Imagine that you could change your appearance for a few hours. Would you be willing to pay for it? Avid players do this on a regular basis – they change the character models, weapons, and other items they use in the virtual world. For skins – and other items from the digital goods market – they are ready to pay a lot.
The market for digital goods in games, like the entire gaming and digital services market, has been growing rapidly for years: it reached a dizzying $30 billion in value in 2018 and is estimated to grow to $50 billion by 2022. This is not surprising when we consider that one of the most popular multiplayer games in years, Counter Strike: Global Offensive (CS:GO), attracted more than 1.15 million users to the Steam platform in March. Simultaneously.
The growing popularity of gaming has led to the development of the entire accompanying ecosystem, which consequently created new opportunities to invest. Investment funds have spotted the potential here a long time ago: Tar Heel Capital Pathfinder, a VC fund and a venture builder, always has at least a few companies associated with this ecosystem in its portfolio. Among others, these are currently: Vortex (a cloud gaming platform and a provider of this technology to businesses), Skinwallet (a digital goods trading platform), GRID eSports (leader in esports data delivery), Gamivo (a marketplace for digital keys for games), and Unikrn (live esports betting). Their breadth and variety clearly show the range of possibilities in this market.
However, in order to understand what you can actually profit on, you must first learn the basic principles of its operation.
Digital goods, i.e.?
“Digital goods” is a term referring to a wide catalogue of game items that can be traded. They have different specifics, environments, ways of implementation, monetisation and distribution. Among others, these are: virtual currencies (gold, diamonds, coins, credits that work analogously to conventional money) and microtransactions (additional intra-game transactions that take place regardless of the starting price of the product).
One of the most interesting virtual “goods” is a skin, that is, an external form of objects and characters, which we can change like clothes. As the so-called “cosmetic items” they do not increase the chances of winning in the game but allow players to express themselves aesthetically. At the same time, they are an example of the most “complete” ecosystem of digital goods: in the case of skins from the most popular games, we are dealing not only with relations at the producer-player level, but also with a fully developed market for exchanges between players.
Skin ecosystem – how does it work and who pays for it?
A great example of monetisation of the popularity of skins are the actions taken by the American computer game manufacturer Valve. As part of its game distribution platform, Steam has launched a space for trading cosmetic goods used, among others, by players in CS:GO.
Skins are created by Valve graphic designers or people unrelated to the manufacturer and published on the Steam Workshop. Players can vote for their favourite skins – the most popular ones are introduced to the game within the next collections.
Skins are placed on the market in the so-called boxes – “opening” a single box costs $2.50. In return, we randomly receive one of the skins contained inside it. Some, however, are rarer than others. We might get a widely available skin worth a few cents or a rare knife worth several hundred dollars.
Skins earned that way can be traded on the Steam Market. Their value is determined by the rate of drop (i.e. how many keys to the boxes we need to statistically acquire in order to get the item) and popularity among players. The price range is huge: from a few cents for the little liked, very common skin for the less frequently used weapons and up to several thousand dollars for a very rare and desirable skin.
The record breaking and most expensive skin – AWP weapon’s skin | Dragon Lore Factory New in the Souvenir version with additional stickers of the two final teams of the Boston Major 2018 gaming tournament and the signature of Tyler “Skadoodle” Latham, the tournament’s best player – cost the buyer $61,000.
Why the desire to spend such money on “non-existent” items? A lot of players spend more time in the game than outside, and the virtual world is governed by similar laws as the real world. Having a rare knife or an AK-47 skin worth $1200 is an element of your status and prestige.
What do system developers get out of this? Valve earns $2.50 for each box opening, plus a 15% commission fee on Steam Market transactions. A cut of the proceeds of the transaction is also transferred to the author of the skin.
I have a skin – what’s next?
Steam retains all funds in your account and does not give you the opportunity to withdraw them – we can only buy more skins or games from Steam’s store for them. Therefore, external platforms come to the rescue, allowing you to trade digital goods outside the official market – this way you can get cash for your skins. Some platforms, such as Skinwallet, give you the opportunity to access obtained funds immediately. Others offer the exchange option, but with the possibility of withdrawing funds. There are also exchange markets for in-game currency and even external auction houses. Listings of skins and items (as well as virtual currency) can also be found on Allegro or OLX.
It is also possible to invest in skins; their properties bring them closer to a stable cryptocurrency. This is related on the one hand to CS:GO’s strong position in the professional gaming market, on the other hand – to technical restrictions in the skins trade (the item cannot be “passed on” for 7 days after each exchange).
Esport and digital goods
The value of digital goods is also influenced by esports, i.e. computer games competitions. The value of a particular skin will increase when a well-known player starts using it – just like in the non-virtual reality, so we have “skin influencers”.
What can also increase the skin’s value are, for example, virtual stickers signed by your favourite teams and players, which can be obtained only during the Majors (official CS:GO Championships). Weapons with such stickers are treated by many players as a real trophy, which also happens to be the object of profitable investments. Example? The prices of the most prestigious stickers of players of the legendary Polish team Virtus.Pro soared after the organisation ended cooperation with them, increasing their market value by about 40%.
Stickers are disposable and cannot be removed from the weapon after applying. For these reasons, they can become a very profitable investment for people familiar with trends and rumours in the world of virtual struggles.
Interestingly, many esports fans invest in stickers to support “their” contestants – players receive a percentage of Valve’s revenue from stickers. It shows how much players are involved in their community.
Join the game
There is an opportunity for profit in digital goods, and skins are an important part of this ecosystem. The labyrinth of nuances, trends and micro-ecosystems can seem overwhelming to someone who has not yet had contact with interactive entertainment. The further development of this market is certain, however, and its value – gigantic (it is estimated that the world’s esports and gaming market is already worth more than the film and music markets combined). So, it’s worth to quickly supplement the knowledge and include gaming in your investment plans.
The article was originally published in Polish on Brief.pl.