Executive Summary
Though the rise of web3 and blockchain technologies has created many opportunities for new approaches to game design, games development, and digital asset ownership, when it comes to user acquisition (UA) the fundamental problem to be solved remains unchanged: maximizing player lifetime value (LTV) while minimizing customer acquisition costs (CAC).
However, what has meaningfully changed is the ability to accurately measure this relationship. Both sides of the equation are increasingly nebulous in a decentralized world:
CAC, frequently measured in traditional gaming as cost-per-install (CPI), is much more difficult to accurately calculate. Many web3 games are web-based, meaning that no such install event is required.
“Value” in web3 gaming is more difficult to quantify than in traditional gaming and LTV payback periods may differ wildly from standard benchmarks.
Player identity can be challenging to ascertain, as players can potentially have multiple wallets. Furthermore, a given wallet address in a gaming data set might actually be a bot instead of a human. Attributing LTV and/or CAC to a wallet address rather than a distinct user is risky and difficult to forecast against.
The environment for traditional performance marketing in web3 games – at least, as presently constructed – is challenging and underdeveloped. This leaves web3 games on an unlevel playing field with their web2 counterparts. Even if a strong web3 game were prepared to invest heavily in performance marketing, the macro headwinds against such strategies render them extremely cost prohibitive and largely unsuitable for early-stage ventures, many of which are likely still building their first game.
Yet opportunities remain for savvy operators able to combine thoughtful data analysis with novel crypto-native marketing strategies. By leaning into three key areas (community, partnerships, and web3-native growth), founders can boost user acquisition in a cost-effective and web3-friendly manner.
Though measuring LTV and CAC is difficult in web3, organizations should still prepare for a world in which performance marketing becomes the dominant strategy once again. There are several steps that blockchain gaming firms can take today to prepare themselves for the future. Furthermore, the nascent web3 UA sector offers several areas of opportunity for investment and acquisition to those prepared to capitalize on them.
Introduction
The introduction of blockchain technologies to the games industry has led many founders and industry practitioners to re-examine the old ways of doing business. Nearly every aspect of the “traditional” games industry – from design, to development, to publishing, and everything in between – is being dissected and rebuilt to best meet the needs of the new games, audiences, and studios that are forming around the emerging web3 gaming ecosystem.
User Acquisition (UA) is no exception to this trend, and in some ways lags behind other sectors of the games industry in adapting to web3. The majority of development and investment activity around blockchain games to-date has been focused on Pre-Seed, Seed, and Series A ventures – a phase in which most companies are still developing their first game(s) and are not yet prepared to scale to a large audience through traditional performance marketing.
Blockdata reports that 60% of blockchain gaming deals in 2022 were early stage, with another 17% coming at Series A. Given the time it takes to build a game worth scaling, it’s no wonder that little attention has been paid to user acquisition in web3 games thus far.
In this report, I will outline the challenges associated with user acquisition in web3 gaming, offer practical recommendations to companies operating in this space, and identify areas of opportunity for investment, acquisition, and/or internal development.
The report is structured as follows:
The Fundamental Challenge of User Acquisition
Practical UA Recommendations for Founders
Planning for Scale
Areas of Opportunity
Finally, a quick note on terminology: throughout this report, I will refer to the terms “user acquisition” or “UA” as inclusive of both brand marketing (which tends to be more qualitative in nature) and performance marketing (which is typically more quantitative).
In a traditional gaming context (particularly on mobile), UA often refers only to performance marketing functions. However, as we’ll soon discuss, performance marketing is not well-suited to most web3 gaming operations (at least, not as presently constructed) and we still need to acquire users through other, less precise methods.
With all that said, let’s unpack the world of web3 user acquisition.
The Fundamental Challenge of UA
Fundamentally, the efficacy of user acquisition always boils down to the same basic relationship: player lifetime value (LTV) vs. customer acquisition cost (CAC). So long as a player’s lifetime value exceeds the cost to the business to acquire that player, a profit is turned and the UA efforts may be considered successful.
Of course, it’s not quite so simple in practice.
For example, users may play a game for weeks or months before deciding to spend any money. Cost-per-install (CPI) – the most frequently used CAC metric in gaming – can fluctuate over time based on platform, market conditions, genre, and many other factors. There are also recurring costs associated with operating the game and keeping those players in the ecosystem.
Regardless, the basic strategy of maximizing LTV while minimizing CAC holds true for all games businesses in both traditional and web3 gaming. This relationship has not changed.
However, as we’ll soon discuss, there are key assumptions underlying this truism that can no longer be relied upon in a web3 context, forcing savvy operators to seek novel solutions.
Key Assumptions
Founders with marketing or user acquisition experience in a traditional gaming context will be familiar with statements such as the one below:
This hyper-specific approach makes traditional user acquisition more science than art. Marketers and UA practitioners could take the information above, punch it into a spreadsheet, and forecast an LTV-to-CAC relationship over time, allowing them to quickly gauge the commercial viability of a given games business.
However, in order to acquire users with such precision, we must first understand something about them.
In a traditional gaming context, users are relatively easy to identify – they are attributed to a discrete install on a specific device. In the example above, we know that they are playing on iOS, reside in the US, and are exposed to some part of the Meta Audience Network.
While there may be some room for error (e.g. multiple users sharing the same device, or one user playing on multiple devices), we can still associate a specific device with an observed set of behaviors in our game and attribute that user back to the channel through which they arrived at our game.
In the world of web3, we can no longer make such direct assumptions.
While all games released through traditional means (mobile app stores, PC distribution platforms, console networks) will theoretically benefit from the same data pipeline that UA professionals have always utilized, the confounding factors of wallet attribution and platform policy make this less straightforward.
Because web3 games require a crypto wallet connection to leverage the benefits offered by blockchain integrations, gaming companies need to be able to directly attribute wallets to players. However, this can be challenging given that one user may have multiple wallets.
Furthermore, the contents of any given wallet can change over time – NFTs and other tokens may be exchanged in and out, assets will fluctuate in value, and some assets may not even belong to the wallet holder at all (e.g. in the case of a scholar, or a rented NFT). This makes it difficult to properly estimate LTV based on wallet contents alone.
Wallets also mask the identity of users, making them more difficult to effectively target with advertising. In fact, these wallets may not be operated by humans at all, but rather bots or AIs. Bot-controlled wallets can even have negative LTVs, as bots are a common means to maximize value extraction in web3 games that feature earning components.
Most traditional games distribution platforms have been hesitant to permit blockchain integrations or use of NFTs. As of this writing, any sale of NFTs on iOS or Android devices must be done via in-app purchases, thus subjecting it to Apple’s and Google’s 30% revenue cut. These platform holders have also implemented restrictions around unlocking of content via NFTs, effectively limiting their use cases.
Console manufacturers have sent mixed signals on blockchain gaming: making cautious statements to the public, while quietly exploring the space via investments and R&D. On PC, Valve has issued an outright ban of NFTs and blockchain games, while rival Epic Games Store has been more welcoming, even making some blockchain games available today.
All of this uncertainty, combined with the lack of developed backend publishing infrastructure to support web3 integrations, has led many web3 founders to focus their projects on browser-based experiences where crypto wallet integrations have already proliferated. No installation or download is required for browser-based games, rendering the standard gaming CAC metric of cost-per-install useless. Even where wallets can be attributed to a specific acquisition channel, players are free to connect and disconnect wallets with ease. If a player connects a wallet, but doesn’t make any transactions, can a business really consider that player to have been “acquired”?
An example of the challenges with on-chain UA data | Source: The Pull Request (7/7/22)
To summarize:
If we cannot accurately gauge LTV…
and we cannot reliably measure CAC…
…can we truly optimize UA?
Consider also that user acquisition is difficult under the best of circumstances. User targeting has become trickier with Apple’s ATT policy changes, a shifting landscape of global privacy regulations are compounding this problem, and even when done well, user acquisition can still be extremely expensive (particularly in free-to-play):
Source: Joakim Achren / Twitter (2/2/22)
Even if a web3 game were prepared to scale to a broader (i.e. non-crypto native) audience, that game would be operating on an unlevel playing field with its non-web3 counterparts that do not face the same challenges with user onboarding, install attribution, LTV tracking, or platform policy and have years of historical UA data to fall back on for forecasting purposes.
As such, traditional performance marketing is largely discouraged for all but the most highly-developed and well-capitalized web3 projects, and/or those with minimal web3 integration.
When viewed through a traditional games industry lens, this may seem like a challenging environment for startups. However, web3 also presents its own unique set of opportunities for user acquisition that can be leveraged by ventures of all sizes – a topic we will explore further in the next section.
Practical UA Recommendations for Founders
In the absence of reliable measurements for LTV and CAC, web3 founders should prioritize low-cost, crypto-native solutions for acquiring users. Fortunately, there are a variety of options available to savvy marketers that understand the web3 audience and are willing to step outside of traditional gaming approaches.
Leverage Player Communities
Given the bottom-up nature of web3 games development, a constructive and cost-effective place to start is within your game’s current community. Because of the ability to align incentives via crypto-economics, early community members can be analogized to the “golden cohorts” of traditional gaming. These early adopters can become your game’s greatest evangelists and biggest spenders.
As early contributors to your game’s ecosystem, token holders of your genesis collections, or even speculators in search of the “next big thing”, community members have a vested interest in growing visibility of the project and attracting new users to your game. While financial interest or earning potential may be a key motivator for some of these players, many others may relish the opportunity to take part in community-driven development. Low-cost community-building efforts such as art contests, game lore writing, friend referral programs, and the like can be effective tools for empowering community members. When combined with the endowment effects conferred through web3-native initiatives (free NFT mints, token emissions, allowlist spots, etc.), players can feel a greater sense of ownership over the game ecosystem that they are a part of.
“In web3, your first goal is to onboard your first 10,000 co-owners of your network”– Quinn Campbell, VP of Growth, Sky Mavis Source: Naavik Gaming Podcast (8/16/22)
Enlisting these “co-owners” to take an active role in promoting your game can be a powerful growth strategy – and likely one that is less expensive than hiring dedicated full-time employees to do the same thing.
Content creators can be particularly valuable in this regard, as they can generate buzz around your game through social media channels frequented by web3 gamers such as Telegram, YouTube, Twitch, and TikTok. By collaborating with content creators, you can tap into a creator’s following and leverage their expertise to showcase your game to a wider audience.Another way to utilize community members is to get their help in scouting and sourcing other web3 communities for potential partnerships. Most people active in web3 gaming communities are not isolated to a single Discord server. Rather, they are likely to be involved in multiple games, PFP projects, DeFi protocols, DAOs, and the like. Permitting your community to identify other projects or communities with shared values or overlapping audiences can quickly and cost-effectively provide your team with a set of “warm leads” from which valuable partnerships might eventually arise.
Partnerships + Collaborations
Given that the current addressable market of web3 gamers is relatively small (just over 1M Unique Active Wallets according to DappRadar, as of this writing), another cost-effective means to acquire users is to develop partnerships with like-minded communities that have already overcome the challenges of the web3 onboarding user experience.
Partnering with another organization can provide many benefits to your project:
Tap into new networks to drive traffic to your game.
Gather valuable data on overlapping or adjacent audiences.
Cross-promotion of marketing content, NFT drops, allowlist promotions, and the like.
De-risk the cost of acquiring new users, as these partner communities are already primed for web3 content.
Partnerships can also be seen as a more organic way of promoting your product to a web3 audience that tends to be skeptical of traditional forms of advertising, given the large number of scams and pump-and-dumps in the space.There are many options available for partnerships and collaborations. A common early example of this has been to partner with guilds. Guilds can aid with asset distribution and utilization, provide liquidity, execute marketing initiatives, organize esports events, create content, and so on. These would be a great place to start conversations, even if only to explore the possibility space.
Several examples of game <> guild partnerships | Source: YGG (12/8/21)
Other partnership opportunities exist in the world of platforms and infrastructure providers. There are numerous blockchains, tech solutions, distribution and aggregation platforms, marketplaces, automated market makers, and countless other entities that all have vested interests in raising awareness of web3 generally, and in getting involved with web3 games specifically. Forging partnerships with these organizations can bring visibility to your game, as well as potential added utility.
For example, a partnership with a marketplace such as Magic Eden or OpenSea might bring increased transaction volume, while a deal with a Layer-2 provider like Polygon or Immutable could open access to a network of fellow game developers or larger brands looking to establish a web3 presence. There may even be opportunities to partner with other companies to save development time and resources on features like wallet integration or advertising that can be beneficial in acquiring and onboarding users.
Finally, an area for collaboration that has seen a major uptick in recent years is in gaming and IP collaborations. This type of deal-making takes on an entirely new format in web3 where interoperability allows for game assets to have multiple uses across projects. A prominent recent example of this can be seen in Limit Break’s collaboration with Castaways, though examples abound across traditional gaming. Partnering with other games or IPs not only brings new audiences, but also (if done well) proves that your studio can be trusted to handle future IP integrations with care.
Of course, with all of the options above the challenge lies in identifying the right partnerships for your project. Key to this undertaking is having a solid understanding of wallet data – a topic we’ll unpack in greater detail in the Planning for Scale section.
Web3-Native Growth
Perhaps the most interesting opportunity space for user acquisition in blockchain gaming is in utilizing web3-native functionality to bootstrap growth. These approaches are uniquely enabled by blockchain technologies and, as such, have little precedent in the world of gaming.
The most common approaches in this category have utilized airdrops and token emissions as a means of incentivizing users to engage with a project.
An illustration of the use of tokens to acquire users | Source: Future (12/9/21)
Airdrops, or the distribution of free tokens to attract new users, allow developers to permissionlessly send tokens to a targeted list of wallet addresses. While this seems like a relatively inexpensive form of marketing at first glance (token senders pay only for the transaction costs), its efficacy is debatable. In at least one set of tests by web3 marketing firm Raleon, less than 1% of gaming-related airdrops were even viewed by their recipients, leading to an abysmal sub-0.05% click-through rate.
Intuitively, this makes sense – receiving an airdrop is akin to getting spam email that you never signed up for…except it can’t be deleted! As such, airdrop strategies should be handled carefully and targeted at keeping existing players engaged, rather than acquiring new users. If used as a reward (e.g. for community contributions, completing bounties, etc.), airdrops can engage existing players, re-engage lapsed players, and potentially lead to additional word-of-mouth UA. However, be sure to also consider the potential value of the tokens being distributed. If the tokens have liquidity and meaningful value on open markets, airdrops suddenly become much more expensive to perform when a large percentage of total token supply is transferred out of your project.
A specific type of airdrop strategy commonly utilized in DeFi is called a “vampire attack”, where a new project siphons users from an established project by airdropping valuable tokens to incentivize them to switch. This has made its way to web3 gaming, too: MetaDerby, a horse racing game, airdropped a free NFT and $100 of in-game tokens to players of Zed Run and Pegaxy (two competing horse racing games).
Source: Metaderby / Medium (6/8/22)
Another strategy for acquiring users only found in web3 is to utilize token emissions, including the infamous “X-to-Earn” systems. While a discussion of tokenomics is beyond the scope of this report, it’s safe to say that incentivizing users with potentially valuable tokens is a proven means of sparking attention for a brief period of time, though it will only work in the short term. Even this temporary boost may begin to see diminishing returns, as players become more savvy and customers generally are more careful about avoiding scams and unsustainable economies.
Yet token emissions need not be limited to earning schemes. A game might utilize token rewards as a means of keeping players engaged, incentivizing deeper gameplay, or granting governance votes: for example, by emitting tokens when players win a competitive match, or achieve some in-game milestone. These would be dictated by smart contracts and require careful pre-planning from the game team to avoid creating an unsustainable game economy, but could function as a powerful retention mechanic.
Planning for Scale
Though most web3 gaming organizations are likely not yet prepared for performance marketing at scale, it’s important to keep an eye toward the future and be prepared to pivot strategies as the industry matures and new opportunities emerge. There are a number of steps that can be taken today to better prepare for UA-led growth tomorrow, while providing immediate benefits to other marketing efforts across your organization.
First, it’s worth taking the time to do a thorough health check on your organization’s data readiness before spending any money on UA:
Does your game’s onboarding flow have telemetry enabled so you can measure progress, monitor churn, track conversions, and fire postback events?
Have you documented your game’s funnel(s)? Can you track players’ from social media to Discord to your game?
Can you differentiate between data attributed to paid campaigns vs. organic traffic?
Next, it’s helpful to have an understanding of the unique data associated with web3 wallets. Though wallets present their own set of challenges, as discussed earlier, they also provide interesting information that would have previously been unavailable in other traditional gaming scenarios. Below are a few examples of the types of unique metrics available in web3:
Analysts can view what assets are in a given wallet and track their individual and cumulative values.
Wallet transactions can be parsed to examine total volume, transaction frequency, and average transaction value.
Wallets can also be analyzed for current purchasing power, share of transactions occurring within a given project or set of smart contracts, or total value inflow / outflow.
Analysts can even trace a wallet’s interactions to visualize a network of connections with other games, dApps, and other web3-native experiences.
Finally, and most importantly, it’s worth mentioning that no user acquisition strategy – no matter how clever – will fix a game with underlying imperfections. Developers must do the hard work of creating a fun, engaging, and retentive experience before investing heavily into user acquisition. This is not a problem that you can solve with money alone.
Areas of Opportunity
Because web3 user acquisition is such a nascent sector, opportunity exists for firms that can solve the UA puzzle and overcome the challenges associated with measuring performance accurately in web3 gaming.
As noted above, simply getting an accurate read on UA performance in web3 gaming is difficult. Market incumbents in the AdTech space will surely attempt to fill that gap, but traditional gaming attribution platforms are not currently equipped to incorporate cryptocurrencies with fluctuating prices into their platforms. There is likely an opportunity here for crypto-native firms to ship quickly and get out in front of the competition.
Similarly, companies operating in the web3 identity space are well-positioned to capitalize on opportunities to improve access to trustworthy, actionable user acquisition data by bringing together disparate data sources in a way that benefits both players and developers. Gaming is an excellent testing ground for technology like this, given its technical complexity, high transaction volume, and wide range of devices utilized (PC, console, mobile, web browser, etc.). A successful implementation in gaming could be replicated in media and entertainment more broadly, if not other industries entirely.
If a company can allow players to maintain better control and privacy over their data (perhaps with the help of zero-knowledge identity proofs) while also connecting those players to a games industry UA pipeline seeking new ways to reach them, it could have a chance to rival AdTech incumbents like ironSource and AppLovin in the future. That company would also be a prime acquisition candidate for any AAA publisher looking to move into web3.
Player identity can also be addressed from the demand side by enabling users to display “proof of gaming work”, perhaps via POAPs or soul-bound tokens. Players with more impressive accomplishments could leverage those for better incentives in gaming ecosystems where they might be in-demand. These accomplishments could be related to in-game achievements, but could also just as easily be tied to ecosystem-building contributions like inviting friends, writing a blog post, or taking part in a playtest. Players would have an incentive to engage, while games businesses would have more actionable information with which to target those valuable players. In practice, this might look something like casino loyalty rewards, an employee discount program, or the Starbucks “stars” system.
Another potential opportunity exists for a “CRM of builders”. As more gaming projects launch in web3, there will be an increasing need for crypto-native community builders and contributors to join these bottom-up ecosystems. These builders will come from a variety of backgrounds, serve an assortment of needs (software engineers, social media marketers, forum moderators, player support, etc.), and will increasingly be utilized as growth partners for web3 games projects. Assembling a robust CRM of high-value contributors could be an excellent business opportunity for a games publisher, gaming guild, or marketing firm seeking to serve a growing audience of game developers. A business like this might be analogized to a staffing firm specific to web3 games projects. There are likely even more opportunities beyond those listed above. Fundamentally, there will always be value in providing, storing, and distributing clean, actionable, and compliant data to stakeholders across the web3 gaming sector, and this value will only grow as more users are onboarded to web3 in the future.
If you are a founder building in this space, we’d love to hear from you!
For more research, insights, and analysis on the future of the games industry, follow BITKRAFT at linktr.ee/bitkraft and Always Scheming at matt-dion.medium.com/.
