💭 Thesis: Web3 Games will have higher LTV than F2P games.
💸 Higher LTV allows higher CAC to attract whales, increasing even more the LTV creating a virtuous loop and a competitive advantage against traditional games.
Recently, I’ve seen several web3 game studios stating that Web3 Games can have a higher LTV than F2P games, and by doing so, they can create a competitive advantage.
🤔 I don’t know if it’s true, but let’s try to rationalize it:
The first thing is that since 2012, the market already knows that “the LTV model does not create a sustainable competitive advantage” (reasons here), so even if the thesis is true. The competitive advantage is not going to be sustainable.
Second, the LTV <> CAC formula dominates the Free-to-play business model. We’ve already explored the details of the F2P business model in this other post having as a conclusions:
📈 The price is uncapped.
💸 The hard-core gamer might end up paying hundreds of dollars over time for in-app items.
👍🏼 The casual player will be able to play. He might be converted to a hard-core gamer or pay for a few in-game items.
👾 A good F2P game should also have an addictive, infinite play pattern to retain players as much as possible and 🪝 well-designed spending hooks to increase the spending of their engaged players, such as battle passes, skins, speed-ups, and cosmetics...
👉🏼 The whole F2P model relay on a tiny amount of users (usually below 5%) spending high amounts of money because they really like the game. 🐳 Those users are called whales, and all your user acquisition efforts focus on identifying and attracting those whales.
🐟 At the same time, the rest of your players (~95%) does not spend almost anything. Their LTV tends towards zero.
🌓 That’s the best and the worst characteristic of unlocking the price elasticity of your players with the F2P model. Still, it works because your top-of-funnel skyrockets, and everyone plays, leveraging social and network effects.
However, there might be Plenty of Fish in the sea. Let’s introduce the concept of dolphins:
🐬 Dolphins are the kind of player who does not want to spend in any game because it’s 100% sunk cost for them.
However, they might spend in the game if they can recover their money when deciding not to play anymore: the dolphins are unlocked in web3 by default 🔓🐬
In Web3 Gaming, recovering your money as a player is possible thanks to ownership and secondary markets. You can always sell your in-game items to other players.
💡 It’s similar to the e-commerce persona, who's not buying unless the shop offers a free return policy, even though the more likely scenario is for them not to return anything.
Let’s take a look at the dolphin’s concept in a way too simplified scenario just to illustrate the idea:
💪🏼 A game is selling an in-game booster priced at 1.99$ that allows you to gain x2 experience in your next ten matches:
✅ The ~5% of whales will buy it.
❌ The remaining players, including dolphins (95%), will never buy it.
but What if… you can buy the in-game booster and sell the remaining matches to another player when you don’t want to use it anymore.
✅ The whale (5%) still buys it.
🐬 The dolphins (~20%) might buy it cause it’s a reversible decision.
❌ The rest (75%) will not buy it anyway.
🧐 As a result, the LTV of the players can be higher than the F2P one. Here's an example with some made-up assumptions:
There's a 20% dolphin population.
Avg price of an item in a secondary market has a 20% discount on avg.
Dolphins will not cannibalize whales.
The game has a 5% fee on transactions in the secondary market.
With those (made-up) assumptions, the LTV can be higher.
However, the biggest lies in history have been written down in a spreadsheet (sorry, business joke 🤡), so now it’s time for real games to prove it!
M.