Please ensure Javascript is enabled for purposes of website accessibility

Could Web 3.0 Disrupt Established Video Game Companies?

By Jon Quast, Jose Najarro, and Sanmeet Deo – Dec 10, 2021 at 6:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Axie Infinity is proving this new model of gaming can be successful, but there's plenty of time for established companies to adjust to shifting paradigms.

Axie Infinity is a video game built on blockchain technology with a native currency called Axie Infinity Shards (AXS). The game has surged in popularity since its launch and this may have something to do with its incentive structure. Rather than paying to play like traditional video games, Axie Infinity gamers can earn Axie Infinity Shards simply by playing the game.

In this video clip from Motley Fool Backstage Pass, recorded on Nov. 29, Fool analyst Sanmeet Deo talks with contributors Jose Najarro and Jon Quast about how Axie Infinity plays into the new Web 3.0 trend -- a trend that is changing incentive structures and threatening to disrupt plenty of industries. However, when it comes to video games, it's probably premature to assume blockchain-based games will overthrow the entrenched incumbents anytime soon. 

10 stocks we like better than Axie Infinity
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Axie Infinity wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of November 10, 2021


Sanmeet Deo: Interestingly, we got a question here from ProShopGuy. Do the [inaudible] play-to-earn games like Axie Infinity that are crypto-centric and changing the business model for how gaming companies generate revenues?

I think offline too, Jose, we were talking a little bit about play-to-earn games. Did you have some comments on that area of gaming?

Jose Najarro: [inaudible] In the forms of big game publishers, that's still very early. I think it was EA Games management that say, hey, this is something we're keeping an eye out but not something we're going to be doing any time soon. When the CEO mentions that, I still believe we're at least two years too early. But if these play-to-earn games do come out, it could affect revenue in the future -- and not the pay-to-earn, the more of just a crypto this blockchain gaming because it allows the ability for users to sell off their assets to other players.

I don't play much games, but one of the games I do play is Hearthstone, and this is pretty much a trading card game online. I can buy booster packs from Blizzard who owns the game, and I get a card collection. Unfortunately, I can't trade or sell these card collections to other players. If I want new cards, I just have to buy more card packs and increase the revenue Activision comes.

But with this crypto blockchain gaming, it would open up the opportunity for me to trade these cards. In theory, I won't have to buy as many packs as I normally would because I can trade the ones I don't use for the ones that I would want and someone else might want the ones that don't use.

In theory, yes, but I'm pretty sure gaming companies will find a way to monetize that trade transaction or something between there to grab that revenue being lost. But like I mentioned, that's probably too early to even discuss, and we'll probably find ways for companies to monetize that portion as well.

Jon Quast: You know, ProShopGuy, I was thinking about this prior to the show, and this is, again, a little bit hot-take-ish. I agree with Jose in that this isn't an imminent threat to gaming companies. What Axie Infinity is, is proof of concept. This is Web 3.0. You're going to hear that term a lot. It's becoming a buzzword, probably overused at this point, but Web 3.0 is essentially changing the incentive structures away from corporate centralized entities and to users.

That is very good from a user acquisition point of view. As Jose points out, it is way more enticing to play a game in which I can have control over my game assets and I can trade them, and I can sell them, and it's very much in my favor. Whereas if I play a game put out by a publisher, I'm paying for the merchandise and that's it. I can't do anything more with it.

From a user acquisition point of view, a game like Axie Infinity, Web 3.0, this is very enticing. The problem here, and this is a hot take, is, a company like Activision Blizzard can withstand a game failure. They develop a game and it fails, it flops. That's fine. They're making money from other games. They can take that hit.

If everything was to move toward this Web 3.0 model, you would, I think, see a lot less games made because if it fails, where was the incentive for the people who created the game? You can't take that hit as a single game studio. It's also hard to monetize it if you're Activision Blizzard and you're going to create your own version of the game on the blockchain. [laughs] You know what I'm saying? This is an interesting thing. We'll see how it plays out. I think it's a couple of years before any of these companies have to worry about a blockchain game eating their lunch. It is something worth watching and I think there's a lot of questions on how it would practically work.

Najarro: I think, Jon, one great concept that I thought is if you have a gamer, someone who plays games and ask them about blockchain gaming, I'm pretty sure even though they're hardcore gamers, probably nine out of the 10 won't know much about crypto gaming or blockchain gaming at the moment. That again tells you that, hey, we're still way too early. If the advocate gamers don't know much about it, then we are still pretty long away from it.

Jon Quast has no position in any of the stocks mentioned. Jose Najarro has no position in any of the stocks mentioned. Sanmeet Deo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.