Frost & Sullivan (Frost & Sullivan, abbreviated as 'Frost & Sullivan') continues to pay attention to emerging development directions such as the metaverse and WEB3.0, and has officially released the '2022 Metaverse Game Development Insights White Paper'. This report is the first white paper globally that focuses on the metaverse game industry.
This report starts from the Yuanjie game industry, specifically analyzing the current situation, challenges, and pain points of Yuanjie games. It elaborates on the market scale and driving factors of China's Yuanjie game industry, and looks ahead to the future development trends of the Yuanjie game industry.
1
Overview of the Yuan Realm Game Market
01
Metaverse concept and definition
The concept of 'Metaverse' was first introduced in 1992 by American science fiction writer Neal Stephenson in his science fiction novel."Avalanche"For the first time, a virtual world was proposed. The protagonist and other humans walk and interact on the virtual Rue de Rivoli in the metaverse through digital avatars. Millions of virtual characters move around this virtual neighborhood simultaneously, embodying many elements of real society, such as commercial activities, real estate development, and social interactions. The metaverse is still in its conceptual infancy. Although different companies and individuals currently have different definitions and views on the metaverse, there is a general consensus among everyone that it represents the next generation of the internet.
Source: Frost & Sullivan report
02
Concept and Definition of Yuanjie Games
Metaverse games derive from sandbox games and can be divided into two categories. The first category incorporates metaverse concepts such as social interaction and digital avatars (3D character images) into open-world or user-generated content (UGC) games. The second category utilizes metaverse-related technical elements such as NFTs, DeFi, blockchain, and encrypted digital currencies, with some overlap between them. Metaverse games should possess four core attributes—high realism, decentralized attributes and closed-loop economic systems, sustainability, and borderlessness.
Source: Frost & Sullivan report
03
Driving factors of the Yuan Realm game market
-
Technological progress brings about media iteration
To date, the gaming format has undergone two iterations. The first iteration was driven by the popularization of software and hardware such as HTML and Flash, leading to a shift from 'PC-based' to 'web-based' gaming. The upgrade in technology has lowered the threshold for terminal gamers to access web-based games, requiring less computer configuration and making operations simpler. The second media iteration was the transition from console and web games to mobile games, which originated from a series of technological advancements including the dividends of mobile internet, the widespread adoption of smartphones, and the rapid development of 4G network infrastructure.
Currently, a variety of cutting-edge technologies required to realize the functions of the metaverse have seen significant development and application, such as 5G, artificial intelligence, cloud computing, and interactive devices. The progress and penetration of cutting-edge technologies will further drive the iteration of the third game medium from mobile games to metaverse games.
-
The epidemic has promoted the development of Yuanjie games
The epidemic prevention and quarantine measures brought about by the COVID-19 pandemic have spurred the vigorous development of the global digital economy. People's online time has increased significantly, leading to the rapid growth of the 'home economy'. People are becoming increasingly frequent and dependent on the internet, and real life is beginning to migrate on a large scale into the virtual world.
The recurrence of the pandemic has forced people into long-term isolation and restricted travel. However, the interactive experience in Yuanjie games can meet people's need to socialize while traveling around the world at home. Even after entering the post-pandemic era, the pandemic has profoundly changed the basic patterns of contemporary human life, production, economy, and society. The public needs a new way of living and working, which has become an extremely special historical driving force behind Yuanjie games.
-
Capital intensively allocates resources to the metaverse
From an investment perspective, the large-scale investments by major companies have accelerated the maturation of technologies related to the metaverse and hastened its implementation. Data shows that in the first quarter of 2022, a total of 43 domestic metaverse projects received financing; since January 2022, more than 700 new enterprises related to the metaverse have been registered in China, including over 60 new metaverse game companies.
Tencent participated in the $150 million Series G financing of Roblox back in 2021, and ByteDance also entered the metaverse market that same year, investing in 'China's version of Roblox' - Code Qiankun with an amount approaching 100 million RMB. Major tech giants and investors are treating the metaverse as the next big trend, and metaverse games, as the most likely form to realize the metaverse's implementation, are undoubtedly a focal point for capital investment.
-
Yuanjie Games helps solve the dilemmas of the traditional economy
Since the global economic crisis in 2008, a plethora of traditional economic problems have persisted, such as declining labor productivity, persistent inflation, fluctuating interest costs, increased employment difficulties, and ongoing international trade conflicts. In 2020, hit by the pandemic, the global economic situation has deteriorated further. Society needs new ideas to innovate economic models to solve traditional structural and institutional dilemmas, and the metaverse provides an extremely creative option.
According to a CoinGecko survey, players of the metaverse concept chain game Axie Infinity can earn an average of $151 - $200 per day by trading Axies, which is equivalent to $1,665 per month. Their monthly income is higher than the minimum wage in Malaysia and the Philippines. In addition, Twitter polls show that 50% believe that playing Axie Infinity can be considered a sustainable full-time job, and 68% think it can be used as a side hustle. In the Philippines, playing this game has gradually become a way for low-income locals to make a living, with substantial earnings attracting more and more players.
-
Changes in consumption habits in the new era
According to data from the Ministry of Industry and Information Technology, in 2021, China's total mobile internet access traffic reached 221.6 billion GB, a year-on-year increase of 33.9%. The average monthly mobile internet access traffic per household (DOU) reached 13.36 GB/household, with December seeing a DOU of 14.72 GB/household, setting a new historical high. It is not difficult to see that the demand for mobile internet among Chinese people is growing rapidly. The rise of China's internet has gradually made online consumption a common lifestyle for the public.
At the same time, with the rise of young consumers in the 'Z generation' and even the 'Alpha generation', global consumption trends have undergone significant changes. According to data from the National Bureau of Statistics, China's 'Z generation' population totals about 260 million people, accounting for 16% of the total population. They were born during an era of booming economic development in China, with affluent material lives and diverse social cultures.
In addition, influenced by national policies at the time, most 'Z-generation' individuals are only children and have been immersed in the world of internet and digital products since childhood. Therefore, they are more adept at expressing themselves through online and virtual means. At the same time, they also have a higher acceptance of emerging technologies, and their large potential consumer base provides solid support for the development of Yuanjie Games.
2
Yuan Realm Game Market Industrial Chain
The metaverse system encompasses a wide range of aspects, involving various fields such as commercial industries, social entertainment, and lifestyles. Scenarios can all be reconstructed within the metaverse. Currently, compared to the industrial form that combines virtual and real worlds, the business model that integrates games with the metaverse has already fired the first shot and is the most important manifestation of the metaverse. The industrial chain of metaverse games mainly consists of upstream infrastructure and content development, midstream hardware and game distribution platforms, and downstream terminal game users.
Source: Frost & Sullivan report
01
Upstream of the Yuanjie Game Industry Chain
-
5G/6G network construction
The metaverse has stringent requirements for networks, including ultra-high bandwidth, ultra-low latency, and super-reliability. Therefore, the current construction of 5G and even the implementation of 6G in the future can truly meet the network demands of the metaverse and promote the better empowerment of the metaverse in economic, life, and digital transformation. The current 5G can only support basic metaverse scenarios, while higher-level application scenarios such as immersive XR, holographic imaging, and sensory internet require 100 times more powerful networks than 5G.6G networkTransmission power to be realized.
-
cloud computing
Cloud computing is an internet-based computing method where shared software, hardware resources, and information can be provided to various computer terminals and other devices as needed. Users utilize the computer infrastructure provided by service providers for computation and resource utilization. The parameters entered into the metaverse are collected by sensing devices and transmitted to the cloud for processing. They then issue commands to virtual characters within the metaverse and return them to the devices in our hands, thereby providing us with certain perceptual feedback. The explosive growth in data volume in the metaverse has led to a surge in demand for computing power, making cloud computing an essential infrastructure for building the metaverse.
Source: Frost & Sullivan report
-
Interactive technology devices: AR/VR
Interaction technology is another fundamental support technology for the metaverse. XR, or extended reality technology, is considered the ultimate form of interaction in the future, mainly including VR virtual reality technology, AR augmented reality technology, MR mixed reality technology, CR holographic imaging technology, brain-computer interaction technology, and sensing technology. Interaction device technology serves as a bridge connecting the real world and the virtual world. By tracking camera movements and lenses, it fills and overlays parts of the real environment with virtual environment images, superimposing virtual spaces onto the real space, thereby realizing infinite extension within limited space. The perfect combination of virtual and real images is the key entry point to the metaverse.
-
Blockchain
The application of blockchain technology mainly includes NFT, DeFi, public chain speed, smart contracts, DAO social systems, decentralized transactions, and distributed storage. As a mapping of the real world, an independent economic system is an essential part of the metaverse. By applying blockchain technology, a decentralized economic form in the metaverse can be realized to ensure the security of users' virtual assets and identities. In addition, introducing blockchain smart contracts into games can achieve the preservation and transfer of virtual assets and allow users to participate in and supervise the legality of transactions.
Source: Frost & Sullivan report
-
Artificial Intelligence
Artificial intelligence technology is almost pervasive in every corner of the metaverse world, such as smart contracts in blockchain, item generation in gaming technology, multi-language accessibility, expansion of virtual worlds, and intuitive real-world interactive experiences. Artificial intelligence achieves and meets the underlying technical needs of the metaverse for system stability and variability through a variety of machine learning methods. It is the foundation for improving the operational efficiency and intelligence of the metaverse. Specifically, machine learning algorithms obtain more information through visual and image levels, increasing the relevance between virtual and real worlds, providing players with more social scenarios, and allowing them to experience and feel different lives in the virtual world.
-
game engine
Game engines provide important technical support for various digital content scenarios in the metaverse and are a crucial part of the upstream industry chain of metaverse games. Game engines are software used for game development, serving as the core technology for designing a game. While providing developers with a development environment, they also offer a series of 'function libraries' and 'modular components'. Developers can use the engine to directly implement common basic functions such as resource import, graphics rendering, and effect integration without having to write low-level code from scratch, thus allowing them to spend more time on gameplay thinking and world-building, enabling the creation of virtual worlds and value cores that are distinct from other games.
02
Midstream of the Yuan Realm game industry chain
-
game publisher
Game publishers can be likened to 'sales agents', responsible for specific tasks such as sales, operations, updates, channel integration, and market placement. The core responsibility of a publisher is how to successfully sell games and maximize traffic acquisition. The current industry trend is the integration of development and publishing, meaning that both are handled in-house.
-
game channel provider
That is, the game's 'sales/distribution platform' is the provider of traffic.
-
Hardware distribution platform
The immersive interactive experience in Yuanjie games needs to be realized through interactive devices such as XR, so the hardware distribution platform is also an essential part of the Yuanjie game industry chain. Currently, consumer-grade XR devices are still in the market entry phase, and application/content distribution platforms built mainly by hardware sales manufacturers will become the main source of traffic in the short term.
03
Downstream of the Yuanjie Game Industry Chain
-
End-user game players
The downstream of the Yuanjie game industry chain mainly consists of C-end individual game users. According toRobloxSurveys show that users under the age of 13 account for 54%, and this group visits the game an average of 25.5 times per month. It can be seen that the Alpha generation (born after 2010) is the first generation in human history to have been born with the ability to interact with cutting-edge technology and fully integrate scientific and technological progress into their lives, earning them the nickname 'Metaverse natives.' The Alpha generation is the target customer group that gaming and internet companies need to focus on in the future.
3
China's Yuanjie Game Market Scale
2021 is the 'Year of the Metaverse', and the metaverse industry will become an important part of China's future digital economy. In 2021, the market scale of Chinese metaverse games reached 79 billion yuan, still in its infancy; it is expected that the market will grow significantly in the future, with a compound annual growth rate of 40.4% from 2021 to 2026.
Source: Frost & Sullivan report
In the future, opportunities in the metaverse gaming market will mainly come from the game software and services market, as well as the growing sales of gaming hardware. Frost & Sullivan predicts that the metaverse gaming sector will continue to lead the metaverse market.
Source: Frost & Sullivan report
4
Future development trend of the Yuan Realm game market
Frost & Sullivan believes that under the metaverse, hardware, software, technology, content, and applications will all face reconstruction. As the initial application form of the metaverse, the gaming industry will enjoy the first wave of dividends from metaverse development. The development potential of the metaverse gaming industry in China is enormous, with broad market prospects. From an industrial chain perspective, the hardware and software ecosystem surrounding metaverse games will continue to expand; from a technological application perspective, more cutting-edge technologies will be applied to metaverse games in the future; from a consumer perspective, an economic system based on the metaverse will be established.PUGCOr it may become the main content output model.
1) XR technology gives life to games and will become one of the important entrances to the future metaverse world.
XR devices are key equipment connecting the virtual world with the real world. Overseas venture capital in the metaverse, represented by the United States, mainly invests in metaverse infrastructure, gaming, and innovative exploration areas. Currently, the development of the metaverse is still in its early stages, and the focus of the industry needs to be placed on infrastructure, equipment, and development tools, especially the construction of core infrastructure, critical equipment, basic technical frameworks, and ecosystems.
According to IDC data, the total global investment in AR/VR was nearly $14.67 billion in 2021 and is expected to increase to $74.73 billion by 2026, with a compound annual growth rate (CAGR) of 38.5%. Among them, the CAGR in the Chinese market is expected to reach 43.8%, ranking first globally in terms of growth rate. VR devices and gaming products have entered a period of rapid development, with resolution, refresh rate, and unit computing power being technical points that urgently need breakthroughs at present.
Currently, VR devices dominate the market, accounting for more than half of the market share. AR and MR devices still need further technological advancement. With the continuous development of XR technology and innovations integrating AI machine vision and hardware, the application of VR and AR technologies will become more integrated and fusioned, and gaming experiences will be further enhanced.
2) 'Brain-computer interfaces' will become a gateway between the metaverse and humanity, or perhaps the ultimate form of the metaverse.
"Brain-Computer Interface" (BCI) is currently the most active research direction in the fields of brain science and artificial intelligence, and it represents a significant advancement in brain research. By collecting signals emitted from the brain through electronic implants, and then decoding the encoding of brain signals during brain activity, BCI can establish a direct communication and control channel between the brain and external devices, thereby restoring and enhancing human functions.
In the entertainment industry,BCIIt can bring an interactive experience that transcends the real world, turning science fiction into reality. It also provides gamers with a new dimension of operation independent of traditional game controls. Players can control games with their minds, greatly enriching the game's content and enhancing the gaming experience.
Brain-computer interfaces will bring about an incomparable improvement in the efficiency and speed of human-machine interaction, representing a revolution in the way we communicate and construct our world in the future. In the next three to five years, medical clinical applications will remain the mainstream direction for brain-computer interface applications. In the long run, winning awards for brain-computer interfaces could become the ultimate form of the metaverse.
3) Realize decentralized rights confirmation in the Web3.0 field by combining blockchain facilities with application logic of NFT, GameFi, DAO, and DeFi
Web3.0 provides the foundation for the envisioned metaverse world. Blockchain technology, as its core, constructs the production and rights confirmation of digital currencies and assets, providing significant support for the economic development of game metaverses. Based on this, the concept of GameFi (financialized games) began to take shape, with NFT+, DeFi+, and P2E constructing their game systems, gamifying DeFi's rules and tokenizing game item derivatives as NFTs.
Banco Paribas of France, in collaboration with the world's largest NFT market data platform NonFungible.com, released a report stating that the sales of NFT games reached $5.17 billion in 2021. A report by Quantum Tech Partners indicates that metaverse game companies based on blockchain technology raised over $3.3 billion in 2021.
As of July 2022, over 1,580 GameFi products have been launched on 40 different blockchains. ETH remains the main development platform for such products, accounting for more than 34%, followed by Binance Smart Chain (BSC), accounting for 30%. In terms of user distribution, users using the Waves and Hive chains account for more than 60% of the total. GameFi has already gained a certain market share, with significant market space for leading products.
The metaverse will be a user-centered environment that elevates creativity to a new level. The metaverse will unleash a massive demand for real-time digital content, which is clearly beyond the capacity of platform providers or gaming companies alone to meet users' needs. When platforms hand over creative rights to users, creativity will 'grow wildly'. The success of Roblox lies in its creation of a PUGC-based content community, which has greatly expanded the boundaries of content.
"Openness" is a major feature of the metaverse, requiring the lowering of creative barriers and expanding the coverage of content communities. The PUGC model based on verifiable Web3.0 technology and enhanced accessibility of development tools will greatly promote users' enthusiasm for product development.
NFTs are currently the main application of the PUGC model in the metaverse. Based on the GameFi gaming system, game-related NFTs (such as Axie) have seen an increase in proportion, reaching 7.4% in July 2022. With the construction of the metaverse world, derivatives such as NFT characters born from games will bring a second wave of market share growth to the industry.
Computing power is the foundation for building the metaverse world, and the computing challenges faced by the metaverse are immense. Limited by integration density, efficiency performance, as well as power consumption and heat dissipation constraints, Moore's Law has slowed down, with the current transistor density increasing by less than 3% per year. The slowdown of Moore's Law means that the development of computing technology cannot rely solely on innovation in manufacturing processes of general-purpose chips; instead, it requires exploring new computing architectures and combining various innovative methods, such as collaborative innovation of chips, hardware, and software.
The metaverse will further promote 'hardware reconfiguration' and 'software-defined'. Leading internet companies represented by Google, Meta, and domestic BAT have initiated the 'hardware reconfiguration' movement, such as the Open Compute Project (OCP) initiated by Meta and the Scorpio project (initiated by BAT); while traditional infrastructure software and hardware service providers hope to integrate data centers through 'software-defined'. In simple terms, the direction of software-defined is all about serving everything, while the direction of hardware reconfiguration is about computing everything.
The computing in the metaverse will appear in various forms, including cloud computing, edge computing, client-side computing, decentralized computing (such as the Ethereum global public chain, SETI@Home distributed computing, etc.), and space computing.
