Overwatch 2’s Identity Crisis

Hi Everyone. We have a bunch of team updates that we’re excited to share with you, and some more to come in the following issues! Today, we’re stoked to welcome:

Tom Kinniburgh: Closing in on 12 years in gaming and having worked on 100+ F2P games during his time at companies like Chillingo and Wooga, he’s spent the last 2 years focussing blockchain games at Pixion Games with a special knack for user research, economic design and tokenomics. He was also the co-founder of Mobilefreetoplay.com, a premier games consulting firm with Adam Telfer, which all goes to say — Tom is a games consulting powerhouse!
Niko Vuori: Meet our newest Crypto Corner host! Niko a serial entrepreneur both in and outside of the games industry. On the gaming side, he was a GM at Zynga (Zynga Poker, Frontierville), cofounded Rocket Games (social casino) and is currently the Founder & CEO of Blockstars (web3). Make sure to check out his debut episode below.
Becky Matthew: With over 6 years of game design experience and now co-founder and CEO of micro studio Lost Native, Becky has joined the Naavik Pro squad to write some F2P research essays with us. You may have seen her stuff already; she wrote essays on VIP subscriptions and Wild Rift / mobile MOBAs, which have been highly appreciated by our Pro subscribers.
Lawrence Hsieh: More informally known as Larry, he risen up the PM ranks at companies like Zynga and now MobilityWare. He's also very interested in blockchain games and contributes to our Naavik Pro blockchain gaming research essays, apart from being someone who is impeccably on top of the latest news in this fast moving space. His Naavik Pro piece on Town Star’s economy is a must read!
David Taylor: Over a professional career of close to 10 years and the last 2.5 years at EA and Supersocial as a PM, David has joined as a core contributor to Naavik Digest. His pieces on Roblox and Fortnite have already been well read, and we cannot wait to see his future takes on key developments across UGC, IPs, and much more.

This Week on The Metacast

Ryan Wyatt: Polygon’s Quest for Scale — In this episode, Ryan Wyatt, CEO of Polygon Studios, joins Naavik co-founder Aaron Bush to discuss the company’s grand ambitions, and how Polygon is striving to become the premiere choice for Layer-2s. The duo also discuss Ryan’s time at YouTube, and how he’s taking his learnings to attack web3’s unique business challenges. Ryan also shares how he believes in unlocking the new phase of growth for blockchain gamers, and why he doesn't worry about educating gamers about the benefits of blockchain technologies. Website | YouTube | Spotify | Apple Podcast | Google Podcast .

Onboarding the Mass Market to Web3 feat. Gala Games — In this Crypto Corner episode, John Osvald, President of Games at Gala Games, joins your host Niko to talk about Gala Games’ ambitious vision of building a web3 interactive entertainment brand for the mass market. YouTube | Spotify | A pple Podcast | Google Podcast.

#1: Overwatch 2’s Identity Crisis

It feels like Overwatch is one of the most divisive game franchises today. Some players love it. Other players love to hate it.

Some history: in 2016, Overwatch was the first multiplayer game to win game of the year. This is a game that counted over 60M total lifetime players (at $40 a game) and nearly ~$880M in revenue in 2021. Expectations were understandably high for its successor and it was just last week that Blizzard sunset Overwatch for its purported sequel. The launch, however, hasn't been all smooth sailing, having been marred by DDOS attacks, players stuck with characters behind unlocks, crashes, bugs, and more. Not to mention, the project has also faced development issues, COVID delays, Blizzard scandals, executive turnover, noise from the Microsoft acquisition, and pressure from the c-suite about the launch. Was this game set up to succeed?

Although Overwatch 2’s launch has been anything but pretty, I’ve noticed a variety of discussions — from the business model to the game mechanics — that feel interesting and relevant. This is an effort to consolidate some of the more salient points below.

Identity Crisis

The core of the conversation begins with the decision to make Overwatch 2 free-to-play. I have to hand it to Nick Statt of Protocol, who called Overwatch’s identity crisis earlier this summer, saying: “the reboot of the once-popular hero shooter has been more about restructuring the game’s business model than about adding more content to justify a new price tag”. It’s an astute observation and one that’s largely held true this past week in how players have received the game. For them, F2P ostensibly makes sense, but it doesn’t do the genre the same justice as other incumbents like Fortnite. Rob Fahey of Gi.Biz adds nuance to this perspective:

“This is a transition that has traditionally happened to games that were on the verge of collapse, making the free-to-play transition into a Hail Mary play and meaning that the risk of losing the existing player base was far outweighed by the potential reward of winning over a new audience. For Blizzard, on the other hand, losing the existing Overwatch player base in the transition would be an absolute disaster – truly the worst possible scenario for the franchise.”

The original Overwatch launched in the pre-Fortnite era where console games weren’t normally F2P or cross-platform; instead, they justified AAA titles with an upfront cost and included other monetization methods (in the case of Overwatch, loot boxes). But the heart of the identity crisis isn’t so much that Overwatch can’t be F2P; it’s that Blizzard was slow to decide which model to pursue and thus does neither model particularly well from the outset, despite ramping down on development for the previous iteration of the game.

We can trace this back to Overwatch 2’s roots in PvE: a less competitive and co-op game with hero progressions and missions. Sort of like Destiny and Halo Infinite. This following excerpt is from a 2019 interview with game director Aaron Keller on the original vision:

“We don’t want gameplay changing talents and abilities to give an unfair advantage in PvP. We’re still exploring what players can earn in PvE and building out the progression system for that. Our goal is to make a robust meaningful progression system that feeds into our Hero Missions where players can play and replay for many hours or as their main mode of play after they complete the Overwatch 2 story.”

But given COVID delays, the complexities of building hero progressions for so many heroes (turns out it’s easier just to build new heroes rather than give them abilities), and the competitive successes of live service models around them a la Fornite, CoD Warzone, Free Fire, and more, there was pressure to push a game that incorporated PvP elements. It was just last year that they announced the transition from PvE.

What’s resulted is a PvP game with updated battle mechanics that players seem to appreciate but monetization models that don’t suit the playerbase. At least not yet. Some of the highlights I’ve heard on both topics:

More combat (5v5, one tank vs. many) and single-player carry potential
Three new characters with more to come, but an underwhelming amount of new content
F2P monetization is too grindy and forces players to buy the battle pass, giving the perception of exploitative mechanics (despite not having light monetization around loot boxes like its predecessor)

The game will reportedly launch its PvE campaign in 2023 and will monetize through seasonal battle passes. This is much the same strategy we saw in Halo Infinite — less content, launch earlier — which only time will tell if that is a successful model. Ultimately, I think this might lead to a weaker product if they’re trying to fit an entirely different product into a live service game, particularly if the title likes regular updates,as we've seen with Halo Infinite since launch.

What It Means To Launch Early Access In Games Today

From an observational standpoint, it seems that one of the things games once mastered and now have compromised on — given COVID delays and the live service model (“oh I’ll do it later”) — is the polish of the minimum viable game. It’s been common these past two years for AAA studios to release games before they’re ready. However, I would argue that the early access phase has “a lot more gravity than we care to admit” in games, much as they do in other consumer products.

Initial impressions matter even if the live services model allows for iterative updates. Notably, we saw this mistake in Cyberpunk (which now seems to be revived given the Netflix show), Halo Infinite’s lack of progression and content in multiplayer launching before the main campaign, and now in Overwatch 2. On the contrary, a game like Omega Strikers nailed their launch, with more coming to be excited about.

The MVP matters; but the MVP matters in so far as much as there are clear product roadmaps, content cadences, and engagement drivers for the players. And for a big game like Overwatch 2 with a large development team where delays might cost an order of magnitude more that a startup, a solid launch is paramount.

Overwatch 2 And New Business Models

One of the last points to consider briefly is the new nature of business models in games — how they’re rapidly evolving and shifting to accommodate new consumer preferences. Again, from Fahey:

“This meta itself is actually a somewhat curious beast; we’ve become so accustomed to the notion of season passes for games at this point that we sometimes lose sight, I think, of the fact that the concept encompasses two very different business models. The first, and the original use of the term, I believe, is the "season pass" as a discounted pre-purchase plan for future DLC for a mostly single-player game. The second, owing its lineage to Fortnite’s "battle pass" but now broadly implemented across a lot of live service games (think Destiny 2, Halo Infinite, and so on), is a time-limited access token to a number of gameplay modes, item rewards, and challenges within the game, often tied to a patch that brings with it a variety of new content to the game world.”

This topic is certainly worth a longer post, but to run through an example quickly: Halo Infinite (and now potentially Overwatch 2 if the Microsoft/Activision acquisition finalizes) roll into Xbox Game Pass. The reportedly $2.9B+ behemoth of Game Pass is one way to look at how the Halo Infinite / Overwatch 2 model might succeed— amortizing costs and spreading monetization across a subscription + light F2P mechanics will be a new business model for these types of games moving forward. If value is driven through subscription, then value can also be delivered piecemeal given the ecosystem approach of a bundled subscription.

At any rate, as my friend Matt told me the silver lining is that “Overwatch 2 feels like nearly the exact same game”. While the launch was fairly underwhelming, let’s see what happens as they get a season or two under their belts. This is a game that could build momentum over time. (Written by Fawzi Itani)

#2: Deconstructing Tower of Fantasy

This is the introduction to a full game deconstruction of Tower of Fantasy, written by Harshal Karvande. Check out Naavik Pro to request a demo, read the full write-up, and access our entire research library.

Tower of Fantasy (ToF) is a new F2P, open world MMORPG developed by Hotta Studio (a subsidiary of Perfect World) and published by Perfect World in China and Level Infinite (a publishing brand of Tencent Games) worldwide. The game takes place in an anime-inspired, post-apocalyptic world that players can explore together. The parallels to MiHoYo’s Genshin Impact (which we deconstructed here) are substantial, with the key differentiator being ToF’s MMO ‘shared world’ experience. In ToF, players on the same server coexist and encounter each other.

Since its announcement, Tower of Fantasy has been declared by some media as a potential ‘Genshin killer’ because of its comparable high-budget aesthetics and being a project affiliated with Tencent. Genshin Impact recently celebrated its 2-year anniversary, bringing in $3.7B in mobile lifetime revenue for MiHoYo (link), ranking the third most profitable mobile game globally behind Tencent’s two titles: Honor of Kings ($5.5B in the last 2 years) and PUBG Mobile ($4.9B). On paper, Tower of Fantasy, which takes the open world, gacha RPG foundation of Genshin Impact and innovates on one key pillar — ‘Social’ — is a strong candidate for a ‘Genshin killer’ or at least a meaningful competitor. Of course, the devil is in the details of execution.

Unlike Genshin Impact, which had a same-day global release, Tower of Fantasy staggered its release — starting with China (Dec 15th, 2021) and 8 months later being released worldwide (Aug 10th, 2022). Tower of Fantasy has generated $107M in revenue from 6.79M downloads, with China accounting for 59% of total revenue ($60.8M) and 38% of total downloads (2.17M) nine months after its release there. Japan comes in second by revenue, generating $14M from 570K downloads, and the US is third with $8.64M and 780K downloads, 6 weeks after the game’s worldwide release (outside China). This regional split is also in line with Genshin Impact’s 2-year performance, with China leading by revenue (33% of total revenue), Japan coming in second (24%), and the US third (17%).

Looking at RPD development in the first 6 weeks (aligned by launch), Tower of Fantasy is off to a strong start with a comparable RPD (of $16.75) in China to that of Genshin Impact ($18.10, +8%) and Diablo Immortal ($15.72, -6%). Tower of Fantasy is dominating in Japan with a RPD of $25.85 while Genshin Impact’s is $18.48 (-28.5%) and Diablo Immortal’s is $7.89 (-70%). US shows a similar performance for Tower of Fantasy with a RPD of $9.97, Diablo Immortal’s being $9.37 (-6%), and Genshin Impact: $3.01 (-70%). Since all three games are available on PC as well, it should also be noted that these mobile/tablet numbers are lacking a holistic view.

Where Tower of Fantasy pales in comparison is downloads: Genshin Impact generated 36M downloads in its first 6 weeks, but Tower of Fantasy only generated a low 1.4M. Considering that Tencent/Perfect World have access to large reserves of marketing money, and given ToF’s successful early RPD development, it looks like the team skipped on investing heavily in scaling the game.

Tower of Controversy

To address some of ToF’s launch and early performance decisions, we have to unpack the disputes and shortcomings that disrupted the game’s public image:

The promotional video released just prior to the game’s launch in China showed a weapon asset from another MiHoYo game, Honkai Impact 3rd, which sparked fan criticism on Chinese social media platform Weibo. Perfect World later apologized for the error, citing that the outsourced company developing the PV made the mistake (link).
Within weeks of that debacle, another promotional video for the game was caught blatantly plagiarizing a concept video from a smaller animation company, which further drew the ire of fans (link). Yet again, Perfect World apologized, citing third-party outsourcing, but by then Chinese players had nicknamed the game Tower of Theft (a play on the Chinese characters in the title) when discussing it online.
While these problems were occurring outside the game, with third-party companies to blame, it launched with a monetization-breaking bug in its core character collection gacha. In short, players were able to duplicate pulls by disconnecting from the internet when pulling from the gacha (link). As soon as this was noticed, the developer shut down the game for emergency maintenance and brought it back with a compensation equivalent of 10 pulls — which promptly was exploited for the same bug, with players able to duplicate the compensation (link).
These bugs in the core gacha monetization rightly angered the ToF community, especially the players who had spent money in-game on the exploitable gacha, bringing down the App Store rating from 4+ to almost 3, a danger to any game looking to get featured. As if right on cue following the previous scandals, ToF was promptly caught for using bots to fake 5-star App Store reviews to get the rating back to 4+, stealing 5-star reviews from Genshin Impact that even contained names of characters that only appear in that game (link).

ToF’s animations, visual effects, weapons, and other art assets were constantly cited as being identical to MiHoYo’s games in public discourse. This combined with the game’s server issues at launch in China and daily maintenance breaks made the so-called ‘Genshin killer’ nearly kill its own reputation instead. These issues were mostly fixed for the game’s global release, and its initial performance has been strong in its second and third biggest markets: Japan and the US.

In this essay, we’ll cover the game’s potential upside and staying power, especially compared to Genshin. We’ll dig into:

The state of the RPG market that ToF launched into
Gameplay and feature deep-dives highlighting the similarities and differences between ToF and Genshin
Gacha design, monetization drivers, and comparing spend depths
Improvement suggestions and future predictions for version 2.0

Can ToF really become a Genshin killer? Let’s find out.

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