Web3 games offer new opportunities for developers — but also new challenges. therefore, This article will cover THE WEB3 USER ACQUISITION CHALLENGES AND SECRETS FOR GAMES, ALONG with tools and past real launch cases.
Free-to-play games are all about acquiring players at a reasonable cost and making sure the Average Revenue Per User (aka ARPU) exceeds it, producing a profit. Hence, this article we’ll cover everything about the CAC and LTV challenges and secrets.
Web2 businesses are all about investing less to acquire new users (CAC) than the economic value they produce (LTV), in short: CAC < LTV. This is better explained in the diagram below:
Firstly, let’s do a brief refresh of what these metrics mean:
CAC = Customer Acquisition Cost
This is how much it costs to get a new user and the calculation depends on the company setup. The most common way to calculate it is to divide costs / new customers acquired given a period:
CAC = Salaries + Revenue share + Fees / # of new customers
ARPU = Average Revenue Per User
This metric is the average amount of money generated per user over a period of time. Many companies use ARPDU for daily check on what is going on.
LTV = Lifetime Value
There are quite a number of ways that you can work this out. As a rough starting point LTV is calculated by multiplying ARPU by the average player lifespan (which you can work out from churn rates).
Consider this example: with an ARPU/month of $5 and a player lifecycle of 5 months, the LTV equals $25.
Web3 games user acquisition is challenging
Comparatively with Web 2, in the Web3 world Wallet addresses are anonymous, all the previous logic changes completely. As a result, we can’t target users based on their social network profile, and this fact changes everything. We’ll cover in the rest of the article the Web3 CAC and LTV challenges and secrets:
Challenge 1: Web3 games user onboarding introduces high friction
Generally, Web2 games introduce no additional friction to new player: just find the desktop or mobile game you want to try and start playing with a brief tutorial and a bunch of free coins.
Comparatively, the Web3 games customer journey is completely different: as you can see in the list below, each steps introduces friction to the user, increasing the CAC for the game:
- Create your Wallet using an easy to use product (ie Metamask)
- Do the KYC process (upload your ID, etc)
- Fund your Wallet using your bank account or credit card
- Buy Ethereum, USDT or MATIC tokens
- Go to the Polygon Bridge, transform your tokens to MATIC
- Buy the game token (for many games, users need two tokens)
- Go to OpenSea, connect your Wallet, learn how to use it
- Learn about the game NFTs using Youtube or Discord
- Buy your first NFTs
- Access the game, connect your Wallet and start playing
In case you are wondering how this User Experience can improve, Constanza Caballero, UX Lead at Mighty Block has written about this topic.
Challenge 2: User segmentation
A common practice for Web2 companies to acquire users is to define their Ideal Customer Profile and then segment their paid campaigns to find more of them.
As shown above, this strategy is possible because users sign up to social networks and search engines using their personal information and perform activities that are a clear sign of their interest.
Segmenting user profiles in Web3 games (and any web3 company for the purpose) is not possible because the analogous to the user profile is the Wallet address (an alphanumeric string).
Web3 Look-a-Like audiences?
Challenge 3: Measuring Lifetime Value
Free To Play games are used to calculating the economic value of their paying users, also known as “Lifetime Value”: they have the revenue per user in a long period of time and can calculate an average aggregated revenue per user over time.
Although at first sight it seems simple to calculate a web3 LTV (for example calculating inflows vs outflows of an Address), once one puts more thought into the problem, it becomes clear that calculating economic value entering or leaving the game can be ambiguous and confusing.
Hence, I believe some questions that will need to be answered to calculate a standard LTV across the gaming industry:
- Should the NFT marketplace fees (ie: OpenSea) be considered in the LTV calculation?
- Should the LTV consider only Fiat purchases for game tokens or NFTs?
- Should the DeFi token pools (ie: Sushi swap pools) be taken into consideration?
- Should asset prices (ie: NFT floor) be taken into consideration to calculate an LTV over time?
My opinion is that the industry will have to agree on what is to be included into the LTV and what is not: a new standard for the Web3 version of the LTV.
Finally, I believe we’ll need tools to help us track all of this activity to calculate the LTV correctly (new article focusing on this coming soon).
Challenge 4: Acquisition channels
Generally, Web2 companies are used to acquiring users through a mix of well established platforms:
- Google Search
- Tik Tok
All of these platforms allow marketers to segment their campaigns with personal data (user location, age, gender, etc) and user activity within the platform (Post View, Likes, Shares, Video engagement, etc).
The challenge for Web3 games is that the “Web2 segmentation data” is not so relevant. For example: how do you create your campaigns for a new Web3 RPG game when Instagram won’t show 1) if the User has a Wallet and 2) if the user has shown any interest in Web3 games?
Also, some Web3 companies are trying to segment Addresses based on their past activity in the blockchain, emulating Facebook’s Look-a-Like algorithm to send highly targeted Airdrops to be redeemed in the game, acquiring a new user.
To me, it’s unclear if approaches like this will work, although this strategy seems similar to the already successful Web2 user acquisition strategy.
Finally, as any active OpenSea user can testify, if you are interacting with DeFi protocols or just swapping tokens, your Address is a target to receive lots of Airdrops (aka the Spam of Web3) as you can see in this OpenSea account:
Free mint as a user acquisition strategy
One trend that was very strong during 2022 was Free Mints. It is true that selling 10,000 high priced NFTs in 15 seconds was one of the most important reasons for a lot of teams to start developing a blockchain game.
However, everybody realized how unsustainable that was since you needed to justify the incredibly high prices of those NFTs.
The F2P (Free to Play) model was there from the beginning for every game developer, but it seems like everyone was waiting for one successful example which came with Digi Daigaku.
We have finally covered the Web3 CAC and LTV challenges and secrets throughout the article. Do you see any other important challenges and differences between Web2 and Web3 games that we missed?
This is obviously an open topic, and the gaming industry will evolve these metrics as new products are launched. I expect to see new standards defined, new tools created to measure accurately and a new set of best practices iterate Web3 games.