Today we’re releasing the very first FiPME blog post out of the many to follow. Whether you’re a gamer, a startup investor, or a passerby who has nothing but a slight curiosity for the gaming industry, we’ll be delivering brief but informative content on all sorts of gaming-related topics which will be interesting and easy to read for all of you.
Even — or especially — if you think gaming is still about lazy teenagers playing PC after school and there’s nothing worth your attention about it — do read this introductory piece and we’re sure it will stir up your interest. We will briefly introduce you to some peculiar facts that reflect the industry’s runaway growth and talk about the role of the game and the ingame items as a core of this multi-billion industry. In the next piece, we’ll take a deeper dive into the current state of the ingame item’s market, its issues, and how we at FiPME aim to improve it.
Why gaming is not just lots of fun but also lots and lots of money?
The gaming world is booming. With its $138 bln valuation and 2,2 bln gamers worldwide, it’s no longer a niche entertainment for kids that have some spare time to waste once they’re through with their homework. Due to the technological advancements of the past 10 years, including the advent of mobile gaming and the ubiquitous proliferation of the internet, not only have the games themselves evolved but the whole gaming world has reshaped and gone mainstream.
“In just 10 years, the industry has almost doubled in size rivalling that of the music and even film industries and reaching a $138 bln valuation.”
In just 10 years, the industry has almost doubled in size rivalling that of the music and even film industries. Moreover, emerging technologies as VR, production of games for all tastes and ages, and the fact that gaming is the most affordable — and probably the most engaging — type of entertainment hold a promise for even more robust growth in the upcoming years.
No surprise this gaming craze has attracted a whole new set of intermediaries who monetize not only people’s desire to play games but also the joy to watch others do that. If back in 2000-s it was mainly gamers and game & hardware producers who ruled the industry, now its infrastructure is much more complex.
“Twitch has been bought by Amazon for $1 bln and viewed 560 bln minutes — roughly 1 mln years — by 140 mln users — approximately two populations of Germany — in 2018 alone.”
Take the crazy-successful streaming platforms like Twitch, which has been bought by Amazon for $1 bln and has been viewed 560 bln minutes — roughly 1 mln years — by 140 mln users — approximately two populations of Germany — in 2018 alone. Or some gaming tournaments as “The International 2018” where the prize pool equaled $25 mln — an amount only outnumbered by one sport event’s prize in the world — the Wimbledon’s 2018 tournament where $43.8 mln were at stake. These sort of participants enrich the industry’s infrastructure and massively contribute to its growth — which is amazing for all of us, industry’s participants. And yet, eventually, it all boils down to the game itself.
“The 2018 biggest gaming tournament’s (“The International 2018”) prize pool equaled $25 mln — an amount only outnumbered by one real sports event’s prize that year — the Wimbledon’s $43.8 mln.”
The game & ingame items as a core of a multi-billion industry
Even with all these transformations in the gaming world, at the core of it all still lies the game itself — or better say, the pleasure we get from interacting with it through solving the ingame tasks, competing with other players, and/or socializing inside the game — a peculiar aspect of contemporary online multiplayer games, where people tend to actually interact with the «virtual society» like they’d do with the «real» one — by showing off their status with expensive but perhaps nonfunctional belongings or self-expressing through their character’s looks.
If you take into consideration the fact that we, human beings, tend to ramp up the pleasure whenever we can, you’ll understand why gamers, just like the people in the “real” world, keep seeking for means to raise their game and get more satisfaction. Luckily for the gamers and for the game producers, there are simple accessible tools which enable you to complete your tasks faster, compete better, and show off more effectively — these are the ingame items. Depending on the game, they might have different functions but they all lead to an ultimate goal for all gamers: a better gaming experience. Be it an ingame currency that unlocks new levels in your mobile game, or armor that lets you better execute your mission in a shooter or non-functional skins that simply lets your character stand out in a crowd in your favorite MMORPG — these are different sorts of ingame items but all equally valuable for gamers who love those games.
Moreover, given that most game producers have been lately opting for a freemium payment model which helps boost trials that are then easier to convert into subscriptions, there are 2 main ways to monetize a game. First, to push the time spent in the game to maximum and second, ensure a constant flow of ingame items purchases. From this, it’s not difficult to infer that game producers are motivated to create a gaming experience that’s increasingly dependent on the ingame items one possesses. In fact, sometimes it gets so extreme that some game producers create entire ingame economies which can yield profits to both game producers and the gamers and even offer fixed exchange rates between the ingame currencies and the real money.
One of the compelling examples of such games is Entropia Universe — a massively multiplayer online virtual universe, which ingame currency can be redeemed back into U.S. dollars at a fixed exchange rate of 10:1. As crazy as it sounds, it may lead to even more surprising sequences: Entropia Universe entered the Guinness World Records Book for the most expensive virtual world items ever sold. First, a virtual club named “Club Neverdie” was bought by Jon Jacobs for $635k who even took out a mortgage on his real-life house and then it paid off in just 8 months due to a robust ingame economy! And second, a Planet Calypso was bought for a hefty sum of $6 mln, this time by a company and again as an investment, but perhaps a more serious one.
“The most expensive ingame item, Planet Calypso,was sold for $6 mln — and not even to an individual gamer but to a company, which saw it as a great investment.”
While these purchases sound somewhat plausible as one can see them as investments with a rather clear value defined by future revenues, some other purchases seem less rational. For instance, sometimes gamers would buy skins for their characters for $20k and all they do is make your character look awesome in the crowd — $20k-awesome! — but not play more efficiently as they don’t increase their stamina or whatsoever.
Why would somebody pay millions for something that only exists inside the game?
The fact that gamers — and even companies — deem it sensible to spend tons of real money for ingame items no matter their function shows that ingame items are indeed a big thing. And yet, this might be surprising for those outside of the gaming world. Some may even call it a bubble addressing the fact that these virtual assets are not backed by anything but come on, one could say an iPhone is not backed by anything either. And yet, if you don’t let it out of your hands half of the day — just like gamers stick with their ingame items most of the time playing, which can sometimes reach most of their disposable time, too — this entitles both items with a high level of importance and intrinsic value in these different but equally real worlds. That’s why the intrinsic value of ingame goods is not questionable for gamers just as the iPhone’s intrinsic value isn’t for a 16-year-old Instagrammer.
As a result, an increasing number of gamers of all levels engage in trading ingame items either to get the item they need for their gaming endeavors or to monetize their ingame efforts. Moreover, some would even speculate on the ingame goods’ price — which is also a luring option for those who don’t play themselves but see the value of such goods — and the number of these is growing.
The only problem is that to date, the ingame goods trading process involves quite a few hurdles for the gamers — let alone the outsiders who spot this awesome opportunity and want to join in. The trading process is on times insecure, slow, expensive, and doesn’t let you trade cross-games. As a result, it impedes the growth of this insanely high potential market and leaves behind many potential participants but we at FiPME aim to put an end to this.
How are we going to do it? Read more in our next post!