Chapter 4 | Preparing for the future of gaming

In this new dimension, companies must determine where they fit and reassess their capabilities — all with an unwavering focus on the customer. Here are the three critical steps that gaming companies must take to find success.

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Step 1

Develop a metaverse vision

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As the metaverse takes shape, gaming companies that are planning to enter this space must develop and articulate an overarching metaverse vision and build their strategies around that vision. Determining the company’s overall goal in the metaverse — whether it’s boosting existing revenue streams, creating new ones or building the brand — is essential. Who are its customers, and what will they be doing in the metaverse? Beyond this, what value proposition does the company bring (or plan to bring) to its customers? How will the company differentiate itself from its competitors?

The core gaming experience is merely a starting point for the range of social experiences that are possible in the metaverse. Gaming companies must think beyond current gaming experiences and consider what strategic opportunities exist in the broader metaverse. Currently, entertainment events, education, business communications and employee training are the primary non-gaming opportunities in the metaverse, and many others are still being imagined.

Once a broader vision comes into focus, companies must determine how they will generate revenue. Game publishers, for example, generate most of their revenue through the sale of games, in-game purchases, advertising and subscriptions. However, in the next few years this will change, with gaming companies generating revenue in completely new ways. For instance, as NFT adoption grows, games will collect transaction fees from the direct sales of NFTs to users, as well as a portion of secondary sales of NFTs through smart contracts. With the NFT space moving at a lightning-fast pace, today’s NFT use cases will soon be obsolete. As such, companies must explore how to monetize NFTs not only today, but also tomorrow and 10 years from now.

While the new gaming landscape offers opportunities, it also presents risks to current business models. For example, the rise of NFTs and smart contracts could upend how gaming companies are structured. As the use cases of NFTs evolve, a “creator” economy also may emerge. In this scenario, game developers and other creators may have greater incentive to monetize their games independently rather than through a gaming company or other third party. At the very least, creators are likely to demand greater control over their creative output. Thus, gaming companies should engage in scenario planning to assess how this change might impact their revenue generation and content acquisition capabilities. The rise of a creator economy will also force gaming companies to re-evaluate their value proposition to content providers. What can they offer newly empowered content creators beyond what they offer today? 

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Step 2

Update your operating model to include the metaverse

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A thoughtful strategy can only come to life if it is backed by an operating model that is optimized to support it. Most gaming companies have finely tuned operating models for their current needs. However, the evolving environment requires gaming companies to reassess their current and future state operating models. Is the company organized in ways that enable it to deliver on promises it has made to users? Are the company’s business units aligned with the way the market is evolving? Which assets will be essential in 10 years — and which will be considered noncore?

From a talent perspective, gaming companies will still need countless skilled programmers, coders, designers and technologists. However, the metaverse will be far more expansive than current gaming environments, requiring gaming companies to acquire additional skills sets. In our survey, 40% of gaming executives said improving their current employees’ technology capabilities is a priority.

Which of the following should be priorities for the industry over the next three years in the face of increasing demands?

In this climate, competition for talent will be fierce. Established gaming companies are seeing a considerable exodus of talented developers. This is happening for several reasons, with many departing employees citing burnout or an unsatisfying work environment as reasons for leaving. Many young people are particularly drawn to smaller startups, where they envision playing a role in creating Web 3.0. In addition, many startups are now evaluating how they can use NFTs and cryptocurrencies to compensate their workers. While these forms of compensation can be complex to introduce and maintain, established gaming companies should strive to do so as they work to create a culture that is more accommodating to young talent.

Indeed, companies of all types can better predict future trends when they leverage fresh perspectives from the next generation. As demonstrated in a recent EY study, Gen Z is shifting societal paradigms and creating new norms around activism, wellness and success. To that end, much of the creativity around the metaverse will come from young people, and Gen Z (i.e., those born between 1997 and 2012) is already highly engaged in the gaming economy. In a recent e-commerce study, 74% of Gen Z participants stated that they had purchased digital gaming items, such as accessories, skins or garments, for their avatar.¹ As gaming companies ponder what comes next, they should view the metaverse through a Gen Z lens. Namely, creating Gen Z development teams, giving them a budget and enabling them to experiment will help advance the company’s ambitions in this space.  

R&D has always been a source of innovation, so it’s no surprise that increasing R&D funding is a priority for gaming executives. However, success requires more than boosting R&D spending. For example, gaming companies need to understand how new business and operating models will impact their product development priorities. They must build a culture that is friendly to innovation and the processes necessary to move rapidly through the innovation cycle — from ideation to prototype, testing, scaling up, launch and feedback.

To increase the speed of innovation, gaming executives also must look beyond the organization. Many gaming companies plan to increase the number of cross-industry partnerships to drive advancement and acquire new capabilities. In our survey, 43% of executives place a high priority on partnering with companies outside the gaming industry over the next three years.

Which of the following business tactics is your organization prioritizing to better participate effectively in the metaverse?

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Step 3

Create a metaverse with the user at the center

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Games like Minecraft and Fortnite have already provided an early look at gaming in the metaverse. However, many games currently operate within a predefined set of rules. In future iterations of the metaverse, a player’s digital avatar won’t always have an obvious purpose as it moves through various digital realms. The avatar could be seeking a range of experiences — from entertainment and social connection to work, education, commerce and more.

“Companies have to base the customer experience around what a person wants to do in the metaverse,” says Cary Tilds, Chief Strategy Officer of Frameplay, a gaming company specializing in in-game advertising. “It’s not about taking reality and putting it into the metaverse. The rules of engagement are very different,” she noted. How will gaming companies figure out what personalized experiences their customers want? Gaming companies will be challenged to utilize a growing collection of internal and external data to better understand what their customers do in both the gaming world and the real world.

As the amount of available data surges, the internal challenges around data will only intensify for gaming companies. Users will play more games on more devices, in-game purchases will grow and the volume of transactions will increase. The amount of data created and replicated for the metaverse by 2025 could be 3 million to 4 million petabytes per year by one estimate.²

The evolution of gameplay itself will further complicate the data landscape. For example, VR and peripherals will soon be core to the gaming experience. The use of haptic suits in gaming is also expected to grow significantly in the coming years. These wearable devices provide sensory feedback to users and collect input about their physical response to gameplay — including even facial expressions such as a smile or a frown. These innovations all provide new data that gaming companies must manage and analyze.

To make sense of this flurry of data, companies must do the following:

  1. Develop a clear vision of how their gaming data can create competitive advantage
  2. Break down organizational and technical silos within the organization that house disparate data sets to achieve a 360-degree view of customers
  3. Deploy visualization and analytics tools to translate data into useful forms that employees can use
  4. Utilize a new generation of artificial intelligence tools, such as machine learning and artificial neural networks, to find hidden patterns and insights behind the data

As gaming companies hone their internal data skills, they also must devote more resources to collecting external intelligence. Conducting surveys, interviews, focus groups and other forms of market research will be critical as gaming companies develop strategies and adapt their businesses to the changing environment.

Many believe that consumers will soon flock to exciting locations in the metaverse, but they won’t stay long if they feel personally unsafe or if their personal data is at risk. Wherever people congregate in the physical world, there are bad actors engaging in fraud, promoting extreme political views, exploiting others and more. Likewise, in a world of escalating cyber risk, consumers expect gaming, tech and other companies to safeguard their data. They will frequent, spend more with and return to companies they feel are transparent and trustworthy. In a recent global EY survey of more than 1,900 technology consumers, about two-thirds of respondents said that knowing their data is collected and stored securely is their top concern in choosing whether to share data.

While there likely will be regulatory actions around personal safety and cybersecurity in the virtual world, the gaming industry is frankly moving too quickly for regulators to keep up. Gaming companies must not wait for regulators to develop effective governance and content moderation policies that enable users to feel physically and emotionally safe. At the same time, they must create a comprehensive security infrastructure — including the latest technologies, processes and capabilities — not only to protect the gaming data in their possession, but also to validate that third parties’ security controls are adequate to support the company’s cybersecurity efforts. By implementing effective measures around both personal safety and cybersecurity now, gaming companies will be in a better position to help shape industry dialogue around these issues now and in the future. 

Summary

From data security to smart contracts and NFTs, gaming companies have much to consider as they begin or advance their metaverse journey. But with the right mindset, skill sets and strategic plan in place, they have a significant opportunity to disrupt gaming and drive value as early adopters while this expansive new digital universe continues to take shape.

  • Show references#Hide references

    1. Adriana Lee, “Metaverse Study: 70 percent of virtual store visitors purchased items,” WWD, 25 January 2022, via Factiva.

    2. “The Metaverse: Separating the Hype from the Long-Term, Real-World Technology Implications,” IDC, IDC Doc #US48466921, 20 December 2021.

EY Gaming Industry Survey | Chapter 3

Insights on the metaverse and the future of gaming

Scott A. Porter
EY US West Media & Entertainment Consulting Leader
Passionate about empowering entrepreneurs and e-sports. Helps media and entertainment and technology companies navigate change. Global traveler. Explorer. Coach. Father.

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