How to scientifically do User Acquisition in Web3?

Author: Simon, IOSG Ventures

Topics of Discussion

• Why is user acquisition so difficult for Web3 games?

• Will traffic distribution platforms (such as marketplaces, aggregators, and social media) continue to control their user attribution engines? Or will the openness and permissionless nature of Web3 data allow third-party attribution protocols to provide more robust user behavior tracking and analysis?

• What unique attention economy models will Web3 have? What are the gameplay possibilities when combined with advertising?

Part 1: UA for Web3 Games

Traditional game UA/marketing experts should be well-versed in the following calculations:

The 180-day LTV (Life-Time Value) for iOS users is $5, our CAC (Customer Acquisition Cost) on Facebook in North America is $4, and our daily spend is $80k. Mathematically, is this a business that can run a "positive ROI" (Return on Investment)?

Traditional mobile app user acquisition is more of a science than an art, with each step of the process being quantifiable. Marketers and UA experts can input the above information into a long-used spreadsheet and predict the LTV-to-CAC relationship, thereby forecasting whether a mobile app/game's business model is profitable.

However, to acquire users so precisely, we need deep insights into user behavior.

In the context of traditional games, users are relatively easy to identify and understand—they can often be traced back to a specific mobile device. Therefore, even though there may still be some margin of error (for example, a user using multiple devices), we can still link a mobile device to a series of in-game and out-of-game behaviors. This helps UA experts identify which channels these users entered our game from, calculate the ROI for each channel, and adjust their corresponding advertising strategies.

However, in the world of Web3, we cannot take for granted that we can track and attribute user behavior.

While games distributed in traditional ways (app stores, PC gaming platforms, console game stores) enjoy mature data pipelines from traditional distribution channels, publishers fully understand user behavior and preferences, wallet tracking and platform policies pose many challenges for user acquisition in Web3 games.

1. Wallet Attribution

Since Web3 games require wallet connections, game companies need to be able to directly link wallets to specific players. However, in the Web3 world, wallets often do not correspond one-to-one with specific users.

Moreover, the contents of any given wallet can change over time—NFTs and other tokens can be traded in and out at any moment, asset values can fluctuate, and some assets may not even belong to the wallet holder at all. This makes it very difficult to accurately estimate LTV based solely on wallet contents.

Wallets also obscure users' real identities, making it harder to effectively target advertising. Some wallets may not even be operated by humans but by bots or AI. Wallets controlled by bots may even have negative LTV, as bots often act as extractive entities in Web3 games.

Correspondingly, this challenge also provides opportunities for projects like Thirdwave and Slise that focus on wallet profiling. These projects rely on algorithms or manual indexing to organize on-chain information and seek to uncover the user profiles behind wallets, laying a foundation for targeted advertising.

2. Platform Policy

Traditional game distribution platforms have been hesitant and ambiguous about Web3 games due to the revenue-sharing models of Google and Apple. Now, any purchase of NFTs on iOS and Android devices must go through IAP (In-App Purchase), allowing Google and Apple to continue taking their 30% cut while greatly limiting the use cases for NFTs.

While console developers are quietly advancing investments and research in Web3 games, they remain very cautious in their external attitudes.

On the PC side, Steam and Epic have one that is tight-lipped about blockchain and the other that welcomes it with open arms.

Overall, various uncertainties and the lack of distribution infrastructure (including the absence of Web2 distribution infrastructure interfaces and the lack of native Web3 distribution infrastructure) have led many Web3 game projects to choose the easier path—developing web-based games.

Although web-based games adapt to the current level of infrastructure development, the lack of user data accumulation renders the previously mentioned cost-per-install metric useless on the web. Even if users can be identified through wallet tracking, players can easily link or unlink their wallets, making it difficult to determine whether a user has been "acquired" by a particular app or if they simply linked their wallet out of curiosity.

1. If we cannot accurately calculate LTV,
2. If we cannot accurately trace back CAC,
3. Can Web3 really scientifically acquire users?

Not to mention that user acquisition in Web2 has already hit a bottleneck due to Apple's privacy policies, and the cost of acquisition is rising.

Source: Joakim Achren / Twitter

If a Web3 game aims for mass adoption, it will face challenges such as user onboarding, traffic source tracking, LTV tracking, and platform policies. Compared to their Web2 counterparts, which have years of historical UA data and clearly quantifiable standards at every funnel stage, Web3 projects are at an absolute disadvantage.

Therefore, traditional performance marketing is often a poor option for most early-stage, well-capitalized Web3 native projects or those with only minimal Web3 integration.

From the perspective of the traditional gaming industry, these may pose significant challenges for game startups. However, at the same time, Web3 also offers a range of unique, Web3 native user acquisition solutions.

Part 2: Crypto Native Ads Stack

In the world of Web3, using advertising as a business model is always filled with controversy.

For many consumers, advertising often evokes negative associations. Web2 giants leverage vast amounts of user data to present ads in a super-targeted manner, leaving users with little ability to actively choose when faced with ads. On the other hand, most smaller individual creators cannot convert ads into stable income and turn to subscriptions instead.

But objectively, advertising combines the goals of product distribution with stable revenue streams, making it one of the best profit models in business history.

This is why social media giants and search engines subsidize their platforms through advertising, while top content creators earn money from ads on platforms like Substack and Spotify rather than subscriptions.

However, the openness of Web3 breaks the traditional platform business model—this model relies on relatively closed user data and strong user-platform lock-in. We might define the Web3 advertising stack in the context of data openness, with core components including advertisers, advertising protocols, markets, and applications.

Web3 advertising does not have to correspond one-to-one with its Web2 advertising stack. Although all components in the stack are crucial for Web3 native advertising, we can focus on the basic unit of the advertising stack—the advertisement itself.

Potential Web3 Advertising Play

• Assetization of Ads: Turning ads into NFTs, turning referral links into NFTs, or using NFTs as proof of ownership for ad space.

• Token Empowerment: Assetizing user attention, using tokens for trading and empowerment (attention assets: homepage content, storefront homepage).

• On-chain and off-chain integrated targeted advertising: Bridging on-chain and off-chain user profiles.

Assetization of Ads

A while ago, CryptoSlam made some attempts at this form of advertising. CS once sold NFTs that granted owners the rights to banner ad space on their homepage. Each NFT ad corresponded to a specific date for a banner ad on the CryptoSlam homepage.

Taking this idea further, perhaps CryptoSlam could financialize its ads into NFTs and create a secondary market for them, which could provide CS with ongoing royalty income. Platforms or advertising protocols could also enforce ad NFT royalties, requiring buyers to pay royalties to obtain ad placements. Compared to traditional ad sales models, a financialized ad market could better match supply and demand, allowing micro/small advertisers to access suitable ad resources.

In addition to NFT ads, Crypto could achieve more efficient referral programs (Referral, Crypto projects can also utilize tools like [ShareMint], which provide on-chain referral links, dynamically reward referrers, and use tokens for targeted reward programs).

In the music NFT protocol [Sound.xyz], fans can earn 5% of the tokens minted by the creator through their referral links and playlists.

As more user behaviors can be transferred on-chain, it is likely that more incentive programs will emerge to allow referrers to create value at different stages of the product marketing lifecycle.

Token Empowerment

On social/search engines, advertisers pay for extra attention. In Web2, paying for Google ads can help a website rank higher in search results. In Web3, traffic aggregation can utilize tokens as tools to price attention assets.

The NFT art platform SuperRare utilizes its RARE Token in several ways for curation. First, SuperRare Token holders have curation rights, allowing them to decide which entities or individuals can create SuperRare storefronts.

In SuperRare, galleries are valuable attention assets because top galleries can attract more views and higher sales; in a sense, a better gallery equals better ad space.

Furthermore, imagine if users could stake tokens to determine which store appears first on that user's website/market/social application homepage? In this model, curation tokens would become a form of "flow advertising," with a portion of the sales revenue from stores and the SuperRare protocol belonging to token holders.

The interaction between users and advertisers is no longer one-way; users can decide what types of ads they want to see. This could also allow tokens to capture additional value and provide revenue sharing for platform stakeholders.

On-chain and Off-chain Integrated Targeted Advertising

Companies like Slise and Hypelab are building protocols focused on user activity tracking. Simply put, they are trying to link users' Web3 identities with their Web2 identities to piece together a complete user profile.

For example, suppose an NFT Marketplace wants to understand the effectiveness of its marketing campaigns; by using activity tracing protocols, the marketplace can track whether an individual who clicked on a referral link or Twitter ad actually 1) used their protocol and 2) purchased assets through the marketplace.

Currently, few Web3 companies or protocols treat advertising as a business model, but the evolution of this field can be somewhat predictable.

Although the grand vision of a Web3 native, cross-platform Generalized Ads Protocol sounds exciting, the lack of control over content/attention distribution could become a bottleneck for the large-scale application of such protocols.

Conversely, apps or marketplaces that control user distribution and attention may attempt to control their advertising experience for various reasons, and user tracking engines may be acquired by large Socialfi platforms.

But regardless of how the old stories of Web2 repeat in the competitive landscape, this time we can be sure that in the relatively open data environment of Web3, an Attribution Engine that integrates real user profiles can unleash greater potential than its Web2 counterparts. With Web2 AdSense priced at $102 million, what do you think the valuation of a Web3 version of AdSense would be?