, raising awareness around games or specific events such as character releases or new seasons; and retention, by giving players another reason to practice and level up. In turn, developers could even use these events to identify their most engaged players and elevate them as brand ambassadors.
One of web3's most notable traits, governance has been used profusely across DeFi, NFT marketplaces (e.g. Rarible, Blur), games (e.g., Axie Infinity, Illuvium), and everything in between. By distributing their tokens widely, projects and companies decentralize decision-making and align incentives among stakeholders. Governance can also be combined with features like staking, prompting users to immobilize their assets and stay involved in exchange for yield. While this may not be of use to short-term "flippers," governance is often valued by actual users, who can try and steer a game, app, or creative project in their preferred direction.
Game distribution platforms could put this potential to good use. As the hub between players and developers, they're in the best position to align incentives among all stakeholders. For those like Ultra that use their own tokens as the currency for every exchange of value on their service, governance can be profitably introduced to encourage participation. For example, token holders could receive discounts on their next purchases or early access to highly-anticipated games — with multiple tiers for added granularity.
Note that the same results can be achieved with NFTs, too. In December 2021, Fractal airdropped 100,000 NFTs that come with "different attributes and power levels, and can be upgraded by completing tasks on the Fractal platform." The launch, Multicoin Capital noted, "marked the beginning of Fractal's journey of becoming a metagame." Because upgrades to a NFT are tied to a player's achievements inside the games found on Fractal, the platform's interests are aligned with the developers'. Players are encouraged to play, beat scores, and complete quests, because their accomplishments will be rewarded at the platform layer.
This has interesting implications. With a token-driven metagame in place, a platform needs to treat its service in the same way developers do their games, designing sinks and faucets to make sure tokens flow seamlessly and the ecosystem is safe from hyperinflation or deflation. Not only could such a move take away from a platform's original focus, it could also make developers (understandably) wary of building on shaky infrastructure. In other words, platform providers should put particular care in how they design their ecosystem’s incentives, lest they scare off potential partners.
It’s fair to say things are pretty rough out there for web3 game developers! Let’s recap.
For now, console remains out of reach. Save for a patent here or an investment there, the incumbents show no sign of implementing the blockchain to their respective services anytime soon — and even less so to let third-parties play with it.
Mobile distribution is constrained, to say the least. Apple’s hard stance is forcing developers into less than perfect user experiences that are hindering adoption and retention. Regulatory chances may one day enforce more competition, enabling third-party stores with more web3-friendly policies and unlocking distribution upside. But the time horizon is uncertain and the lack of access will hurt many studios in the meantime.
For the near term, PC is where most of the potential lies — which explains why competition is rapidly growing. Though it’s early days, a few names stand out.
The Epic Games Store is a likely winner. Unlike many in the industry who haven’t done much more than pay lip service, Epic has shown clear interest in web3 and actually acted on it. With Fortnite acting as a cash cow, solid tech infrastructure, and a unified marketplace that’s basically begging for NFTs, the company can afford to instill more and more of web3 without hurting its historical business.
Sky Mavis also seems well positioned. From a technological standpoint, it can leverage the Ronin ecosystem to the fullest, with features including built-in lending against in-game assets, token streaming (with Sablier), and automated esports tournaments. The biggest obstacle here will be the studio’s reliance on Ronin, as most of its distribution competitors are building with multichain in mind from day one.
Finally, one name I’m excited to watch is Ultra. The team has been building its platform for years, showcases singular features (e.g., platform-level Quests, referral links), counts Ubisoft has a partner, and plans to host both web2 and web3 games. While this may seem like a lack of focus to some, I’d like to see it as a sign of ambition. With the platform set to go live in a couple of days, we’ll know more soon enough.