The gaming industry is facing headwinds. High churn plus skyrocketing user acquisition costs has created a vicious cycle: increasing churn leads to more aggressive monetization, and more aggressive monetization leads to higher churn. The industry needs a fresh idea, especially in a time where publishers are seeking to do less, but better. Enter "layered interoperability."
Having spent over 14 years at EA, I can understand hesitations around interoperable currencies and tokens, especially related to balancing economics between games, and the value of players and assets from one game compared to another. It’s not like big publishers such as EA, Sony, Microsoft, or Activision are intentionally promoting game dev fiefdoms with high protectionist policies – it’s beautiful to see the alignment and consistency of like games (see EA SPORTS) which create advantages for publishers and players alike. But there are competitive juices within publisher’s game teams for sure, gunning for success… and when the market is down, there can be more of a sense of zero-sum-game for consumer dollars. And who wants another technology or company potentially eating into the profits of these in-game economies?
Layered interoperability, or adding a cross-game/platform token on top of existing game currencies in a portfolio, can address these concerns. It grows the pie while making it easy for players to switch games without breaking publishers' operating models. With a layered approach, publishers can remove the past objections to interoperability, like token exchange rates and game balancing across titles. An interoperable token layered on top of an existing publisher ecosystem can supercharge retention through cross-game and cross-platform incentives. Moreover it can make more efficient use of game marketing spending WITHIN a portfolio, with each game representing an internal ad network.
With layered interoperability, every publisher can move quickly towards Roblox's LTV, which is 300x that of the individual titles within other free-to-play portfolios.
Fragmentation and brutal competition is part of what's fueling this race to the bottom. Aggressive monetization may feel like it makes sense for every individual title, even if it hurts the industry in aggregate.
The Concept of Interoperability
Gaming is constantly evolving, and game publishers are constantly looking for new ways to engage and retain their players. This is especially pronounced as the entire industry is struggling with poor year-over-year comps, significant revenue challenges, ever-growing customer acquisition costs and congested app stores that reward the top .5%. Short of pulling back game launches (Playtika as a more extreme example) there appear to be few viable alternatives to disrupt the status quo. Interoperability is one idea, however, that turns heads with publishers embarking on real portfolio strategies.
An interoperable token or currency is a digital asset that can be used across multiple different games and platforms. This means that players can earn tokens in one game and use them to purchase items or features in another. For example, a player might earn tokens by completing missions in a first-person shooter and then use those tokens to purchase new characters or weapons in a role-playing game.
There are a number of important advantages that interoperable tokens can offer game publishers which are easy to intuit, especially for portfolios of games from a single company or brand. Most common is around the ability to attract and retain users in an ecosystem – when players know that they can use their tokens in multiple different games, they are more likely to purchase and transact in a game knowing they are not losing their investment when they switch games. This common currency effect is often cited within the Roblox walled garden (common currency Robux) where player LTV is 300x the average of all free-to-play games.
Walled gardens notwithstanding, game publishers have expressed some reluctance to adopt interoperable tokens for their games. There are a number of reasons for this, including concerns about:
- Exchange rates and balance: Agreement on exchange rates between different tokens, on the value of a player from one game compared to a player from another game, or challenges integrating and balancing a cross-game and cross-platform currency if replacing existing individual in-game currencies
- Revenue sharing: Between games, but game publishers may not be keen to cut another party into the revenue share for their games if there is a new bounty on interoperability token transactions
- Stickiness: Individual game developers, even within a portfolio of games from a single publisher, are concerned that adopting an interoperable token will make their own franchises less sticky and easier to move away from
- Incentives: Potential challenges in appropriately compensating various game teams for incentives that allow players to try other games from that publisher
While challenging, these points of hesitation are ultimately solvable, as I’ll discuss below, and the advantages of interoperable tokens are enormous. These advantages include:
- Increased player retention: As shown by Roblox’s metrics, interoperable tokens can help to increase player retention by providing players with a reason to stay within a publisher's ecosystem of games. Players who earn tokens in one game can use those tokens to purchase items or upgrades in other games – this helps to keep players engaged and coming back for more. It’s the arcade concept where “quarters” can be used for any game which lifts the whole arcade.
- Reduced churn across the portfolio: Interoperable tokens can help to reduce churn by providing players with a way to transfer their progress and assets between different games. This makes it easier for players to switch games without losing their progress or assets, which helps reduce the number of players who quit playing and/or move to another publisher’s products. All players churn eventually, and since game companies can predict when that takes place based on game behavior, it makes sense to address with interoperability-based incentives.
- Increased game discovery: Interoperable tokens can help to increase game discovery by making it easier for players to find new games from the same publisher, who can incentivize discovery. Players who earn tokens in one game are more likely to try other games from the same publisher (assuming they’ve had a good experience!) as they know that they can use their hard-earned or bought tokens in those games as well. Cross-game tokens also incentivize purchases in the first place.
- Cross-marketing: Building on these themes, interoperable tokens are an impactful tool to cross-market different games from the same publisher. Publishers can run promotions for players to try new games using their tokens but at a discount, or include in-game items or upgrades for other games. This helps to raise awareness of other games in the publisher's ecosystem and encourage players to try them out.
For all the reasons above, particularly higher retention and promoting transactions across products, interoperable tokens helps to increase revenue for game publishers. Roblox is one shining example of a common currency driving much higher LTV and a 20% player pay rate vs. <2% in the rest of the industry.
Not to mention avoiding high platform fees (eg. Apple’s and Google’s 30%) and replacing those with much lower token fees from an interoperable currency which can be purchased with PayPal or credit card. More on this below.
And there is another key benefit especially for game companies that tout they are “player-first.” For decades gamers have complained about the inability to move their hard-earned or hard-won in-game tokens and assets to other games. It’s a frustrating 100% tax on time spent, but new technology such as provided by Pocketful of Quarters’ interoperable token and SDK make cross-game and cross-platform transfers simple to accomplish… with no blockchain engineer required. Freedom of movement is a key player-first mindset.
Layering an Interoperable Token on Top of Individual Game Currencies
I want to go back and address one of the chief hesitations from larger game publishers to the interoperable token model, and that is around the disruption of existing game tokens and economies – this is against the backdrop of entrenched game currencies and the perceived difficulty of balance with valuing one game, and its players, vs. another’s. To start, here is a typical game portfolio fragmented model when it comes to in-game currencies:
Implementing an interoperable token without creating friction with individual developers or individual game currencies is no doubt thorny. Accomplishing the benefits of interoperability, however, doesn’t have to mean outright replacement of existing game currencies – the solution can involve layering the new token on top of existing currencies.
Layering creates a system that allows players to convert between the interoperable token (or “portfolio token” or “corporate token”) and the individual game currencies. Each game can have its own exchange rate. In the “Alpha Gold” example below, a player could earn tokens in Game BRAVO and then convert those tokens to the currency in Game DELTA. This allows players to use their tokens in any game in the publisher's ecosystem, while still allowing developers to control the economy of their own games.
In the meantime, “Alpha Gold'' can be used in a timely manner (we know when users tend to churn) to incentivize cross-game discovery, token buy-backs and additional monetization opportunities, layering on the entire portfolio to promote retention in the ecosystem without friction with existing game currencies. And since the white label token can be purchased with friendly payment methods such as a credit card and PayPal, the fee differential between the App Store and Play Store rates is significant and beneficial.
There is hard work and negotiation on exchange rates in this scenario for sure. But player metrics including LTV, which morph over time, provide the basis for appropriate exchanges. Think of this like a marketplace. The marketing manager for Charlie is able to bid for players in Bravo, based on user data. Bravo can decide if they want to accept the promotion from Charlie or not.
Melding the marketplace with publisher control is another option: game companies and developers can mandate incentives and promotions as games, brands, and their audiences ebb and flow in momentum and marketplace value. This has been well established by airline loyalty points and their numerous, flyer-friendly partnerships.
And… this is a great time to mention another key benefit of the layering approach – with a white label “portfolio token” in play, some portion of individual games’ marketing budgets can be diverted to effectively target users within the ecosystem, making budgets more efficient compared to the open ad network market. It’s not a wholesale replacement of external spending, but a cost-effective diversification opportunity with higher ROI for internal marketing spends between franchises.
It is true that “interoperability” is buzzy at the moment and there are certainly hucksters out there who are touting cross-game tokens without actually having working examples, or without meaningful thought into addressing cross-game economics and balancing complexities. At POQ we have done the homework and can help address these complexities with publishers of all sizes, ensuring the ecosystem is realistically fair and fun for all players.
Given the malaise in the industry right now, interoperability is a JOLT for game portfolios to impact retention, churn, CPI, and revenue trajectories. And it is very “player first” in nature.
P.S. This is only part of the benefit story of interoperable currencies. In a future post I’ll get into zero-click in-game transfers and transactions, which will explode design possibilities and amp up the fun for players!
P.P.S. The technology behind this level of seamless interoperability has significant applications beyond gaming, because at its core this is about driving discoverability and building loyalty for brands, products, and services. Interoperable tech lets brands propel loyalty by incentivizing portfolio-wide (or partner-wide) rewards with consumers without PII implications.