BITKRAFT Ventures: How do blockchain games acquire users?

Author: BITKRAFT Ventures; Compiler: Zen, PANews

TL;DR

While the rise of Web3 and blockchain technology has created many opportunities for game design, game development, and digital asset ownership, the fundamental problem to be solved when it comes to user acquisition (UA) remains unchanged: maximizing player lifetime value (LTV ), while minimizing customer acquisition costs (CAC).

However, the ability to accurately measure this relationship has changed, and in the decentralized world, both sides of the equation have become increasingly blurred:

• CAC is often measured in cost-per-install (CPI) in traditional games, and it is much more difficult to calculate accurately. And many of the current Web3 games are browser games, which means that no installation is required.
• "Value" in Web3 games is harder to quantify than traditional games, and LTV payback periods can vary significantly from standard benchmarks.
• Determining the identity of a player can be challenging, as players may have multiple wallets, and game data associated with wallet addresses may actually be bots rather than humans. Using wallet addresses instead of specific users as the reference standard for LTV and CAC is risky and difficult to predict accurately.

Traditional marketing approaches have not been very effective in Web3 games, at least for now, they are challenging and less developed. This puts **Web3 games on an entirely unfair playing field with web2 games. **Even if strong Web3 games were to invest heavily in performance marketing, the macro headwinds of such a strategy would make them prohibitively costly and largely unsuitable for early-stage venture capital, not to mention many of these companies may still be develop their first game.

However, opportunities still exist for savvy operators who are able to combine thoughtful data analysis with novel crypto-native marketing strategies. By focusing on three key areas (community, partnerships, and Web3-native growth), founders can drive user acquisition in a cost-effective and Web3-friendly manner.

Despite the difficulty of measuring LTV and CAC in Web3, gaming companies should prepare for a situation where performance marketing becomes the dominant strategy again. Now, blockchain gaming companies can take several steps to prepare for the future.

introduce

The introduction of blockchain technology into the game industry has caused many founders and industry practitioners to re-examine the old business methods. Nearly every aspect of the "traditional" gaming industry - from design, development to publishing, and everything in between is being dissected and rebuilt to best serve the new games, users and jobs forming around the emerging Web3 gaming ecosystem room needs.

User Acquisition (UA) is no exception, and in some ways lags behind other sectors of the games industry in adapting to Web3. So far, most of the development and investment activity around blockchain games has been focused on Pre-Seed, Seed, and Series A venture capital. At this stage, most companies are still developing their first game and are not ready to scale to a large audience through traditional performance marketing.

Blockdata reports that by 2022, 60% of blockchain game deals will be in the early stages, with another 17% reaching Series A rounds. User acquisition for Web3 games has so far received little attention, given the time it takes to develop a game worth scaling. In this article, BITKRAFT will outline the challenges associated with user acquisition for Web3 games, provide practical advice for companies in this space, and point to areas of opportunity for investment, user acquisition, and internal development.

Throughout this article, BITKRAFT will refer to the terms "User Acquisition" or "UA" as Brand Marketing (which is more qualitative in nature) and Performance Marketing (which is usually more quantitative). In the context of traditional games, especially mobile games, UA usually only involves performance marketing functions. However, performance marketing is not suitable for most Web3 game operations, at least not yet, and blockchain games still need to acquire users through other less precise methods.

UA Basic Challenge

Fundamentally, the effectiveness of user acquisition always boils down to the same basic relationship: player lifetime value (LTV) vs user acquisition cost (CAC). As long as a player's lifetime value exceeds the cost to acquire that player, profitability shifts and UA's efforts are considered successful.

Of course, in practice it's not that simple.

For example, a user might play a game for weeks or months before deciding to spend money. Cost per install (CPI) -- the most commonly used CAC metric in games -- fluctuates over time, depending on platform, market conditions, genre, and many other factors. Additionally, there are recurring costs associated with operating the game and keeping players in the ecosystem.

Regardless, the basic strategy of maximizing LTV while minimizing CAC applies to all gaming businesses in the traditional and Web3 gaming space. This relationship has not changed.

However, as we will discuss shortly, there are some key assumptions behind this truth that no longer apply in the context of Web3, forcing savvy operators to seek new solutions.

KEY ASSUMPTIONS

Founders with marketing or user acquisition experience in traditional gaming should be familiar with the following statement:

This highly specific approach makes traditional user acquisition more of a science than an art. Marketers and UX practitioners can quickly assess the commercial viability of a particular gaming business by entering the above information into a spreadsheet and predicting the LTV and CAC relationship over time.

However, in order to acquire users with such precision, we must first understand them.

In a traditional gaming environment, users are relatively easy to identify - they are individual users installed on a specific device. In the example above, we know they play games on iOS, live in the US, and have access to some Meta Audience Network (Meta ad serving business) content.

While there may be things that go wrong, such as multiple users sharing the same device, or a user playing the game on multiple devices, we can still associate a specific device with a set of behaviors that we observe in the game, and This user is attributed to the channel through which they arrived in our game.

In the world of Web3, we can no longer make such straightforward assumptions.

While all games distributed through traditional means such as mobile app stores, PC distribution platforms, and console networks can theoretically benefit from the data pipelines that UA professionals often use, confounding factors such as wallet attribution and platform policies make this difficult. A process becomes not so simple.

Wallet** Ownership:**

**Since Web3 games require encrypted wallet connections to take advantage of the benefits offered by blockchain integration, game companies need to be able to attribute wallets directly to players. **However, this can be challenging considering that a user may have multiple wallets.

Additionally, the contents of any given wallet may change over time - NFTs and other tokens may come and go, asset values fluctuate, and some assets may not even belong to the wallet holder at all (e.g. in the case of scholars or rented NFTs). This makes it difficult to correctly estimate LTV based on wallet contents alone.

**Wallets also mask users' identities, making them more difficult to effectively target ads. **In fact, these wallets may not be operated by humans at all, but by robots or artificial intelligence. Bot-controlled wallets may even have a negative ltv, since bots are a common means of maximizing value extraction in Web3 games.

Platform Policy:

**Most traditional game distribution platforms are hesitant to allow blockchain integration or use nft. **At the time of writing, any nft sales on iOS or Android devices must be done through in-app purchases, so Apple and Google's revenue share is 30%. These platform owners have also imposed restrictions on unlocking content via NFTs, effectively limiting their use cases.

Console makers have sent mixed signals when it comes to blockchain gaming: making cautious statements to the public while quietly exploring the space through investment and R&D. On the PC side, Valve has issued a complete ban on NFT and blockchain games, while its rival, the Epic Games Store, has welcomed it, already offering some blockchain games.

**All of this uncertainty, combined with the lack of a mature backend publishing infrastructure to support Web3 integrations, has led many Web3 founders to focus their projects on browser-based experiences, while crypto wallet integrations have proliferated. **Browser-based games do not require installation or downloads, which renders standard game CAC cost-per-install metrics useless. Even though wallets can be attributed to a specific acquisition channel, players can easily connect and disconnect wallets freely. If a player connects a wallet, but doesn't make any transactions, can a business really consider that player to have been "acquired"?

in conclusion:

• If we can't accurately measure LTV...
• We cannot reliably measure CAC…
• ...can we really optimize user acquisition?

Also consider that user acquisition is difficult even under the best of circumstances. Targeting gets trickier with AppleATT policy changes, changes in privacy regulations around the world complicate the issue, and even when done well, user acquisition can still be very expensive (especially in free-to-play games):

Even if a Web3 game were to expand to a wider audience (i.e. non-crypto-native users), it would be operating on an uneven playing field with non-Web3 games that would not face user logins, install attribution, LTV Challenges like tracking or platform policies, and having years of historical UA data can be used for predictive purposes.

As such, traditional performance marketing is largely frowned upon except for the most highly developed and well-funded Web3 projects, and/or those with the least integration with Web3.

From the perspective of the traditional gaming industry, this appears to be a challenging environment for startups. However, Web3 also presents its own unique user acquisition opportunities that can be exploited by businesses of all sizes - a topic we'll explore further in the next section.

Practical UA advice for founders

In the absence of reliable LTV and CAC metrics, Web3 founders should prioritize low-cost, crypto-native solutions for user acquisition. Fortunately, for savvy marketers who understand Web3 users and are willing to think outside the box of traditional game methods, there are several options to choose from.

Leveraging the Player Community

Given the bottom-up nature of Web3 game development, starting with your game's current community is a constructive and cost-effective starting point. With the ability to align incentives through cryptoeconomics, early community members can be compared to the "golden group" of traditional games. These early adopters will become your game's greatest evangelists and biggest consumers.

As early contributors to your game ecosystem, holders of your Genesis tokens, or even speculators looking for the "next big thing", community members are critical to raising awareness of your project and attracting new users to your There are vested interests in the game. While financial gain or earning potential may be the main motivation for some of these players, many others may enjoy the opportunity to participate in community-driven development. Low-cost community-building efforts, such as art competitions, game story writing, friend referral programs, etc., are effective tools for empowering community members. When combined with the endowment effects that come with Web3 native initiatives (free NFT minting, token distribution, allowed listing points, etc.), players can develop a greater sense of ownership of the gaming ecosystem they are a part of.

Having these "co-owners" take an active role in promoting the game can be a powerful growth strategy, and potentially less expensive than hiring a dedicated full-time employee to do the same.

Content creators are especially valuable in this regard, as they can generate buzz around your game via social media channels commonly used by Web3 gamers such as Telegram, YouTube, Twitch, and TikTok. By partnering with content creators, you can tap the creator's following and leverage their expertise to showcase your game to a wider audience. Another way to leverage community members is to enlist their help in finding and sourcing potential partnerships from other Web3 communities. Most people active in the Web3 gaming community aren't confined to just one Discord server. Instead, they are likely to be involved in multiple games, PFP projects, DeFi protocols, DAOs, etc. Allowing the community to identify other projects or communities that share common values or overlap audiences can quickly and cost-effectively provide your team with a set of “warm leads” that may ultimately lead to valuable partnerships.

Partnership + Collaboration

According to DappRadar, there were just over 1 million unique active wallets as of the end of May this year. Given the relatively small addressable market of current Web3 gamers, another cost-effective way to acquire users is to form partnerships with like-minded communities who have overcome the Web3 Getting Started User Experience Challenge.

Partnering with other organizations can bring many benefits to your project:

• Take advantage of the new network to increase game traffic.
• Gather valuable data about overlapping or adjacent audiences.
• Cross-promotion of marketing content, NFT placement, whitelist promotion, etc.
• Reduce the cost risk of acquiring new users as these partner communities are ready for Web3 content.

Given the abundance of scams and hype in the space, partnerships can also be seen as a more organic way of promoting products to a Web3 audience that is often skeptical of traditional forms of advertising. There are many options for partnerships and collaborations. A common early example is working with guilds. Guilds can help with asset allocation and utilization, provide liquidity, execute marketing plans, organize esports events, create content, and more. These would be great places to start a conversation, if only to explore the space of possibilities.

There are other opportunities for collaboration in the platform and infrastructure provider space. There are countless blockchains, technology solutions, distribution and aggregation platforms, marketplaces, automated market makers, and countless other entities that all have a vested interest in raising awareness of Web3 in general, and getting involved in the Web3 game in particular. Forming partnerships with these organizations can increase the game's popularity and potential additional utility.

For example, partnerships with marketplaces like Magic Eden or OpenSea could lead to increased deal volume, while deals with layer 2 providers like Polygon or Immutable could open up to other game developers or those looking to establish a Web3 presence. There may even be an opportunity to partner with other companies to save development time and resources on features like wallet integrations or advertising that are good for user acquisition and engagement.

Finally, an area of collaboration that has grown significantly in recent years is gaming and IP collaborations. This type of transaction takes a whole new format in Web3, where interoperability allows game assets to have multiple uses between projects. A recent standout example is Limit Break's collaboration with Castaways, which abounds in traditional games. Partnering with other games or IPs not only brings in new audiences, but also demonstrates that the studio can safely handle future IP integrations.

Of course, with all of the above options, the challenge is identifying the right partnership for the project. Key to this effort is a solid understanding of wallet data - a topic that BITKRAFT will address in more detail later in the Planning Sizing section.

Web3-Native Growth

**Perhaps the most interesting user acquisition opportunity and space in blockchain gaming is leveraging Web3 native capabilities to lead growth. ** These methods are uniquely implemented by blockchain technology and therefore have little precedent in the gaming world.

The most common methods in this category are the use of airdrops and token offerings as a means of incentivizing users to participate in the project.

Airdrops or distribution of free tokens to attract new users, allowing developers to send tokens permissionlessly to a list of targeted wallet addresses. While at first glance this may seem like a relatively cheap form of marketing (token senders only pay transaction costs), its effectiveness is debatable. In multiple tests by Web3 marketing firm Raleon, less than 1% of game-related airdrops were viewed by recipients, resulting in a click-through rate of less than 0.05%.

Intuitively, this makes sense, receiving an airdrop is like receiving spam that you never signed up for, except it cannot be deleted. Therefore, airdrop strategies should be handled with care, with the goal of keeping existing players sticky rather than acquiring new users. If airdrops are used as incentives (e.g. rewarding community contributions, completion rewards, etc.), airdrops can attract existing players, re-engage players who have quit, and potentially bring in additional user buzz. However, it is important to consider the potential value of the tokens being distributed. If the token has liquidity and meaningful value on the open market, airdrops suddenly become more expensive to execute when a significant portion of the total token supply is diverted from your project.

A specific type of airdrop strategy commonly used in DeFi is known as a “vampire attack,” where new projects suck users away from established projects by airdropping valuable tokens to incentivize them to switch. This also makes its way into Web3 gaming: horse racing game MetaDerby airdropped free NFTs and $100 worth of in-game tokens to players of Zed Run and Pegaxy, two competing horse racing games.

Another user acquisition strategy found only in Web3 is through token issuance, including the oft-maligned "X-to-Earn" system. While a discussion of token economics is beyond the scope of this article, it is safe to say that incentivizing users with tokens of potential value is a proven way to gain traction in a short period of time, although it can only be done in work in the short term. Even this temporary increase could start to bring diminishing returns as players become savvier and customers generally more cautious to avoid scams and an unsustainable economy.

However, **token offerings need not be limited to profit-making schemes. **Games may utilize token rewards as a means of keeping players engaged, incentivizing deeper gameplay, or awarding governance votes: for example, tokens are issued when a player wins a competitive match or achieves certain in-game milestones . These will be determined by smart contracts and require careful pre-planning by game teams to avoid creating unsustainable game economies, but serve as powerful retention mechanisms.

Planning scale

While most Web3 gaming organizations may not be ready for performance marketing at scale, it's important to keep an eye on the future and be prepared to adjust strategies as the industry matures and new opportunities emerge. There are many steps that can be taken today to better prepare for tomorrow's user acquisition-led growth while providing immediate benefits to other marketing efforts across the organization.

First, it's worth taking the time to do a thorough health check on your organization's data readiness before spending money on UA:

• Is the game's onboarding flow enabled with telemetry so you can measure progress, monitor churn, track conversions, and trigger postback events?
• Is the game's funnel (a visual representation of the customer journey depicting the sales process from awareness to action) documented? Can you track players from social media to Discord to your game?
• Can the data for paid activity and organic traffic be distinguished?

**Next, it is helpful to understand the unique data associated with Web3 wallets. **While wallets present their own set of challenges, as mentioned earlier, they also provide interesting information previously unavailable in other traditional gaming scenarios. Here are some examples of the unique types of metrics available in Web3:

• Analysts can view assets in a given wallet and track their individual and cumulative values.
• Wallet transactions can be parsed to check total transaction volume, transaction frequency and average transaction value.
• It is also possible to analyze the current purchasing power of the wallet, the share of transactions or the total value inflows/outflows taking place in a given item or set of smart contracts.
• Analysts can even trace wallet interactions to visualize the network of connections to 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) can fix a game with underlying flaws. **Before investing heavily in user acquisition, developers must strive to create experiences that are fun, engaging, and memorable. This is not a problem that can be solved with money alone.

Opportunity Fields

Since Web3 user acquisition is an emerging field, there is an opportunity for companies to address the UA puzzle and overcome the challenges associated with accurately measuring Web3 game performance.

As mentioned above, **accurately understanding UA capabilities in Web3 games is difficult. **Market players in the AdTech space will certainly try to fill this gap, but traditional game attribution platforms do not currently have the capability to incorporate price-volatile cryptocurrencies into their platforms. For crypto-native companies, this could be an opportunity to ship quickly and stand out from the competition.

Likewise, companies operating in the Web3 identity space are well-positioned to capitalize on opportunities to improve access to trusted, actionable user acquisition by bringing together disparate data sources in ways that benefit players and developers alike. Data Access. **Games are an excellent testing ground for such technologies, given their technical complexity, high transaction volume, and widespread use of devices (PCs, consoles, mobile devices, web browsers, etc.). Successful implementations in gaming can, if not exactly, be replicated in other industries, then more broadly in media and entertainment.

With the help of zero-knowledge identity proofs, if a company can allow players to maintain greater control and privacy over their data, while also connecting those players to gaming industry UA boards seeking new ways to reach them, it may have Opportunity to compete with incumbent ad tech companies like ironSource and AppLovin in the future. The company is also a prime acquisition candidate for any AAA game publisher looking to move into Web3.

**The need for players to identify themselves can also be addressed by enabling users to display "Proof of Game Work", perhaps through technical means such as POAP or soul-bound tokens. **Players with more impressive achievements can use these achievements to get better incentives in the game ecosystem that may need them. These achievements may be related to in-game achievements, but can also be easily tied to ecosystem building contributions, such as inviting friends, writing blog posts, or participating in playtests. Players will have an incentive to engage, and gaming businesses will have more actionable information to target those valuable players. In reality, this might look like a casino loyalty reward, employee discount program, or Starbucks "stars" system.

**Another potential opportunity is "CRM (Customer Relationship Management) for Developers". **As more and more gaming projects are launched in Web3, there will be an increasing demand for crypto-native community builders and contributors to join these bottom-up ecosystems. These builders will come from different backgrounds, fill a variety of needs (software engineers, social media marketers, forum moderators, player support, etc.), and will increasingly be used as growth partners for Web3 game projects. For game publishers, game associations or marketing companies looking to serve a growing audience of game developers, building a robust high-value contributor CRM could be a great business opportunity. Such a business can be compared to a human resources firm specializing in Web3 game projects. There may be more opportunities than those listed above. Fundamentally, there will always be value in providing, storing, and distributing clean, actionable, and compliant data to stakeholders in the Web3 gaming space, and that value will only grow as more users join Web3 in the future.