NFT Gaming is snake oil

NFT gaming and blockchain gaming is snake oil.

Don’t get me wrong, it’s cool technology, and a lot of investments have been made in this arena, but these investments are all following the hype. NFT does not provide a solution to any problem the gaming industry has.

To understand, first of all, we need to take a step back and follow where the money in the industry comes from. Whilst I know there are exceptions, I’m looking about where the majority of the money comes from, over time, in the PC industry.

A couple of decades ago (before the internet), people used to go into retail outlets and purchase boxed product. They paid up front, took the game home, then enjoyed (or did not), the game they purchased: Payers became players. These people were all ‘gamers’, and self-identified as such. Developers shipped product, then moved onto the next project.

Then the internet game along, and people got online; there quickly became a proliferation of free online Flash/Shockwave games. The internet was a great leveler and exposed people who were not ‘core gamers’ to gaming entertainment. People who did not identify as ‘gamers’ loved to slide blocks, match three gems, find hidden objects, or run virtual restaurants and hairdressers. It’s estimated that about one in three people on the internet plays some sort of game. That’s a huge denominator.

So how did developers make money in this browser based arena? Online advertising. When I worked at Microsoft, for MSN Games I calculated that the average revenue for a Flash based browser game was about $0.01 per user per hour. It seems small, but remember, the denominators are large.

Then, pioneered by Popcap, the bright idea came up that the browser based games could be rebuilt into deluxe editions that you could download. These would have enhanced graphics and sound, more levels, more pixel polish, and could be played offline. These initially sold for $19.99 and were an overnight success. The payment mechanism was that you downloaded the game for free, and this gave you ten free plays. After that you needed to get your credit card to unlock the game forever.

Within weeks, everyone had jumped on the bandwagon, and there were literally thousands of ‘deluxe’ products available. Web sites sprouted up simply to catalog and broker the offerings. Most developers skipped the Flash stage all together and just shoveled out the download products. Whilst there were some diamonds in the rough, many were of dubious quality, or cheap clones. I used to attend game conferences and find that they were attended by hundreds of small independent game developers eager to make it big and get a slice of the pie.

The sheer quantity, and lack of quality, and the eagerness of the brokers to land grab market share caused price wars and a race to the bottom; prices rapidly spiraled to very low values. Most of the independent wanna-be developers could not sustain themselves at these price levels (especially as they got no visibility in the ocean of the tens of thousands of other flotsam products bobbing around). Next year the game conferences showed that hundreds of developers had imploded along with the deluxe download business.

Then the iPad and the smartphone came along. For a while you could go into the Appstore and buy games for a couple of dollars apiece (matching the prices the deluxe downloads ended up after their collapse). This did not last long.

Then the saviour of the industry came along: The free to play model.

In the free-to-play model, games are free to download, play, and enjoy. The successful games are polished enough to attract players. They are interesting enough to engage them, and sticky enough to retain them and encourage them to come back.

Then, if the players enjoyed the game, they had the option to spend money (typically in the form of an in-game currency such as gold or gems), to purchase enhanced items, to speed up parts of the game, customize their characters, or buy power-ups. Payments were entirely optional, but they enhanced the enjoyment of the game, and players happily spent money on their pastimes just to the same way they spent money on other sources of entertainment (like going to the movies, or a sports game, or going out to dinner). Real money was converted into ingame currency, and this was spent in the game.

As long as the game was compelling, fun, and providing entertainment, the money kept flowing.

Players became payers. The universe had shift from two decades ago when it was Payers that became players.

This transition was genius. If you sold a game for $19.99, that’s all you ever got from the game. However, by offering the game for ‘free’ and offering people microtransactions, there was no limit to the amount of money they could spend over time. Some people spent a lot, some people spent egregious amounts (I’m not judging; if they got entertainment for their investment and it met their own internal value propositions, good for them. Would you judge anyone any different if they spent $10,000 feeding a herd of virtual cows which gave them weeks of fun, compared to them going to a bar and spending the same amount of money on buying and consuming a bottle of fancy champagne? Billionaires use private jets to fly across the country just to have a meal in a favorite restaurant, then fly back again. These same people have Facebook accounts and one in three of them plays games online. It should not be a surprise to learn that some of them have made six to seven figure payments into their favorite games with just the same ease that they buy and collect expensive pieces of artwork and exotic cars).

Over 90% of all revenue in free to play games comes from players who have, individually, spent more than $100 in that game. (I gave a presentation about this, along with the supporting data at one of the last physical gaming conferences I attended “Players who are payers” ). The average lifetime spend of a player who spends in a game is, individually, hundreds of dollars.

The majority of PC games revenue is now free to play. To keep players engaged, developers need to continue to nurture their product to keep it fun. Free to play developers (also subscription-based offerings) are running a game as a service not selling a game as a product. A service needs oxygen and food to stay alive; it needs constant hands on the wheel.

As players play their favorite games they might acquire special items in the game (for instance in a dungeon crawler game a player might receive a random loot drop from killing a powerful monster, or opening chests, or completing quests …) Sometimes these items perfectly meet their needs, but often there can be duplicates, incompatibilities with a character class, or just a desire to swap or trade with other players for variety (or to make a set) or to help others out. Many of the rare items might even be classified as ‘unique’.

The desires to swap, trade, and collect have created entire eco-systems for trading. Sometimes these trading systems are built into games, but often deals are brokered and transacted outside of the game. Real money is involved. Real money. I’d estimate it’s in the tens to hundreds of billion dollars a year range.

The most expensive traded item, to date, is the planet Calypso, which sold for $6M, and there are plenty of headlines about other items selling in the hundreds of thousands of dollars range. People will even shell out over $2k for a blue party hat in Runescape.

All of these transactions have found ways to happen without NFT. Sure, NFT could make them a little safer, but it’s a little overkill. A competent developer can make a transaction pretty safe without needing to resort to NFT and Blockchain (just look at 99.99999% of the transactions on the internet that happily occur without these technologies).

Players seem comfortable with performing their transactions now and trust the current setups, so it’s hard to sell them on the value of what NFT could provide (especially as a developer could bolster the security of any transaction component, if needed, without having to resort to blockchain).

Players are unlikely to lose their investment in a game because of a bogus transaction (history tells us this; if it were the case, the trading ecosystem would not exist), so NFT is not adding value here.

More and more of this business is going mobile. According to a recent App Amie report, customer spent $170b on app stores in 2021. And remember, this is just direct payments and does not include third party transactions!

So, what does cause a player to lose his/her investment in a game. The answer is very simple: The developer.

I’m going to illustrate with a few examples here. I’m not picking on anyone, that is not the intention. These are cases selected just to make my point.

Farmville was one of the early game offerings on Facebook. At peak, it had over 80 million monthly active users. It won awards, and over the lifetime it earned Zynga a couple of billion dollars. It was even able to pull in over a million dollars a day. Where is it now? Gone. All those players who invested dollars (and time) have nothing to show for their investment. Their crops are no more. Their fields and virtual cows are gone. The devil here is that it was the developer who shut down the service. NFT would not have saved anything. Again, I’m not picking on Zynga, instead of Farmville, insert Backyard Monsters, Car Town, Pet Society … All players lost their ‘investments’.

Microsoft’s Asheron’s Call shut down. Star Wars Galaxies (Star Wars being, arguably, one of the top three entertainment IPs on the planet) shuttered in 2011. Harry Potter: Wizards Unite (arguably one of the other top three entertainment IPs) is about to shutter. Final Fantasy 14 Online, Warhammer Online, Tabula Rasa, City of Heroes … anyone remember Club Penguin?

Running a service is hard. Some of these shutdowns were just fatigue from the developers. Many were fiscal decisions. The larger actors had chance to plan. Smaller developers had much less graceful exits: Thousands of medium to smaller independent games were just “here today, gone tomorrow”.

A small indy firm does not advertise and say “Hey, we’re running on fumes, and we’re six months behind on our server costs. We’re just one smaller than expected revenue check away from total collapse”. Instead they say “Hey, 50% discount on all coin packs this week, buy lots now”. Players give them money, and then, poof!, the game is no longer there.

NFT is not going to protect you from a developer shuttering a game (either by choice or forced), especially if catastrophically.

Without exception, every single free-to-play game I have ever invested in has closed, without exception. I have nothing tangible left after any of my investments (just the intangible benefit of the pleasure and fun I got from the leverage I got spending the money in the game, which does account for a lot. Games are fun).

But wait you tell me, a unique selling point of NFTs is the ability to transfer items between games. If your game, like Asheron’s Call, shutters you can transfer your assets into another game such as the new NFT_Knights and preserve your investment? Yeah, about that. Assuming the source game did not stop catastrophically, and the servers are around to assist, what could really be transferred over? You might possibly be able to send the ‘skin’ of a character over, but the scales probably won’t match. The rigs will not match, nor the hitboxes, never mind the shaders or shadows (which can't be pre-optimized to stop performance tanking). This is even before thinking about the custom event animations on items, and what triggers them (or licensing of IP; Disney might have licensed some IP for one game, and/or receive royalties, but will probably not like it appearing elsewhere).

Assuming a magic wand could be waved, and the rendering assets transferred over, what about the data and metadata for the transferred asset? What level does a level 23 Paladin transfer over to a game that has a different level structure, and experience system? (and maybe not even a character class for Paladins?) What is the conversion rate between experience points and hit points between the games? There have to be a conversion rates, and conversion protocols; who defines these? Surely it has to be the receiving team, and what are their incentives? This is a colossal task, and even if they could do it they would want to charge pennies on the dollar to prevent people gaming and playing on a competitor service then converting over. How do characteristics like Strength/Wisdom/Constitution convert over to an incompatible system? What about spells which don’t overlap? (Is the magic system even compatible?) Considering there could be thousands of possible donor games, it’s an impossible task for the recipient game to even consider.

Then what about the items in the game. A donor game could have tens of thousands of weapons, armor, potions, artifacts … How does a sword that does 3d6 slashing damage in one game convert over to a game that has damage based on a different scale? What if the donor sword is enchanted to cast a spell every third hit? What about the helm that provides invisibility? (Is that even possible in the other game?), or regenerates health? How do poisons work? Is death permanent? What about area damage? Ranged attacks? Snipers? Flying or non-flying entities? Shields? How does levelling up affect stats? and on and on and on … It is impossible to even think about converting these things over, let alone fairly, nor mimic their functionality.

All these examples are assuming the games are even basically in the same genre. How would you incorporate an AK-47 into a Dungeon crawler? How about a rocket launcher, or a nuke? What if the games were totally incompatible? What use would importing 72 acres of corn and 200 cows be into an alien planet, or dungeon, or inserting them into a coffee shop or hair dressers?

It’s as if those selling the NFT snake oil story have no idea how game development works, or the first idea about the technologies involved. Surely that rings warning bells?

Game designers spent their careers creating other worlds. Imagine the pride that comes with creating a fantasy realm; the lore, the back story, the architecture, the dungeons, the levelling. Imagine you are a player immersed in this kingdom, battling your way through a though dungeon, killing skeletons, orcs, and dodging traps and gelatinous cubes; enjoying every second. You reach the final cave, go inside, and find Mr Spock standing there with an M-16, accompanied by the Mario Brothers with a pair of rocket launchers. Your suspension of disbelief would be shattered. It’s just as jarring as watching the latest episode of Downton Abbey and finding that one of the staff has been replaced by Donald Duck. It does not fit it. It ruins the ambience. It destroys your engagement and enjoyment.

The latest quacky thing I’ve heard about NFT is that it will allow a player to preserve their time investment in a game and transfer that over to a new one. Why the F*@% would a receiving game care how much time you’ve played in a previouss game (that was not theirs)? If you break up from your boyfriend/girlfriend and find a new one, do you think the new one cares how many hours you spent kissing the old one? What’s in it for them?

All a game developer cares about is how much money you will spend (invest) on their platform, whilst you are on them.

Game designers do a fantastic job of balancing game play and leveling, but occasionally, after a little while (or possible exploits), it can be discovered that an item is just too powerful and upsets the balance of a game. It needs to be tweaked. When you run your own game, a simple patch can be made and slipped out. However, if this item is wrapped up in NFT and blockchain, it can’t be altered (that’s the whole point!). How can this situation be resolved?

If the developer is still around, maybe they can invalidate the original NFT (is this even possible?) and issue an updated version? Internet Explorer had a “Kill-Bit” feature for just this purpose to disable old rogue ActiveX controls that could potentially be exploited.

Even this solution requires other clients to poll to check for validity. Also what if the original develop is no longer around to patch the mistake? Who decides if an item needs to removed or nerfed for the good of “all the metaverse” in this case? Does there need to be a centralized service somewhere that keeps track of these issues? Who runs this? Who maintains it? Who polices it?

So, will there ever be a universal metaverse like Ready Player One? As seen above, unless it’s just handled by one company (who can autocratically dictate the physics, scales, rules, interaction, animations, properties, characteristics …), no. This would be the only way to get a consistent monolithic experience. I really don’t see that happening, and if it did, independent developers who wanted to create something different would simply start creating their own products again in which, in their universe, teleportation was allowed, or cloning (or to support features that the large metaverse elected not to enable), and we’d be back to square one.

At best we’re going to end up with tens of thousands of ‘islands’ into which you might be able to import skins (and possibly some limited common functionality), between which you might be able to hop. This is not a metaverse.

There are plenty of headlines about “Studio XXXX announces they are incorporating NFT into their next game”, and this fuels the hysteria, but the number of studios developing titles is not a measure of success. Come back in a couple of years and see how many of these titles/developers are even still around, and you’ll have a better first indicator about success of the technology.

The games business is incredibly fickle. It’s brutal. Sadly, so many studios and games fail. It’s a hit driven business. The shuttering of a game is the killer of a dream. NFT is not a safety net nor a parachute. If a game needs to close because it can’t afford to keep the lights on, NFT incorporation will not have provided them with any income or relief.

Stop this madness. The Emperor is not wearing any clothes.