For decades, gaming was built around the single purchase of a game that you played for a couple of years until a new one was released.
That model quickly became unsustainable as the cost of developing AAA titles rose into the hundreds of millions. This became a bigger issue with games like Fortnite and other battle royales because they also need large populations of players on at any given time or the game will die. Because a hefty upfront price tag might kill the game altogether, options were limited.
Enter the era of in-game cosmetics. This model operates a lot like a freemium model by which games like Fortnite will allow anyone to download the play the game for free, but in-game cosmetics, like character or gun skins, cost money. Because many players will often spend $10 or $20, and others will spend hundreds of dollars over the years, it ends up often being more profitable than a single upfront purchase.
Despite being a relatively new shift in the gaming world, it’s quickly becoming the standard across the gaming industry, with the gaming cosmetics market size estimated to be at $50 billion. With this, gaming marketplaces to buy and sell these skins have become big business.
Gameflip, for example, is a leading gaming marketplace startup that has sold over $140 million worth of virtual in-game items on its platform. Gameflip facilitates sales between in-game items for top titles like Pokemon, No Man’s Sky, FIFA and DOTA. Gameflip, despite being a startup, is actually open for anyone to invest through its equity crowdfunding campaign. The company also facilitates the sale of blockchain-based games like Axie Infinity and Splinterlands.
Other companies like GameStop Corp. (NYSE: GME) and Meta Platforms Inc. (NASDAQ: META) are setting themselves up to profit from this trend as well. GameStop recently launched its non-fungible token (NFT) marketplace by which players can discover their favorite NFT-based games or in-game cosmetics and collectibles.
This means Gamestop not only profits from the sales of in-game cosmetics but is likely one of only a few with the infrastructure in place to build into a space like this successfully. As the space continues to become increasingly volatile, GameStop is seemingly doing well and one of the only mainstream players committing to the space. On its first day of launch, the company enjoyed over $1 million in volume, which means it generated over $40,000 in revenue on its first day and over $405,000 in revenue in its first four months since launch.
Meta’s controversial virtual reality (VR)-focused digital collectibles is another big focus in this space. While Meta has mostly scrapped the blockchain- and NFT-focused approach, it is seemingly as committed as ever to making this work. Meta has spent an estimated $36 billion on its VR business. While this only produced roughly $2.3 billion in revenue in 2021, Meta owns a whopping 90% market share of the VR market. If the industry continues to grow, the company will quickly begin to make up for its losses. Meta envisions a place where you can build a house in virtual reality with tradeable assets as a means to capitalize on this massive market. While CEO Mark Zuckerberg is convinced VR is the future, Wall Street doesn’t like the approach as seen by the 70% stock decline from their highs.
Many of these trends and companies are incredibly controversial. Despite GameStop staying near its highs following its massive run-up in early 2021, many still believe it’s overvalued, while others believe it’s significantly undervalued.
Meta has received constant criticism for its metaverse plans and the billions it is spending on the space. Some don’t like the micro-transactions aspect of gaming, and others are happy to play these games for free without cosmetics. While there’s no shortage of controversy, one thing is clear: This trend is here to stay.
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