A few months ago we published an article about the relationship between gaming and blockchain and presented to you a few promising projects that are Wax, Ultra and Loom. Following the recent events happening around the gaming platform Steam, today we’ve decided to chime in and release an in-depth article to explain why Steam is fucked and why Blockchain is definitely the technology that will solve most of the issues Valve is currently facing. The last chapter will focus on the current most credible contender of Steam by drawing an exclusive portrait of Ultra, the fast-growing “crypto Steam”.

The Steam Model

Steam is a games distribution platform created in 2003 by Valve, a studio that had a huge success with the game Half-Life (from which is derived Counter-Strike). Its concept is to centralize everything about PC gaming. As a gamer, it is where you’ll find the biggest catalog of PC games, where you’ll find the most active community that will answer your questions and note the games and, by creating an account, it is where your whole library will be stored. It is a full-featured portal for you to browse, download and launch almost any game you want. As a developer, it is a turnkey solution to publish and promote your games. Their API is solid and the network effect is so big that it is as important to be listed on there than being listed on the first page of Google when you have a website. At least, it is how it started. Today, Steam monopoly is severely put to the test by almost everyone in the industry and even some governments.

Market Fragmentation

For a few years now, the monopoly of Steam is eroding. The video game market is growing and fragmenting. A shift toward mobile games favors stores like Google Play, Itunes or Amazon, while big game studios are trying to compete with Steam by launching their own games distribution platforms (Epic, Discord, Origin, …). In the meantime, more and more indie game developers are trying to find alternatives to avoid the impressive 30% cut imposed by Steam on all their sales, leading them toward indie games distribution platforms like Itch.io. If you add to this the current rise of F2P, indie VR and crypto games, it gives you a good idea of how steam’s monopoly is currently challenged.

Economic Disaster

The biggest issue that Steam is facing is happening at the economic level. When nobody could compete with Steam’s features and network, it was easy for the company to impose their rules. They were holding the digital gaming industry so firmly between their hands that game developers couldn’t really complain about the 30% cut that was taken from their revenues. In fact, during the first years, Steam helped many small studios to see the light by promoting their games to a large audience. But this has changed a lot. Steam’s centralized economic model is navigating in a now very tumultuous ocean and their pirate boat is sinking.

A recent study makes it very clear. While Steam is constantly growing, it appears that most of the platform’s revenues come from the top 20% of their games. In that small portion, “the average 2019 game is selling around 1,500 units, making only around $16,000 in its first year on sale”, which is 70% fewer units sold than in 2018 and 47% less money earned than in 2018 for the small portion of game developers that still make any money. This means that only big hits and AAAs (PUBG, CS:GO, etc) really benefit from Steam’s network effect, as it is explained in that ExtremeTech article: “A recent Gamasutra investigation of Steam’s Discovery Queue found that October 2018 changes Valve made to the Steam Discovery Algorithm appear to be prioritizing larger games over smaller ones. Whether that change was fair probably depends on whether you’re one of the studios whose games are seeing more traffic or that never got visibility at all”. An earlier article from the same author gives some details which are reminiscent of the problems we know at a more global level of our modern economy: “Of the 21,000+ games available on Steam, fully half of the company’s revenue was delivered by the Top 100 titles. In other words, 0.5 percent of the titles available on Steam delivered 50 percent of the earnings“.

Steam Illegal Soon?

As it was not enough, Steam is being increasingly criticized by gamers around the world for their questionable practices. To justify their 30% cut on game developers, Steam technology ensures that it isn’t possible to give or resell a game that has already been played (a digitally “used” game). Despite being a stupid regression from the physical world, it allows Steam and some lucky game developers (see paragraph above) to maximize their profits. Recently, a French Court ruled against Steam after a 4 years-long legal battle between a French consumer group and Valve. The court notably ordered Valve to:

  • Stop preventing players from reselling their games;
  • Pay any user who would claim the leftover currency in their Steam Wallet;
  • Provide full disclosure to users regarding the conditions under which they could lose their access to the service.

Yes, you read correctly. For 16 years, Steam has been stealing gamers by locking resales, monopolizing unspent money and randomly wiping out accounts (user-created content, library and money) like an almighty god (example 1, example 2, …) and it is now official! Of course, Valve already pushed for an appeal but Pandora’s box is open and the bed is made for any innovation that can economically benefit game developers and gamers.

NFTs Solve the Game Reselling Issue

Of course, Steam has some traditional competitors like Epic or Origin but none of them is able to offer an equivalent service. Thus, the latter need to attract players with exclusive deals and developers with reduced cuts. It would eventually work if their platforms could keep up with the features already available on Steam, but they are doomed to fail on that aspect because they are all using the same technical tools, economical methods, and overall technology.

Blockchain is a technology that fits perfectly with the current video game industry needs. It provides essential technical tools to create new kinds of games and allows new economical models that favor independence over centralization. One example of a technical tool that is already changing the video game industry is the Non-Fungible Token (NFT). An NFT is a cryptocurrency, which means that it is a digital token that is unique. The difference between a regular crypto token and an NFT is that regular tokens have very few properties and thus are all equal in value. NFTs are token with many properties. Consequently, each NFT has a different “value” and its set of properties can turn it into a unique character, item, song, game, etc.

NFTs already started to revolutionize collectible card games. Whether they are physical or digital, it has never been possible to audit collectibles to fight against fraud or manipulation. Like our opaque banking system, Wizards of the Coast or Blizzard are able to print or reprint anything they want at any time and alter the rarity of their cards at will. By tying up each card to a unique token that is stored on an open and immutable blockchain, you can prevent this and guaranty the rarity of every single released card. That’s why CryptoKitties was a hit and why Gods Unchained seduced former Magic: The Gathering — Arena Director Chris Clay. Interviewed by VentureBeat, here is what he said:

I jumped at the chance to be a part of a project that I believe has the chance to change gaming as we know it […] I think gamers have been ready for a trustless system that gives them control over their digital assets for years“.

And he is right. Implementing blockchain-powered NFTs into gaming will result in a profound change that will greatly improve transparency in the gaming ecosystem. It will also drastically affect the money flow and give birth to new healthy and sustainable economic models.

The current monopoly of Steam sets a precedent that prevents any free market and basic ownership since only one company dictates the rules of the online PC game distribution. Since most of PC gaming transactions happen on Steam (75% in 2013), the company naturally imposed itself as the default owner of games copies by not allowing any second-hand market. Unlike the old days of physical video games, when you download a game on Steam, it is in your account but it is not actually yours. Like your money in the bank, if Steam decides to remove a game from your library, you can’t do anything about it. NFTs resolve that situation by allowing any game or even any item you purchase in-game to become your inalienable property. This implies that you can’t be prevented from buying, selling or trading them on second-hand markets!

Blockchain Brings Ownership and Decentralization

NFTs alone solve most of the current ownership issues imposed by the digital PC games industry. But not all of them. For such a feature to be fully functional, it still needs an ecosystem where:

  1. Game developers integrate NFTs into their games;
  2. Some markets list those NFTs;
  3. A system links NFT’s to a compensation mechanism (can be markets or dedicated systems);
  4. Some tools are built to receive, send and store NFTs.

The first step has already been reached for a few years. Games like CryptoKitties, My Crypto Heroes or God’s Unchained showed that the demand for NFT-enabled games is high and that it is a sustainable model. However, we didn’t see any real cross-game transactions or any big exchange listing yet. It is coming though! Enjin is currently working on a mechanism called Multiverse. Based on the ERC-1155 standard proposed by Witek Radomski (Enjin CTO), the Multiverse is an ecosystem supposed to allow interoperability of crypto-assets between games. Although promising, the Multiverse is still in its infancy and, despite the recently released marketplace, Enjin does not provide yet an adequate environment that would facilitate the development and distribution of NFTs.

Since the regular crypto exchanges are sulking NFTs, a few projects like Wax, Auctionity or Phantasma (not released yet) emerged to create NFT-dedicated exchanges. On those platforms, it is possible to buy or auction skins, items and many other crypto assets usable in popular crypto games like CryptoKitties, My Crypto Heroes or Blockchain Cuties. However, those solutions are still very simplistic for two reasons. First, they are not yet systems that unify NFTs in a complex way that would allow their development and their distribution to a wide audience. They are convenient third party directories, but developers still need to develop their own tools and gamers still need to figure out what they want or need beforehand. Second, current games supported by those exchanges are still very limited. They mostly are simplistic games (collectibles, etc.) conceived around Blockchain rather than full-featured or “AAA” games integrating Blockchain-based elements.

Some would argue that decentralized technologies should not only lead to decentralized services but also decentralized providers. This is only partly true. We need competition between exchanges as well as autonomous contracts to make markets more efficient and fairer, but we also need some sort of cohesion to facilitate cooperation and the creation of reliable and open solutions. That’s why some standards exist (ERC-20, ERC-721, NEP-5, etc.), why we use mostly two blockchains for smart-contracts rather than all of the smart-contract enabled blockchains available, and why there aren’t ten Steemit equivalents. Steam worked so well because it proposed that cohesion to both developers and gamers but failed because the centralized nature of its economic model has led them to create an unfair ecosystem that they can only maintain by enforcing iniquitous rules (huge fees, dispossession of ownership, etc.). A Blockchain-based Steam would be a blessing for gamers and game developers. Ownership would be restored, tools would be available to create versatile gaming-related NFTs, at least one market would automatically list all of them, they would be linked to an effective compensation system, and a wallet would allow anyone to receive, send and store them.

Ultra, the Blockchain-Based Steam Competitor

In 2017, David Hanson and Nicolas Gilot, two former gamers who managed console game projects for 18 years in China, came back in Europe with the dream of creating something bigger than just games. When they discovered Bitcoin and cryptocurrencies, they quickly understood that this technology could drastically improve the digital PC games world. They knew that if you build a platform that connects gamers and game developers around highly customizable and compatible digital gaming assets, not only you would empower both parties technologically by allowing them to create, use or own cross-games content, but you would also empower them economically by allowing complex autonomous compensation mechanisms on items and games transactions. Knowing that Valve would never take such an innovative leap, they decided to build themselves a Blockchain-powered Steam and called it Ultra.

Ok, so what is it?

Ultra borrows from Steam the concept of a platform that provides a full-featured SDK to game developers so they can publish their indie or AAA games on the platform even if they have already been developed for other platforms (PC, console, mobile, etc.). They also borrow the easy to browse catalog and the advanced user accounts that host players’ libraries. However, Ultra brings more than a twist to the traditional games distribution platform.

Ultra’s SDK is combined to what they call the Dev Center, a place where game developers can create and heavily customize their NFT’s. The portal dedicated to tokens creation and customization isn’t only a revolution from a gamer perspective, it is also a revolution from a crypto enthusiast perspective since it allows you to fully customize a gaming-related NFT without having to write a single line of code. For having tried it, we can tell that it is truly amazing.

The catalog is pretty standard but we found it to be nice and responsive. The filtering system is simple yet effective and doesn’t reset after visiting game pages as mentioned in the demo video available below.

Another revolutionary feature is how games are managed. Unlike Steam, you own all the games that are in your library. They’re all linked to their corresponding token and can be transferred to your wallet, gifted to your friends or sent to an exchange to be sold exactly like non-fungible items or any other cryptocurrency. Since everything is tokenized, game developers can opt-in to get a cut on the transactions that follow each sale. That amazing feature, which solves the whole reselling issue while being economically beneficial for both gamers and game developers, is only possible thanks to the traceability of encrypted transactions and some well designed smart contracts. But that’s not it! Upon activation in the Dev Center, gamers are also able to sell the data linked to the game they own, like their characters, in-game progression, etc.

Another super exciting functionality that is still under development allows gamers to seal contracts with streamers without having to rely on third parties. Ads will be directly credited in UOS to streamers wallets as fast as when people buy games to developers: instantly (instead of end of month + all the stupid paperwork on Steam). There are many other incredible features that we can’t yet talk about, but you will hopefully have a better idea of what is ongoing when Ultra will release their next demo video expected to be published in October.

When will Ultra replace Steam?

Among all the gaming-related crypto projects we’ve been able to observe, Ultra clearly stands out by its features and its realness. Yet, there have been so many promising projects that never released anything or only released a poor product that one would have a thousand reasons to doubt about Ultra by just reading the whitepaper or the various AMAs. Things came out pretty clear when we had a ride on the beast: it is not about how they’re going to make it, but rather about when. The team, by the way, seems pretty devoted and damn serious about it too. If you ever went to their Paris office where something like 30 developers and designers are working full-time, you would understand how far it is from your regular crypto project and how close it is to a typical SF unicorn.

The workforce/employment dynamic is a very good metric to figure out how healthy or confident a company is. Current Ultra’s workforce should be around 50 people now, which is only a fraction of Valve’s one (360 employees). But Valve is a 23 years old company that works on many other things than Steam while Ultra is a 2 years old company entirely focused on their games distribution platform. Also, Valve’s workforce is currently decreasing. They recently laid off 13 people and might continue to do so as their revenues shrink. On the other hand, Ultra is actively hiring and is looking to expand its team up to 100 members in the near future. You can see that the dynamics are very different and if I had to bet today on a hypothetical winner, I would probably choose Ultra’s horse.

Ultra also has solid allies. The company is part of the Blockchain Game Alliance with Enjin, Ubisoft, AMD and the Web3 Foundation. AMD Head of Worldwide Content Ritche Corpus is one of Ultra’s advisors and Bitfinex among the financial partners. Their latest blog post announced Bitfinex, EOS Rio and EOS New York as their three first Technical Block Producers and one of the CEOs recently ninja gave some hints about the upcoming news (see below).

Conclusion

Sixteen years ago, Valve revolutionized digital games distribution by releasing Steam. It allowed indie game developers and big names to better promote their games and made life easier for gamers by providing them with an all-in-one “plug-and-play” solution. Unfortunately, Steam never adapted to the fast-evolving gaming market and had to capitalize on its monopolistic position in order to sustain its economic model. The recent studies and lawsuits proved that the growing discontent displayed by gamers and game developers was justified: Steam model is not viable anymore and the platform is only surviving by cheating its discovery algorithm, taxing its developers to the max and refusing to grant its users the ownership of the games they bought.

For a few years now, many developers are trying to find out how they can improve the games distribution market by the mean of Blockchain. The birth of the first Non-Fungible Tokens standards gave rise to a new generation of games and triggered the involvement of the biggest names in the entertainment industry: Wizards of the Coast, Ubisoft, Blizzard-Activision, Take-Two Interactive, Warner Music Group, etc. Among a plethora of pioneers, a young startup is building Ultra, a Steam competitor based on Blockchain. Ultra allows indie game developers to create and distribute groundbreaking games while being fairly rewarded. It also allows gamers to gain back the property of all their assets from games to in-game items and data, and allow them to sell, buy and trade whatever they want thanks to the advent of decentralized technologies. 2020 is going to be an amazing year for gaming and Blockchain, get your popcorns ready.

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