Hat Swap City
Business Strategy
The video game industry is at a crisis point. The market demands innovation in technology and game mechanics. Video game producers promise lofty visions with tightened budgets. Eventually, over-encumbered by their promises and out of money to fund development, the game is forced into a premature release.
Cosmetic Marketplaces have yielded the most significant success for game publishing houses. Team Fortress 2 (TF2) was a title that came out in 2006 as part of the Orange Box. TF2 enjoyed standout success after launch, but the real innovation came when they released hats. Hats were vanity items that conferred no inherent value other than making your character customizable and enjoy higher status against your peers. In 2011, analyst Paul Manwaring calculated that the value of the TF2 Hat market was over $50 million.
CounterStrike: Global Offensive (CS:GO) imitated the hats marketplace of TF2 within 2 years of its release. Instead of silly hats, Counter-Strike offered its players cosmetic skins to trick out their weapons. Additionally, they allowed creators to develop skins to feed their weapon crate series and thus made a creator-based marketplace that was backed by Valve and endorsed by professional players. In 2018, Valve made $414 million on CS:GO, with a great majority of that revenue coming from their cosmetic market.
Many video game studios do not emulate the successful model of TF2 or CS:GO cosmetic marketplaces because they require difficult-to-implement and costly merchant processing platforms and digital authenticity requirements for the items in game. Furthermore, there is the task of managing the large “gray market” that develops behind the items.
Despite the financial success of Valve’s HAT market, there is room for improvement. A resistance point for many prospective purchasers is that the asset value dissolves instantly once you exit the game. Gamers are no stranger to the question “you paid for that? What does it do?” Indeed, why are we paying our hard-earned money for digital assets that can be duplicated with the press of a button, yield no inherent value aside from in-game social vanity, and will be obsolete within a few years? Hat Swap City solves this problem by minting NFTs for the generated game item so that the player may exchange it for value at will.
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