Loot Boxing as a Model

Co-authored by Michael Zyla.

Often, clients speak to us about monetizing their digital assets and leveraging the open marketplace models to generate new revenues. The gaming industry (the most prominent form of media in the entertainment sector) has always been a beacon for innovation and prototyping of models for incrementally garnering revenues with engaged customers. Think of subscription gaming with MMOs as the beacon for SaaS or game engines as the fundamental early core engine for the monetizable concept of the virtualized Digital Twin environmental technologies. Traditionally, only the initial outlay cost of purchasing the game was the pure form of revenue for these companies. Therefore, new forms of economic uplift were being identified to justify continued development.

More recently and aligned to this, there is a great debate worldwide for the industry in the concept of digital gambling. Loot boxes or crates have created a form of monetization for developers to enhance profitability through digital assets offered to gamers. By looking at the numbers, you can start to understand the actual potential size of this market. Within the last decade, the global microtransaction market has grown to $34.59 Bn in 2021, with a growth rate of 3.6% (The Business Research Company, 2021). The market research suggests that it will soon reach $51.09 Bn with a growth rate of 10% over the next few years. These numbers align with the growth of the broader gaming market, which concurrently is nearing the $200 Bn mark with the rise of digital entertainment spurred throughout the pandemic. As the following diagram depicts, mobile is the driving force for gaming spend and, therefore, the most effective means to facilitate micro-transactions and loot boxes.

Chart 1:

Source: Statista, 2021

While this creates uplifts in overall potential revenue, there is an ethical dilemma on the vulnerability and approaches used to target their audiences. It is therefore essential to remain faithful to the centricity of the customer at the core of the proposition and to encourage ethical business practices. Additionally, customers today are better connected than ever before, and community movements have the potential to radically impact stability and significant releases from these brands, exemplified by EA in the backlash of Battlefront II.

For Telco retailers, the adaptability of digital asset monetization and retail omnichannel engagement offers new possibilities to leverage these learnings. E.g., to compensate for higher volumes of holding mobile handset inventory, a “mystery box” could help move mid-tier brands at a competitive price point. In another form, gamifying the telco’s online store experience creates new touchpoints and engagements with customers, with potential rewards incorporating network added services (NAS), loyalty points, and partner technologies (such as accessories) driving microtransactions to generate significant ARPU (average revenue per user).

Conceptually for cross industries and brand experiences, the emergence and learnings of loot boxing as a new form of mystery selling has created some exciting new business models. From “bundle boxes” at Pet Circle to assorted personalized products from Dollar Shave Club, broader retail has been a strong adopter of this emerging format as a means of generating unique customer propositions.  More broadly, it helps businesses slower-moving inventory by utilizing a discounted bundling offer “$50 for the value of $99” without the price competitiveness drawn by shopping around in the modern hybrid commerce-driven world.

The applicability of loot boxing fundamentals is transferable to various new and emerging business value archetypes. There are many examples of such trends, especially in a digital world where core business propositions transcend traditional industry boundaries.

At Infosys Consulting, we help our clients think big and challenge the status quo in generating new growth by engaging their communities and industry players. As the microtransaction market demonstrates on behalf of gaming, new revenues can be driven from existing monolithic corporations looking to challenge and disrupt their traditional core business.