What is a play to earn business model?

Connecting the dots is one of Steve Jobs’ famous quotes that I will never forget and will always refer to in any conversation about innovation. One of the pieces of advice from Steve is to look at different industries and apply the core competency of those industries to yours. I came across the “Pay-to-Earn (P2E)” business model almost six months ago. I couldn’t stop thinking about it because it’s one of the most innovative models that could change the world. 

The Gaming Industry

The PTE model is dominated in the gaming industry. I am not a gamer, but we cannot get to know this model without looking closely into this industry. Once we understand how it works, we can apply its structure and strengths to other sectors. 

Gaming is a massive industry with a market value of over USD 173.70 billion in 2020, with more than 3.24 billion gamers across the globe. I used to play a football game when I got my first computer. I spent days and nights playing that game. My perception of gaming was that it is a time-wasting activity and doesn’t generate productivity. It is obvious that my perception has since changed. I noticed that the gaming industry is similar to the movie industry in that both propose visions of the future world to their audience. I am convinced that everything we saw in the Star Wars movies and games will actually happen in the foreseeable future. 

It is also beneficial to understand the evolution of the gaming industry. It can be categorised into three stages. 

Stage 1: Pay-to-Play (P2P)

This stage was when I entered the football game a long time ago. The model was simple – you had to spend money to buy games you wanted to play. It’s most likely that you had to buy gaming accessories like a game console. Gaming producers generated revenue from selling games and accessories. Game players got nothing in return, only entertainment. This era was when my first not so positive perception about gaming developed. 

Stage 2: Free-to-Play (F2P)

It’s when game producers started to run out of ideas on engaging more gamers. That’s when a new model was introduced back in 1999. According to Wikipedia, the free-to-play business model in online games was realised by Nexon in South Korea, and QuizQuiz was the first Nexon game to use this model. The F2P model has become extremely popular, fueled by widespread smartphone usage and technology advancement. However, the model is still not perfect because users still have to pay for the “in-game” accessories. In the end, users are still out of pocket, so I would argue that this model is still beneficial for the game producers, not the gamers. 

Jon Radoff has explained the concept of F2P in great detail, and you can find his article here.         

Stage 3: Play-to-Earn (P2E)

The third stage is the most impressive development in the gaming industry. Why? This is because the model creates an economic model that allows users to earn what they contribute to the ecosystem. The model made it possible for users to play games as a career that earns them enough revenue to support their families. The data shows that users of the popular P2E blockchain game “Axie Infinity” made about US$500-1,000 per month. It may not be a considerable amount for the people in developed countries. However, this amount goes a long way to support the people in the Philippines and Venezuela during the Covid lockdowns. 

The Play-to-Earn Business Model

One of the blockchain aspects I like is that the technological concept is based on two topics that many people dislike – math and economics. The P2E concept is built based on real-world economics. We need to know first that we have to create value or contribute to value creation for anyone to earn anything. In the first two gaming stages, game producers create value (in the form of entertainment) and earn revenue from selling games. On the other hand, users create value by investing their time and efforts to support the game economy. In theory, users should be rewarded based on their contributions. And that is when the P2E economy comes in. 

The P2E gaming model is built primarily using blockchain technology – a distributed ledger or database. P2E games operate on a smart contract, a program on blockchain that executes an agreement when certain conditions are met. This setup allows users to own and store game properties in the form of Non-Fungible Tokens or NFTs. Simply put, NFTs are unique, immutable, and verifiable tokens generated on blockchain representing ownership of unique assets. Users can sell, exchange or trade their game properties within the game’s marketplace or outside the game using cryptocurrency exchanges. 

Other P2E usage cases

One of the most popular P2E games is Axie Infinity. Axie Infinity is a breeding and fighting game that allows users to control monsters called Axie’s for a smart contract blockchain called Ethereum. I will explore its game economy in future posts. I just want to touch briefly on a few key features that trigger my innovative juice. 

Any economy with an exchange or a trading function requires a medium that carries value. We use currencies as a medium for exchange, and those currencies have value. Countries need to have something to back the issuances of currencies, e.g. gold or foreign currencies. To start playing Axie Infinity, users have to buy “Axie’s”, which could cost up to US$2,000. This money is used to back the issue of Axie’s currencies. The initial investment of this amount is relatively high for many users. Therefore, the gaming community came up with a “sponsorship” program that allows new users to borrow funds. Lenders will get a percentage cut from the sponsorship receivers from their future revenue. 

Final Thoughts

The P2E gaming model is innovative and could be a life-changing event for some people. However, it doesn’t help people to develop. What if the same business model could be applied in the educational industry. There are many reasons why many people don’t finish or pursue their education. Most of the reasons are financial-related. What if we could use blockchain technology to create a new ecosystem that drives education. We could reward people’s efforts in the educational journey using a decentralised finance mechanism. We could actually solve the world’s problems.   

Apivut        

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