Virtual Items and the Creator Economy

Summary

The gaming industry is rapidly evolving, with virtual items driving 75% of its current $180 billion revenue and projected to dominate the$ 390 billion market by 2025, fostering a burgeoning creator economy.

Abstract

The global gaming industry, currently valued at $180 billion, has seen a significant shift in revenue sources over the past decade, with virtual items now accounting for 75% of its income. This trend is expected to continue, with projections indicating that by 2025, the industry, including AR/VR experiences within virtual worlds or the 'metaverse', will grow to$ 390 billion, almost entirely supported by virtual item sales. The appeal of virtual items lies in their ability to cater to hobbyists who enjoy personalizing their gaming experience, as well as the business model's democratization, scalability, and sustainability. The future of virtual economies is seen in the increasing complexity of virtual inventories, requiring sophisticated management systems. The creator economy is expanding, with platforms like Roblox and Unity enabling a marketplace for asset sharing and content creation. Games like Eve Online and Rec Room are pioneering player-driven economies, allowing for creative contributions that influence the game's economic landscape. This shift mirrors the disruption seen in e-commerce with Shopify, suggesting a transformative phase for the gaming industry where independent creators will have greater opportunities to contribute to the substantial revenue generated by virtual worlds.

Opinions

Virtual items are highly appealing to gamers as they allow for ownership, investment, customization, and personalization of the gaming experience.
The virtual item business model is considered democratized and lower-friction, as it allows players to try games before investing money.
This model is also scalable, with in-game purchases increasing in proportion to player engagement.
Virtual item sales are seen as a sustainable way to fund continuous creation of new content, experiences, and events within games.
The creator economy around games is poised to grow significantly, with more participants contributing to the marketplace for virtual goods.
The article suggests that future game design will increasingly incorporate player economies, where players can actively contribute to and influence the game's economy.
The gaming industry is compared to the e-commerce sector's disruption by Shopify, indicating a similar potential for transformation that will benefit small and independent creators.

Virtual Items and the Creator Economy

Gaming is currently a $180B global industry that derives 75% of its revenue from virtual items — nearly a four-fold increase in marketshare for this business model over the last decade. By 2025, games and AR/VR experiences in virtual worlds — what I call the metaverse — will be a $390B industry and get nearly all of its revenue from virtual items.

Data source: ARK Invest 2021 Big Ideas

Why?

Games are hobbies, and virtual items appeal to the hobbyist mentality — owning, investing, customizing and personalizing your experience.

Virtual items are a democratized and lower-friction business model: people can try a game before deciding whether to put money into it.

Virtual items are a more scalable business model: purchases increase in proportion to the attention a player directs to a game.

Virtual items are a more sustainable business model: ongoing item sales fund the creation of new content, new experiences and new events that players crave.

The Future of Virtual Economies

Virtual inventories are growing larger, have more variety, get updated more frequently and are governed by increasingly complex metadata and rules. This requires gamemakers to design more sophisticated systems for managing, pricing, organizing, selling and deploying all these items.

Furthermore, the creator-economy around games and virtual worlds will expand to include far more participants. Right now, it is mostly about the content that gamemakers define for their players. But in some metaverses, notably Roblox, there’s a thriving market for builders to share assets with each other; and in Unity, the Asset Store makes it possible for creators to share content that can be used in other independent games.

Eve Online has a real virtual economy where players trade what they’ve built with each other. Take that to the next level: more games will be designed with the idea of a player economy, and it won’t simply be markets of crated items from preconstructed templates; players will have the opportunity to put their creative stamp on the economy of a game. One can already see this emerging in a metaverse like Rec Room, where your “maker pen” unleashes the creative aspects of the experience within the same interactive space you play within.

Creator at work. Photo by Maxim Tolchinskiy.

When Shopify disrupted ecommerce by making it accessible to any small business, they radically expanded the online opportunity for businesses. Similarly, games will undergo a transformation over the coming years in which far more independent gamemakers and content creators will get to participate in the $390B+ revenue generated yearly in virtual worlds.

If you enjoyed this article, here are a couple others you may find interesting:

In the Metaverse Value-Chain I go over the seven layers of value-creation in the metaverse, from the experiences all the way down to infrastructure.

In Market Map of the Metaverse I highlight many of the companies who are building the metaverse — as well as a more detailed analysis of Roblox, Unity and Epic Games.

In Game Economics, Part 3: Free-to-Play a do a thorough overview of what drives most in-app purchase revenue today.

In Evolution of the Creator Economy, I give some more context around how creator-led economies build over time and the opportunities for democratization and disruption within them.