Learnings from CS:GO marketplace & co | Skill Tree #36
Plus: How did the removal of loot boxes work for Brawl Stars & what could the future of esports look like
Why Removing Loot Boxes in Brawl Stars Failed
Replaced loot boxes with direct purchases in December 2022
Impact
- 14% revenue (iOS - 18%, Android -14%)
Markets with high revenue per download (US, Germany) saw larger declines, up to -35% → reduced spending among high spenders as vertical spend depth decreased
But: Brawl Stars already saw a declining trend so probably not all of the drop in revenue can be attributed to the removal of loot boxes
Conclusion
From a business perspective, it seems to have had a negative impact but also “only“ -14%
Ethically, it may have been the right decision for a game aimed at teenagers
The removal of loot boxes was not enough to reinvigorate the game
What could they have done differently
Remove loot boxes gradually to test the new design that replaces it (e.g. new progression system running in parallel)
Add time-limited events with special currencies and brawlers that increase spending depth
Shoutout to Metaguild for their high-quality gaming content. I can definitely recommend reading their Weekly Digests and Game Guides to stay up-to-date with the space.
👉 Check out the Metaguild Blog
The Esports Reckoning
The start of the modern era of esports (2012-2014)
Riot Games launched multiple full-time esports leagues around the world in January 2013 including minimum stipends for player salaries. New, active approach to esports event organization which stands in stark contrast to how it was done before by publishers
Twitch served as a distribution platform focusing on gaming. Twitch viewership stats doubled in 2013
CS:GO released in 2012. Valve started investing in championships and introduced a revenue sharing model for the esports weapon case. Supported tournament prize pools with revenue from selling a battle pass
Professionalization of the industry: More staff, gaming houses emerged, contracts instead of handshake agreements
Gold rush (2015-2018)
Background: massive esports hype train, general economic growth, and easy access to capital (low interest rates)
from 4 investments in 2014 to 68 in 2018
$4.5 billion invested into esports in 2018 alone
esports businesses start hiring aggressively after fundraising to increase revenues but many companies lacked the required structure and expertise
teams competed for the best players with ever-increasing salaries, decoupled from revenue generation
growth wasn’t exponential (which investors expected) after the low-hanging fruits have been taken as the target market is still small compared to traditional sports
ill-intended actors emerged trying to ride the hype train while new investors came in because of FOMO who weren’t doing proper DD → highly exaggerated narrative
is this crypto?
esports winter
Reality vs expectations
Similar to other trends in the past e.g. dotcom bubble, so all of this is not unique to esports
Difficulties of monetizing show themselves, layoffs, low engagement
Investors see the challenges with esports business models and don’t throw good money after bad
Macro economy challenges
Adapting the traditional sports business models doesn’t work. There are working business models in esports but teams need to innovate
sports vs esports
games don’t have the same longevity
publisher centrally controls IP which leads to misaligned incentives
esports games are challenging to create which gives leverage to game studios
esports generate most of their revenue in three ways
Viewership and attendance of professional competitions (direct)
Increasing engagement and non-esports-specific purchasing in video games (indirect) → hard to attribute to esports & publishers are not willing to share revenue-related data → misaligned incentives
aside from esports, there may be other marketing activities woth better ROAS e.g. content creators getting their own skins. esports TAM is much smaller player TAM, so it’s questionable whether esports can have a big impact on in-game revenue for most games
Increasing esports-specific purchasing within video games (hybrid)
will need to generate a value proposition that’s more defensible/unique than simple marketing for the underlying game, where esports orgs feel like they only get crumbs of the value generated
how to make esports business models scale
can’t force it; needs organic popularity
focus on profitable games which demonstrated longevity & where publishers want to expand the IP
publishers should aim to support others in building profitable businesses on top of their IP rather than extracting value
potential breakthroughs
transmedia IPs across games, TV, toys, etc. expands the potential audience for esports outside of hardcore players
the assumption of “esports fans have to be players” will be broken. anyone can enjoy dramatic storylines, charismatic players, and the thrill of competition
F1 can serve as a case study as they’ve broadened their audience over the last 5 years (e.g. via a Netflix documentary, content creators) and as a result doubled their viewership
interactive monetization: livestreaming equivalent of in-game microtransactions for esports broadcasts
e.g. text-to-speech, TikTok-like micro transactions to change the stream experience
Gaming Marketplace Case Studies
Valve
Keep tight control of the marketplace: Officially didn’T allow to cash out real money, set minimum floor prices, items cannot be transferred between games.
Allowed for grey market to form as it’s not too large & creates a more vibrant economy and engagement. Serves a user group that wants to earn money from playing which may be harder for Valve to serve themselves.
Ordered cease and desist to gambling on esports tournaments with skins as it could negatively affect the fairness of tournaments.
Introduced a 7-day trading cooldown on items to prevent wash trading with the goal of catching attention by inflating volumes.
Focus on item markets for everlasting games that built a metagame around their social components (multiplayer)
Cosmetics only. Purchases do not change player stats and therefore the integrity of the skill-based game remains.
Drops are limited in time, not quantity
Zynga & Facebook
Facebook introduced Credits, an interoperable currency that users had to go through when doing purchases in apps built on Facebook.
Goals
take a revenue cut
streamline experience for users (multiple payment options, local currency pricing, handle chargebacks & fraud) → higher conversion rate
collect transactional data
could award credits virtually as a way of discounting or incentivising consumers
Challenges
all developers needed to change their payment systems
users had to make two hops (fiat → credits → in-game currency)
non-dollar denominated currencies were often confusing to convert (e.g. 1,440 credits for £10)
reporting overhead
Result: Credits were scrapped as users moved to mobile
Second Life
Linden Dollar has a free-flaoting rate between 240-250 L$ per USD
Second Life also takes a 3.5% fee for every conversion
Every marketplace transaction is done via L$
Users can buy premium subscriptions which come with a weekly L$ stipend (among other things), essentially allowing players to recoup part of their costs over time
Economy is very much focused on flexing and social status
Features were decentralized by design (Marketplace, Exchange, Land) and never sought to actively compete against its users.
Land auctions are an important revenue driver.