In the second of this two-part interview series, TheGamingEconomy speaks with Yat Siu (pictured), founder and non-executive chairman of Animoca Brands, following its acquisition of nWay, Inc. in December 2019. In part two: the evolution of in-game advertising, the growth of gaming, and the value of true digital ownership.
How do you see in-game advertising evolving over the course of the next decade? Do you see it continue to grow in importance as it has done over the previous few years?
I do think that in-game advertising will continue to rise, but I think that's because of macro factors, such as continued growth in the number of people playing games. One of the interesting phenomena is that people who start playing games don't stop being interested in them, that's why the market expands. It sounds simple, but some industries or structures in business have a life-cycle because people engage for a certain period of time, then stop.
Let's take toys for instance. People play with toys much more when they're children. Once they become five years old, seven years old, eight years old, or whatever age, then the desire to play with the same type of toys as before is naturally reduced. So while you still have adults playing with Lego, for instance, it is clearly a product that is trying to appeal to children.
Now that's not true for the economy of gaming, because all the people who used to play Atari VCS 2600 or the Nintendo Famicom, many of them still play games today on newer platforms, as a legitimate form of personal entertainment. And the people who started getting introduced to gaming because of PC gaming in the 90s, or the original PlayStation,or the first Xbox, guess what? They also carried on playing on the newer platforms that followed. Then, when the smartphone brought us mass adoption of gaming apps such as Candy Crush or Angry Birds, all it really did was expand the existing gaming market. Not everyone who was playing Candy Crush picked up consoles or other large-screen gaming, but a very large number of people did.
It's worth pointing out that there's between 2.3-2.5 billion gamers out there based on recent statistics. While that's an impressive number, that is still only about half of the globally-connected world at this moment. That is roughly a quarter of the world's population, so if you believe (as we do) that the entire world population would enjoy gaming in some form of another, casual or otherwise, then you can understand why we think the the industry still has significant room to grow.
What do you think will be the drivers of growth to expand the gaming industry into those under-explored markets?
We've seen a number of paradigms, and I think the major paradigm towards smartphone gaming was really driven around convenience, allowing for play everywhere at any time.
The second main thematic was obviously social value. Games used to be played for personal value. You could compete with your friends but, generally speaking, because there was no such thing as network play, you would play for your personal pleasure. It was like going to a movie: it's social in the sense that you go with friends, but you really watch a movie as a personal experience. But thanks to its interactive nature, gaming evolved into an activity with a strong social component, as a networked mechanism. Value started growing as connectivity (and therefore sociability) improved, so now gaming has gained value as a social activity, and obviously game companies have managed to monetise that through network play.
The simple “one finger” game styles, like the pull mechanic of Angry Birds, suddenly enabled everyone to play a game. The hardcore gamers might argue "that's not really a game", but of course it is a game, it just has simpler mechanics. So the casual gaming space expanded dramatically. I think the same user growth will happen with true digital ownership because that allows you to participate in the gaming sphere, without necessarily knowing how to play skill-based games. There is a whole range of people who might say that "I'm interested in Candy Crush but I’m not interested in frantically moving my fingers around to match colours". Skill-based finger-wiggling might not be for everyone. However, if game items had permanence, everyone could participate in a different kind of gameplay based on ownership. They could be an owner of a game world, like a landlord. That's still a game, it's just not a game that is more passive than active, but is still valuable because people can participate. We think that is a mechanism for market expansion. Once true digital ownership becomes mainstream, maybe not this year but in a number of years to come, we think participation will expand because it will bring in people who are interested in games but don’t want the traditional skill-based gaming experience.
Where do you see the barriers coming in to true digital ownership, and what can the gaming industry do as a whole to espouse the value of such mechanics?
First of all, because of the growing influence of gaming, there will be certain kinds of regulation, and you already see that today. For instance around the participation of children in gaming, such as the regulations in China where children can only play for a certain number of hours. There's obviously things like COPPA, GDPR, and other privacy laws. Regulators are also looking at loot box mechanisms and investigating how these work. These are all good developments because they’re based on user protection.
Now when you go into the world of blockchain and NFTs, I think that becomes an interesting area because you're now dealing with things that have true value, but what level of true value? If you have ownership of in-game items that have real-world value, how would that be different from ownership of a physical item such as your car? Is it a space that needs to be regulated?
These are big questions that have to be addressed. In dialogue with members of the SFC and the US for instance, there seems to be a consensus that NFTs are not in that category, understandably so, and we look forward to the developing dialogue.