Hi Everyone. Thanks for tuning in for another week of Naavik Digest. If you missed last week’s edition, we wrote about the under-the-radar M&A of MY.GAMES. We had some great feedback shared that this deal resembled government-driven reorgs like that of Yandex or Tinkoff — a trend to watch as Russia potentially isolates itself further. Check it out and let us know what you think.
This Week on The Metacast
Jacob Navok: How MILEs Will Transform Entertainment — In this episode, Jacob Navok – the co-founder and CEO of Genvid – joins Naavik co-founder Aaron Bush to discuss his company Genvid Technologies the technology Massively Interactive Live Events (MILEs), the newest form-factor in entertainment. The duo explores what Jacob has learned from pioneering innovative projects like Rival Peak and The Walking Dead: Last Mile as well as how teams can leverage Genvid’s tools to build their own MILEs today. Website | YouTube | Spotify | Apple Podcast | Google Podcast.
Crypto Corner: Identity in the Metaverse, feat. Disco.xyz — On this week’s Crypto Corner, Disco.xyz CEO and Cofounder Evin McMullen joins BITKRAFT Partner Carlos Pereira and host Nico Vereecke for a conversation about identity in the Metaverse. The group discusses the concept of decentralized identifies and verrified credentials, as well as the limitations of growing identity concepts like Soulbound tokens and NFTs Website | YouTube | Spotify | Apple Podcast | Google Podcast.
#1: Epic Games Store Welcomes Web3
By and large, the consensus is that web3 gamers love both web3 and traditional games but that traditional gamers don’t necessarily look favorably toward web3 games. We saw this most clearly in the Ubisoft announcement of Quartz. One year later, we’ve moved into more of an interesting place of reluctance, where some distributors and marketplaces are more welcoming toward crypto games. Case in point is that just last week the Epic Games announced it would be partnering Mythical Games and Star Atlas to launch these games on the Epic Games Store (EGS). This follows Gala Games’ Grit and Manticore’s pivot to Web3, which also distributes on the EGS and in which Epic is an investor.
At the very least, there’s an obvious narrative here that’s worth examining and taking a look at. But first some history: Tim Sweeney first claimed he wouldn’t “touch” NFTs (and for good reason because the space was / is still so nascent and scammy), but reverted in saying that developers are free to build NFTs into their games (leave it to Sweeney to seize the day against incumbents). Steam has stuck on the opposite side of Epic, unsurprisingly. Minecraft (and by extension Xbox) sits in a similar position as Steam. But Apple recently announced its intentions to support NFTs, with of course the caveat of a 30% fee. I wrote the following when Steam announced its ban:
“Perhaps what this all brings to light is the need for new models of distribution and discovery. Today, we learn about new blockchain-based games across a variety of disparate sources like Twitter, Discord, Reddit and the like. A lot of games are also browser-native, which democratizes access across platforms but making them harder to hear about until they reach a critical mass of players. In the future, there might be more consolidation into marketplaces or new models of discovery and infrastructure.”
Indeed, there have a variety of entrants into the “marketplace” side of the equation: Ultra.io, Magic Eden, and Fractal (to some extent), among many others. However, web3 games seem to have found a near-term, non-exclusive home in Epic Games Store. Epic is certainly seizing the opportunity. In thinking about why these new game developers chose Epic to launch their games, I came up with a few pros and cons:
- Blockchain payment rails (aka avoiding the 30% fee), developer freedom around NFTs, and new business models around games all fit in with the EGS ethos. There’s a brand narrative here that builds and that Epic could use strategically in positive or negative scenarios.
- In a previous article, Simon Carless analyzed the need to lower minimum guarantees and the high spend for EGS publishing. Web3 games have less leverage here given their lower player base.
- There’s no web3 game out there that consistently has more than 10K DAUs (and that’s a generous number) — EGS immediately gives these games exposure to 55M+ MAUs.
- Epic is on the search for the game that will onboard millions of users into web3. However, these games will still require plenty of experimentation to determine what core loops and game design decisions resonate with players.
- The contracts are non-exclusive, and frankly, the developers might be leveraging a moment to establish brand presence rather than drive value toward EGS.
- There’s competition in Magic Eden, Fractal, mobile & web, and other burgeoning web3 native marketplaces that Epic’s BD team might not be able to compete with (nor want to focus their attention on given near-term metrics).
I think the biggest callout for Epic is more so that this is a process of learning and iteration, and they seemingly own the current distribution for up and coming web3 games. Epic knows how to ship products and has metrics around top-performing games — they can move quickly to understand how they’d like to build these partnerships, but importantly also how to navigate the valuable landscape of players. If they can succeed, and the Web or App Store don’t become the primary places to play these games, perhaps this can drive meaningful revenue to their flywheel. It’s a valuable move to at least have taken the first step. (Written by Fawzi Itani)
#2: Decentraland: The Open-Source & Decentralized Ghost Town
We touched briefly on Decentraland — a massively multiplayer online game set in a large, interconnected plane of digital land — in a previous deconstruction on The Sandbox but have yet to give it its own dedicated treatment. This also gives us a chance to check in on the “virtual real estate” and “metaverse” sectors in general as there’s been many developments since our piece on The Sandbox this past January.
Decentraland also happens to be one of the earliest crypto games, with development starting as far back as 2015 and launching for the first time in 2017 (the same year that development for Axie Infinity first began). This means the game launched before the last crypto crash occurred all the way back in 2018.
Decentraland is an interesting case study, because not only was it one of the first crypto games, but unlike many other crypto games, its high-minded principles around decentralization and openness seem sincere, rather than just marketing fluff. Unfortunately, as far as we can tell, the game seems to have landed on hard times, giving the feeling of an abandoned ghost town with little sign of human life outside of a few packed gambling halls.
The world of Decentraland is subdivided into 90,000 “LAND” parcels that can be bought, sold, traded, and built upon by players. Notably, only the owner of a given parcel has the right to build on it, but they may grant access to other players to visit and experience whatever they’ve built there.
The game was founded on the principle of decentralized ownership of a shared virtual world, in stark contrast to centralized platforms like Facebook. The philosophy is laid out in the original whitepaper. A few things have changed since then, but the overall vision remains more or less the same — delegate as much authority as possible to smart contracts, and host and serve content through a series of decentralized services with a heavy emphasis on peer-to-peer connections. Overall governance of Decentraland is controlled by a DAO, or decentralized autonomous organization, which takes votes on various policy matters and collects money from transaction fees it uses to subsidize development in the form of grants to creators.
In this deconstruction, we will explore:
- How Decentraland’s complex array of technologies and assets work
- The role of the Decentraland DAO (its purpose and effectiveness)
- The issues with the project’s approach to digital land (and what would work better)
- How well the project is doing based on various engagement and financial metrics
- What’s next, as well as our final conclusions
Let’s dive in…
Content Worth Consuming
Crypto Gaming and NFTs: A Nuanced Perspective (Meandering Musings): "Despite these concerns, we have seen promising progress, and investors may consider looking at leading publishers and experienced startup founders in the space. The depth and experience of the teams looking to build crypto games has improved significantly, and valuations have come down to more reasonable levels. Instead of token-only offerings from studios with zero experience at $300m+ fully diluted valuations (Q1/Q2 ‘22), by the start of Q3 2022 only established founders and publisher spin-off studios could raise at these token FDVs. Now in September 2022, we are seeing few “token-only” offerings, as equity + token warrant offerings have become the norm, and at valuations generally not exceeding $100m combined. While valuations for hot projects remain elevated, we think there is significant opportunity from experienced developers that have the ambition and experience to build web3 games that will matter to the mainstream. “ Link
Unknown Territory (Hit Points): “Brendan, it rapidly becomes clear, is not that sort of person. PUBG, he explains, was merely one step on a longer, far more ambitious journey; he always imagined the game would be much bigger and broader than it turned out to be, with battle royale just one of many game modes on offer. (That’s why it wasn’t called PlayerUnknown’s Battle Royale.) “I wanted to build this big open world, even before battle royale,” he says. “I was fascinated with this idea of digital spaces, places where there are no real rules but a set of systems that you can use — like DayZ, or the many ArmA mods. That fascinated me, and still does. I never considered just walking away.“Link
Roblox Ads, Walmart Land, Internal Economies (Stratechery): “It is App Tracking Transparency that made new ad networks from companies like Roblox even more compelling than they might have been otherwise. In a pre-ATT world the “hurdle rate” for a new ad network was the cost of just buying more ads on Facebook; in other words, the ROI from your ads needed to not only beat Facebook but also justify the relative time and expense in figuring out how your platform worked (and justifying to management why your measurement of said ROI was so inferior) — “No one got fired for buying Facebook ads” might as well have been a catchphrase. After ATT, though, platforms with first party data had a better chance in the ROI fight than ever before — and Roblox has a lot of first party data.” Link ($)
Overwatch 2 Tries To Balance Acquisition Against Retention (Gi.biz): “Judging from the reporting and online discussions around the game, that experiment has hit a few bumps in the past week, thanks to the unveiling of the First Time User Experience (FTUE) for those coming to Overwatch 2 as new players, rather than continuing players of the original game. Attracting new players is, of course, a major reason for this launch; the premium up-front payment model of the original Overwatch arguably stunted its player base growth compared to games like Fortnite, so Blizzard hopes to see a large influx of new players when Overwatch 2 arrives as a free download." Link
- Legendary Play: Senior System & Economy Designer (Remote)
- Bungie: Director of Product Management (Remote — US)
- Games: Technical Animation Manager (Amsterdam, Netherlands)
- Manticore: Head of HR and Recruiting (Remote)
- Naavik: Content Contributor (Remote)
- Naavik: Games Industry Consultant (Remote)