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Assessing the Business Models of Web3 Virtual Worlds

Last week we published the Web3 Metaverse Index, the first-ever rating system for blockchain-based virtual worlds. Now it's time to delve a bit deeper into the analysis and evaluate the comparative business models of the companies operating in the sector (live and in-development).

To start, here are the different genres used to classify the 67 virtual worlds in the web3 market:

  • Content Creation: Platforms encouraging UGC
  • Casual Gaming: Short experience gameplay
  • Education: Learning and knowledge transfer
  • Open-Worlds: Expansive open-ended experiences
  • MMO: Massive Multiplayer Online worlds
  • Music: Entertainment and socialisation
  • Questing: Progression-based gaming
  • Virtual Goods: Fashion creation
  • Misc: Nurturing, Real Estate and Sports

The chart below segment the 67 platforms by genre. The largest web3 genre is Open-Worlds, accounting for 29 VWs, 43% of the total. The second-largest genre representing 13% of the total is Questing, with 9 VWs live or in-development. Third place goes to Content Creation. This genre has 8 VWs and a 12% market share.

Moving a stage deeper, let's look at the variables used to score and rank each of the web3 virtual worlds on an individual basis and then aggregated into the genres listed out earlier. In order to construct the Metaverse Index, we identified eight key criteria to measure virtual worlds against. These are variables we've spent over 15 years examining within the Web2 sector that are equally relevant to the emerging Web3 market and also a set of criteria that we're probably the best-placed company to determine and measure. Using a scale of 5 (Excellent) to 1 (Poor), here are the eight ways we have rated each Web3 VW...

Senior Management Experience

We've looked at the composition of the senior management teams of each company to determine their previous experience in launching virtual worlds/online games, bringing products to market and developing engaging user experiences. Some of the platforms on our list have notable AAA game studio personnel in their senior teams as well as seasoned gaming executives. Other companies just have individuals with blockchain or crypto experience with a token (no pun intended) gamer listed as CTO.

Sure, you don't know what you don't know but in some cases, we have seen a large underestimation or underappreciation of what's actually required to launch a virtual world.  Companies falling into this category have been scored lower than those with experienced and balanced management teams.

Business Model Evaluation

There are different genres of virtual worlds being developed. Some are 'Open-Worlds' meaning they're offering multiple experiences and 'reasons to engage' such as building, playing games, questing, socialising and owning land. There is also a growing trend of 'Play to Earn/Create/Move/Socialise/Collaborate. These business models present issues in the medium-term due to their sustainability and in some cases are being constructed with pay-walls at every turn.

We have scored these platforms lower than those that are creating more 'free to play' experiences. We know what works and doesn't work in this market. Platforms that openly support User Generated Content (UGC), encourage socialising and have well-defined user journeys are scored higher.

Defined Target Market

Is the virtual world focussed on one specific genre and therefore target market or are they trying to be all things to all people? Virtual worlds have a higher probability of success when they develop a platform tailored to a specific genre or interest group, such as Art, Music or Sports. Inversely, positioning a virtual world as a place where you can play games, make friends, run a business, build a house, collect NFTs, level up and generally do 'anything' is not a recipe for success.

Generalist worlds have their place and there is already a number of these platforms in existence. Trying to appeal to everyone with everything is no longer a feasible business model and these companies are scored lower than those with better-defined target markets.

Graphics Fidelity

Better graphics doesn't necessarily translate to a better virtual world but when considering the on-boarding of the next cohort of users into the Metaverse, users with less knowledge of virtual worlds, we believe a more realistic and higher fidelity graphical experience gives an advantage over those with lower quality environments.

Developing a distinct brand identity for a virtual world be it on a stylised basis or themed to the genre also demonstrates a commitment from the company to develop an expanding world and user experience. Basically, it's very obvious which companies genuinely care about the enterprise compared to those that are using standard design tools. Virtual worlds with higher fidelity graphics receive higher scores in our index.

User Experience

Let's not forget about the user experience please. No, it is not good enough to simply say a user can 'Join our world and buy our NFTs'. The virtual worlds that gain strong initial traction in user base growth and engagement will be the ones intensely focused on the user. Many Web3 virtual worlds are insisting on crypto wallet integration at point of sign-up with no option to enter without it. This is not good practice and 'out of the gate' paywalls leads to massive churn and friction. Avatar locomotion is also key to the user experience - the ease of driving the avatar, creating content and navigating around the world.

Again, we have seen some senior management teams with no personnel with experience in usability, community building or curating a user journey. With respect to rating virtual worlds on user experience, a score of 1 is given to all worlds in development (because there is no way to assess it) unless they have a gameplay demo that demonstrates the user experience. The score will be adjusted as soon as an open-beta version is available.

Initial Funding/Sales

Companies in the Web3 virtual worlds market are at different stages of financing, funding and sales. Some have tokens already launched and tradable on exchanges that have provided financing to their operations. Others have completed successful NFT or land sales to fund development. Some companies have opted for VC and investor funding to activate their plans and others are at earlier stages of funding. Overall, we have looked at the ability of the companies to successfully raise equity funding and/or generate funding income from virtual asset sales and scored them accordingly.

Roadmap Strategy

When studying the whitepapers of each of the virtual worlds in the market (yes, we have read them all) it's been worrying to see the final task listed in their roadmap as 'Launching our Metaverse' and far too much emphasis on financial transaction led objectives (Phase 1, 2,3 land sales or NFT releases).

The launch of a virtual world is the start of the journey, not the end and more of the companies in this sector need to look beyond the launch. Consideration has to be given to the ongoing development of the virtual world, new features, new regions and new reasons to login in. Platforms that have given consideration to VW development post-launch have been scored higher than those taking a more short-term approach.

Brand Suitability

Creating a virtual world that is attractive to real-world brands is a critical success factor for companies in the Web3 market. Brands bring followers, fans and an audience that newly launched virtual worlds desperately need in order to scale up. Therefore, the overall positioning of the world becomes a key factor. Worlds tailored to specific genres have a huge advantage in this instance over those positioned as Open-Worlds. Graphical fidelity and user experience also play important roles here from brand and media planning perspectives. Virtual worlds positioned towards these variables are scored higher than those less suitable for real-world brand inclusion.

Genre Analysis

The chart below shows four of the genres and their respective average scores per variable. The Music category performs the strongest of the four due to a clearly defined target market, a high suitability for brands and partnerships, clearer roadmaps post-launch and better defined business models. The business model is very important here and Musically-themed virtual worlds provide a good basis for both access-driven and decorative virtual goods coupled with in-world events.

In contrast, Open-World platforms although on paper seeming to be smart models are in-fact very difficult to scale and he positioning here is counter-intuitive. Open-Worlds present themselves as being all things to all people. 'Visit our world and you can play, socialize, create, build, buy, earn, learn etc.'. This approach causes a dilution in the user experience with too many choices and no clear player pathway. It's much better to focus harder on a smaller number of game mechanics and a more tightly defined target market.

The remaining genres are plotted in the chart below. Content Creation and Virtual Goods are the better scoring genres from this group. Although UGC is a key feature of both genres, there's a subtle difference between the two. Content Creation is an open-ended play mechanic driven by UGC and covers all types of asset, from buildings and locations through to accessories and skins.

The Virtual Goods genre relates primarily to avatar clothing and includes real-world brands making digital apparel as well as pure-play meta designers creating avatar clothing. Both of these genres are highly suitable for brands, have more robust in-world business models (more dynamic economies) and permit better product roadmaps. At the lower end of the scoring is the MMO genre. The worlds we have assessed in this group do not appear to have roadmaps beyond launch and are utilising Play to Earn mechanics that are difficult to scale.

We'll continue our analysis of blockchain virtual worlds in future posts. You can order the Web3 Metaverse Index report here.

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