Opportunities for blockchains across the games value chain

I was chatting with a friend the other day about opportunities in crypto games¹. He observed that fun ideas that tie into the existing games ecosystem suffer from platform risk that’s probably not worth taking (e.g. build something for trading Dota 2 skins, get shut down by Valve) and asked me what he should build. I couldn’t think of anything off the top of my head, so took it as a good excuse to do some structured brainstorming on the topic.

• Objective: evaluate opportunities for crypto products/ services in games (excluding the games themselves)
• Methods: find a taxonomy for the games value chain and evaluate the promise of applying crypto to each layer² of the value chain
• Analytical rigor: scientific wild-ass guess (SWAG)

Step 1: find a taxonomy for the games value chain

This taxonomy for the games value chain from wikipedia seems as good as any:

1. Capital and publishing layer: involved in paying for development of new titles and seeking returns through licensing of the titles. (e.g. Tencent, VCs)
2. Product and talent layer: includes developers, designers and artists, who may be working under individual contracts or as part of in-house development teams. (e.g. LinkedIn, Outsourced teams)
3. Production and tools layer: generates content production tools, game development middleware, customizable game engines, and production management tools. (e.g. Unity)
4. Distribution layer: or the “publishing” industry, involved in generating and marketing catalogs of games for retail and online distribution. (e.g. Steam)
5. Hardware (or Virtual Machine or Software Platform) layer: or the providers of the underlying platform, which may be console-based, accessed through online media, or accessed through mobile devices such as smartphones. This layer now includes network infrastructure and non-hardware platforms such as virtual machines (e.g. Java or Flash), or software platforms such as browsers or even further Facebook, etc. (e.g. Nintendo)
6. End-users layer: or the users/players of the games. (e.g. You and I)

Step 2: evaluate the promise of applying crypto to each layer of the value chain

To evaluate the promise of applying crypto to the value chain, let’s look at two dimensions.

• First, what degree does a product or service at that layer benefit from the properties of blockchains[^not explicit]?
• Second, how achievable is successfully launching a crypto based product or service at that layer of the value chain³?

Here’s what I came up with:

In short, [1] capital formation is the no-brainer, [5] hardware is the non-opportunity⁴, and [2] talent management, [3] tools, and [4] distribution (both mobile and PC) are mixed bags. I set aside [6] end-users because it covers a lot of ground and deserves its own analysis.

Capital formation (raising money) is the obvious opportunity. Ethereum’s killer app has been capital formation. And we’ve already seen many successful examples of using crypto to form capital for games.

Hardware/ VMs is a non-opportunity. By and large, users don’t look at their laptop of phone and wish it was more transparent, privacy preserving, etc, so the benefits of building on top of crypto is low. And I don’t even know how one would build a blockchain alternative so achievability seems low too. That said, this is where I have the least experience so if I’m misreading this please let me know.

Talent management would look like more efficient markets for forming and managing teams. Instead of companies, DAOs could form and fold as needed. Low achievability because the usability is not close yet, but potentially huge benefit if we can figure out how to do it.

Tools is a tough one because there are good reasons to want more open and trustless tools (see recent controversy over Unity and SpacialOS). Problem is, the tools made by companies like Unity are way better than their open source alternatives.

Distribution is a compelling target. Lots of projects are trying this already and outside of crypto, the battle is getting going as I wrote in a member update. The hardest thing here is the crazy moats around mobile app stores and the relative lack of moats in PC. Insane moats means hard to compete. Lack of moats means hard to compete (because it’s so competitive with giants like Valve, Epic and Discord having the natural advantage). And because PC distribution is open, users have more optionality and thus suffer less from censorship, so the benefits of a blockchain based alternative would be lower.

What about the end-user layer? The obvious component is the games. But aside from that, I haven’t seen a good taxonomy. Here’s one I made up that we can call The 4Cs:

1. Content (e.g. entertainment, learning)
2. Community and communications (e.g. voice chat, forums)
3. Commerce (e.g. marketplaces)
4. Competition (e.g. tournaments)

The scope of The 4Cs is vast, so I’ll save that for a future post. As for the games themselves, I wrote about it here in the context of NFTs but I’ll need to expand on that thinking later as well.

Step 3: Come up with ideas and try stuff

With a little guidance on which layers of the value chain to go after, we can start coming up with some ideas. Most will be bad but that’s fine. Until there’s an idea that really captures your imagination and makes you want to build it, I find the best thing to do is just optimize for volume and being to critical up front hampers volume.

A few ideas to get started:

Capital formation

• Crowdfunding platform for game developers: rather than getting just the game and some perks (ala Kickstarter), the funder gets some form of equity, pseudo-equity, or token
• Crowdfunding tool for game developers: a service that handles all the complexity of forming capital for tokens (e.g. compliance, technical) and can be implemented as a simple widget (e.g. 2 lines of JS on a website)

Distribution (PC)

• An uncensorable game store: the place where you can find any game. Managing malicious content (e.g. malware) would be a challenge, but it’s probably tractable
• A zero fee game store: the place where you you can publish your game for free. A few ways to do this but the obvious one is make it p2p and issue a token
• A “co-op” game store: anybody (well, accredited investors) can buy security tokens in the game store that give you claims to sales. You could create a meta-game where different tokens gave you claims to different parts of the store (e.g. an indie token gets you sales on indie games only)

A couple years ago, we had too many ideas and not enough talent to try the ideas. Since last year, that trend has been reversing. Many ideas have been invalidated (and we have only seen adoption in a select few use cases) while the pool of talent has only continued to grow. Given the deficit in ideas, generating and sharing ideas seems like a valuable activity for the industry⁵. I hope to do more of this and would love to see others do it too.

If you liked what you read, please share it with your friends