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Building the Next "Nintendo": A Brief Discussion on Flow Blockchain and the Open World of Web 3.0

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Building the Next "Nintendo": A Brief Discussion on Flow Blockchain and the Open World of Web 3.0

This article is authorized and reprinted from Badu Huang

When it comes to legends in the gaming industry, Nintendo is definitely a familiar name. Some of its well-known game IPs include "Pokemon GO," "Super Mario," and "Donkey Kong," and Nintendo's "platform business model" is a classic business paradigm.

In this article, I would like to discuss the rise of the blockchain world's public chain Flow and its parent company Dapper Labs by analyzing Nintendo's early business model. I believe they are building the next generation of "Nintendo."

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This article will cover:

  1. The rise of Nintendo and its platform business model
  2. Web 3.0 gaming market — the emergence of an open player community
  3. Similarities between Flow and Nintendo

The Origin of Nintendo

Nintendo was founded in 1889 as a traditional Japanese playing card company, specializing in Hanafuda cards. After World War II, Nintendo transformed Hanafuda cards from being associated with gambling to toys, which resulted in significant sales growth. The company's president at the time, Hiroshi Yamauchi, took this opportunity to start producing toys, leading to substantial business growth for Nintendo in the 1960s and 1970s.

1970s: Rise of Video Game Consoles

In 1972, the American computer company Atari released the popular video game console "Pong", which sparked the video game console market. Nintendo soon entered this competitive market.

Opportunity arose in the 1970s when Mitsubishi Electric approached Nintendo, a company with a history of creating innovative toys. Although Mitsubishi Electric had the capability to produce game console integrated circuits, they lacked the creativity to develop games. Hiroshi Yamauchi eventually accepted the collaboration proposal, and in 1977, they jointly released the home video game console Color TV Game 6.

1980s: Open Third-Party Game Development Brings Expandability to Video Games

In the 1980s, Atari introduced the Atari 2600 home video game console and allowed third-party developers to create and sell game software. The openness of the Atari game console led to the expandability of game software, no longer relying solely on Atari's in-house game development. This move attracted major game developers to join the Atari platform, developing blockbuster games.

From Game Console Manufacturer to Game Platform

As more game developers joined the Atari platform and released games in different styles, players from all directions were attracted. During this time, the concept of a "million player" became the standard for determining killer games. Some of the killer games at that time included:

  1. The large-scale arcade game "STAR RAIDERS," which sold 1 million copies worldwide
  2. Namco's "Pac-Man," which sold 7 million copies globally

The Openness of Games Led to Growth, Speculation, and Decline

However, the flourishing game development also brought many problems. More and more speculative developers sought profits by stealing others' game ideas and quickly replicating them into inferior games, leading to a downturn in the gaming industry in the 1980s. This era is often referred to as the 1983 North American video game industry crash.

Nintendo learned from the market that as a game platform, it should not only focus on the quality of game console hardware but also emphasize the quality of all game software on the platform. This led to the philosophy of "not allowing boring game software to flood the market."

Nintendo's Platform Business Model

In 1980, Nintendo launched the miniaturized home video game console "Game and Watch" with the following market strategy:

1. Promote game consoles at low prices to capture market share

At that time, Nintendo's home video game consoles were priced almost at the production cost, much cheaper than Atari's home video game consoles. The affordable price allowed the miniaturized home video game console "Game and Watch" to sell two million units within a year and a half of its launch.

2. Test Product Market Fit before entering the home game console market

Nintendo first developed high-quality killer games with Product Market Fit. For example, in 1985, Nintendo independently developed the killer game "Super Mario," selling over six million copies.

3. Utilize third-party developers to expand the platform

Nintendo also adopted a platform expansion model that allowed third-party developers to create and sell game software, but with strict licensing and pre-approval of game quality. To prevent the proliferation of inferior game software, game cartridges had to be produced by Nintendo, with a payment of 2000 yen for each cartridge and a minimum order of at least ten thousand units.

In 1989, Nintendo's sales reached 290 billion yen, with a fourfold increase in revenue and profits in just 5 years, ultimately surpassing its rival Atari.

In summary, Nintendo's unprecedented success in the market can be attributed to three key factors:

  1. Having both hardware and software capabilities: Nintendo initially started as a game console manufacturer, but its success came from the ability to develop "killer software" that drove the market, a capability lacking in their competitors like Atari.
  2. Collaborative hardware development: Nintendo's hardware development was not based on independent development or free competitive procurement but on a collaborative "co-development" model with partners. This approach not only preserved their hardware development capabilities but also fostered a shared profit and symbiotic system.
  3. Proactively promoting a successful game ecosystem: Nintendo did not just passively open the platform for third parties to develop games and profit. Instead, they took on a role closer to that of a "coach," leveraging their past success in developing killer games to understand and analyze the gaming market. They then used this knowledge to scrutinize games before they were released on Nintendo consoles, controlling their quality and market strategy, thus driving the success of the entire platform ecosystem of games.

Web 3.0 Game Market — The Rise of Open Player Communities

Next, let's discuss the emerging Web 3.0 game platform model. I highly recommend watching this presentation by Dapper Labs' Lead Game Designer, Richard Pocklington, as it provides an overview of the history of gaming and the evolution of economic models.

Before the Rise of Blockchain Games, the Unidirectional Model

The evolution of game economic models often stems from changes in the hardware "platform." From early game consoles to personal computers, and then to the rise of the internet and mobile phones, player habits and payment models have significantly evolved in response to different platforms.

For example, before the internet's widespread development, the payment model for console and PC games was based on "I must pay to play this game." Players had to buy cartridges or discs and invest in game consoles to start playing, embodying the concept of "user one-time payment."

With the rise of web-based games in the Web 2.0 era, players shifted from single-player games to multiplayer modes, leading to the popularity of "pay-as-you-play online games," with massive multiplayer online role-playing games (MMORPGs) like "World of Warcraft" and "Final Fantasy XI" achieving unprecedented success.

Subsequently, with the rise of mobile phones, players became accustomed to "free" game downloads and engaged in microtransactions within games, also known as "in-game purchases." However, not all players heavily engage in microtransactions for mobile games. As a result, game developers, in pursuit of profit, adopted a pay-to-win game design approach: designing features to cater to the top 10% of heavy spenders (encouraging them to contribute more money) while failing to meet the needs of the remaining 90% of players.

Before the rise of blockchain games, all interactions were predominantly unidirectional. Game data and feature designs were unilaterally controlled by game developers. To survive, developers often only satisfied the top 10% of heavy spenders, failing to cater to the needs of the remaining 90% of players and the broader community.

Web 3.0: The Emergence of Blockchain Games Frees Players from the Unidirectional Model

In blockchain games, players have the flexibility to interact with multiple games using a single account, without the need to create different accounts for each game. This is because games on the same blockchain utilize the same server and database.

The core of each blockchain game lies in smart contracts, which are programs running on the blockchain composed of a set of specific rules. For instance, on the blockchain, what may appear as a cat or an avatar image utilizes smart contract protocols like ERC721, ERC1155, FLOW to issue indivisible non-fungible tokens (NFTs), unique digital assets with characteristics like indivisibility, non-replaceability, and uniqueness within the game.

In these games, players can decide whether or not to interact with these smart contracts to acquire or trade in-game assets. Interestingly, in Web 3.0 blockchain games, players can also control the prices of assets among themselves, unlike traditional mobile games where prices are solely dictated by game developers.

In blockchain games, as assets and NFTs exist natively on the same server and database (the blockchain), players can enjoy a more flexible economic structure and an open community interaction.

The Best Games Should "Satisfy" Their Community and Even Generate Communities

Due to the open-source, open-state nature of blockchain games, all interaction data is stored on the chain, allowing players to directly access it. Player communities can proactively interact with game developers and even develop features themselves to meet community needs without waiting for game developers to take action.

For example, the game Crypto Kitties created by Dapper Labs caused a frenzy in 2017. Each Crypto Kitty was an NFT generated randomly through a smart contract. These digital cats were unique and one-of-a-kind, and because the game was built on the blockchain, players owned their Crypto Kitties entirely. These digital cats could not be duplicated, altered, or destroyed. Many enthusiasts wanted to breed high-value cats, leading to an active community analyzing different cat breeds.

A year after the game's release, community-developed tools and websites analyzing Crypto Kitties breeds included:

Another example is NBA Top Shot, developed by Dapper Labs on the Flow blockchain, a platform for collecting and trading NFT cards of NBA stars. It has amassed over a million users and generated over $700 million in sales in less than a year, creating a robust card collecting community worldwide.

The community surrounding NBA Top Shot has led to various tools and websites initiated by the community:

The community applications around NBA Top Shot have transformed from successful open-source projects into thriving businesses. For example, the Evaluate.market tool, which analyzes NBA Top Shot, raised $1.6 million this year.

Similarities Between Flow and Nintendo

Flow is a public blockchain developed by the Dapper Labs team. If we were to draw a comparison to Nintendo, Flow's current situation is somewhat akin to a Nintendo game console. It serves as a game platform (the foundation) that can onboard various games and applications. Due to its blockchain nature, Flow resembles more of a Web 3.0 Metaverse virtual community platform, where all game assets are no longer confined to a single game server but exist on the Flow Metaverse platform. Players can authentically purchase game assets on this platform and truly own them in their personal accounts.

Currently, in terms of total historical NFT transaction volume, the active foundation (game platform) is not Flow but Ethereum, with nine of the top ten games built on Ethereum. However, Ethereum's native design can lead to network congestion, high fees, poor user experience, and costly interactions for users.

Ethereum's three main alternatives are a redesigned public chain, sidechains, and Layer2 solutions, with Flow being one of the public chain solutions. I have a positive outlook on Flow's position in this race because it fundamentally addresses native issues, allowing developers to adapt to existing development environments without worrying about cross-chain or asynchronous issues between Ethereum's main chain and side chains. It resolves user transaction fee payment issues, enabling game developers to absorb transaction fees. On Flow, transaction fees can be covered by game developers, and users essentially do not have to pay additional fees for each interaction, resulting in a better player experience.

Flow shares similarities with Nintendo's early platform strategy in my view:

1. Team with full-stack development capabilities from foundation to applications

While Nintendo started as a game console manufacturer (hardware) and succeeded by developing "killer software" that could drive the market, Flow, on the other hand, began with the development of the DApp game "Crypto Kitties" on Ethereum. The game's success led to Ethereum's congestion, prompting the team to address blockchain infrastructure issues, eventually resulting in the creation of the Flow blockchain. Ultimately, like Nintendo, Flow has achieved the development and integration capability from the foundation to applications.

2. Before Web 3.0 game development, creating killer games to test Product Market Fit