The History of UGC

User-generated content (UGC) was around long before the term itself was coined, yet it only entered the mainstream in 2005. UGC covers a wide range of digital media on websites like YouTube, Facebook, Twitch, Wikipedia, and video games. Platforms that embrace UGC typically provide a space for open collaboration and flexible licensing agreements to reduce the barriers to content creation and discovery. UGC includes any form of content that is posted by users on online platforms such as images, GIFs, videos, text, music, in-game characters, in-game modifications, etc.

Figure 1: UGC typology

Games that allow players to develop their own game content have come a long way over the years. Many projects are now being built from the ground up as a canvas for players to unleash their imagination and in some cases even generate revenue by participating in a user-created content market.

UGC in Traditional Gaming

The gaming industry is one of the biggest areas of growth for UGC. A Nimdzi report estimates the current size of market for the localization of UGC in the player support area in 2020 between USD 100 and 180 million. It is expected to increase at CAGR of 10% by 2024 while the total revenue generated by the industry sits at USD 134.05 billion and is expected to expand at a CAGR of 12% by the same time. Thus, UGC games still account for a small portion of the whole industry and have a lot of space to grow.

Some of the earliest UGC took the form of ‘Mods’, custom modifications to the in-game mechanics and design of existing games by modifying the software and often distributed through independent methods such as third-party forums. Other than Mods, UGC includes two other categories: ‘Machinima’ is gameplay from existing games being used to create animated content (e.g: cinematics) and ‘Game Creation Systems’, platforms or software provided by gaming studios that enable users to develop and create completely new gameplay content.

Many large companies have reaped the rewards of UGC. The pioneer was Roblox, one of the industry leaders with a UGC-centric business model. Roblox focuses on the development of platforms and tools, leaving the power and freedom for creativity in the hands of the players. Started in 2004, it gradually grew into what it is today; last year alone, Roblox counted over 9.5 million game developers and had 43.2 million daily users who enjoy more than 3 billion hours a month of UGC gameplay. There are now 40 million games built on Roblox. By October 2021, Roblox’s market cap stands at 43.02 billion USD which made it the 450th most valuable company by market cap.

Figure 2: Roblox, industry leader with a UGC-centric business model

Minecraft was the second name to spark the UGC revolution in 2011. As reported by Statista, the game has sold over 238 million copies worldwide by 2021, making it one of the best-selling games of all time along with other iconic games such as Tetris and Grand Theft Auto V. The Minecraft community consists of millions of players who create fantastic and immersive worlds inside the game, a true open world sandbox. Many Minecraft users share their content on the web via YouTube or social media, which creates even more millions of engaged Minecraft users.

Figure 3: Minecraft, one of the best-selling games of all time

The popularity of Roblox and Minecraft can be then attributed to a variety of factors.

• Available on multiple platforms. The two games offer multiple ways to get online and play, such as smartphones, tablets, PC, multiple generations of Xbox, multiple generations of Playstation, etc. which makes it accessible and easy for players to share experiences and bond with friends.

• Platforms for creativity. They give people a creative outlet for their imagination, a tool for people to build and create. It’s great to see all of the fun and exciting content that is constantly added.

• Variety of game modes. Players have access to a plethora of different game modes from the games and other users, which helps keep the game interesting and allows players of all skill levels to enjoy their worlds.

• Strong sense of community. Social interaction is one of the most important aspects of gaming. Roblox and Minecraft offer a massive community of people with whom to interact and play games. It’s a way to make friends, share experiences, bond over similar interests, and go on digital adventures together.

• Diverse target audience. Roblox and Minecraft are easy enough for a child to play, but intricate enough to be enjoyable for young adults and even adults who want to go deeper. They’ve created a game where longtime gamers and first-time players are both able to thrive.

  Fast forward 17 years and it’s almost impossible to avoid UGC. Many other big names have adopted UGC features like Fornite, Star Trek Online, Second Life, The Sims, etc. These days, UGC-based games and platforms can be considered some of the largest digital properties in the world. However, Web2 UGC games could become obsolete due to their limitation to only their individual game universes and the lack of revenue streams for the community of user-creators.

Current issues of Web2 UGC Games

• Content restriction: UGC is powerful. Nonetheless, as much as it may help expand the game universe, it only exists within a single game universe and is restricted not only by the rules of the game it runs on but also by technology, copyright limitations, and other legalities. If a game collapses, all the content built on it vanishes. Also, even the most creative and complex skins and mods are bound to the game studio, with no ownership and little recognition or revenue for the creator.
• IP conflicts: While the game industry has been quick to integrate UGC into their business models and design priorities, they have not shown nearly as much flexibility in their approach to the legal and regulatory dimensions of UGC. UGC is a mainstream market where casual players can produce and distribute their own game content, nevertheless questions and concerns about IP rights and the legal status of UGC, as well as how players‘ rights will be articulated and protected within predominantly corporately-defined virtual game environments, are not yet to be answered. For example, a player created a Pokemon mod for Minecraft and while this wasn’t in breach of Minecraft’s terms of service, Nintendo (who owns the Pokemon IP) took legal action, forcing the mod to be shut down.
• No transparent environment: Fairness and equity are crucial to user content contribution as well as moderation. Creators should be fairly compensated based on the success of their efforts, and rules should be fairly applied. Every user should be subjected to the same level of moderation. A clear, concise, and accessible set of guidelines should communicate to all users how they are expected to interact with the tools on the platform and with others, but is lacking in many projects.
• Poor revenue distribution: The money and revenue generated around gaming economies in Web2 games are highly centralized around the game publisher or the platform owner. There is clearly a great imbalance in money flows, whereby income and revenue are unevenly distributed among players and users that generate value for the games, considering how huge the communities around some games are.
• No incentive: UGC sits at the intersection of the gig and passion economies. In most cases, it is brought into being solely because of an individual’s desire for self-expression. Traditional games do not have a truly open economy that rewards the users who create and contribute value for the project. Typically, they receive nothing in return beyond recognition while the studio reaps all the income. This is how UGC models in Web2 can become exploitative.

Blockchain propels UGC Gaming to a new level

Web3 builds upon the success of Web2. A fundamental feature of Web2 systems is centralization. However, Web3 is considered the next step in the evolution of the internet; by implementing blockchain technology, Web3 applications give people ownership over their data and allow them to monetize it. With Web3, not only will there be user-generated content, but the identity and control of that content will be decentralized and user-generated.

UGC in Web2 gaming is a powerful and popular feature, but the publishers and platform owners have failed to solve the aforementioned problems it now faces. Soon, Web3 blockchain games will unlock the full potential of UGC.

• True ownership: Developers might view UGC as a way to gain free or low-cost creative labor. There needs to be a fair and transparent environment for players and creators to connect and collaborate on projects. Blockchain technology allow creators to truly own and control their content in the form of NFTs. Users can also retain ownership and control of their data and can choose how to use or share it.
• Content development: Web3 will make extended reality (XR) experiences more accessible and prominent. Sandbox games will soon evolve into entire worlds with personal avatars, digital goods and complete experiences, as proven by the explosion of interest and innovation in NFTs. NFT creators can augment and personalize interactive NFTs based on their usage and benefit from content-management systems that are more secure and intuitive.
• Tradability: Any creator can produce (or mint) an NFT of videos, photos, in-game characters, items or any other kind of artwork. These can be traded as assets on an open market which makes monetization significantly easier. NFT markets such as OpenSea, Rarible, and Nifty are opening new distribution channels for creatives and allow them to have complete control of their work by establishing clear copyright rules, transparency of ownership, secure transactions and enforced royalties.
• Virtual world interoperability: As NFTs are stored on blockchain infrastructure, once implemented at scale with deep integration, tokenized items like avatar skins in games, weapons, accessories, characters, or real estate, will allow for seamless transfer of objects between different virtual worlds. This will generate more revenue for original NFT content via royalty fees and reduces the risks of original game bankruptcy that would lead to the death of user content in Web2.
• Economic incentive alignment: Web3 gaming shifts the balance of power and profits from platform operators to platform users. Creators are rewarded for their NFT creations and gameplay efforts in cryptocurrency which can be exchanged for real value. This makes users more engaged and invested in the metaverse of the game, leading to more special and innovative content.
• New revenue, distribution and publishing models: Web3 games with dynamic play-to-earn mechanics will distribute the revenue generated within the game among gamers much more evenly. Some gamers work harder than others and will be rewarded for their efforts. This could also lead to higher levels of engagement. Players are directly incentivized to play for the long term, grind for rewards, and contribute to the game economy. For example, in Axie Infinity, NFTs can be bought and traded outside the game, and by battling, monsters in the game players will earn SLP tokens which then can be traded for other cryptocurrencies or sold for fiat money.

The concept of owning your assets and earning real value in Web3 game worlds is already built into several blockchain-based metaverse games. The model has been successful for top metaverse games like The Sandbox, Decentraland that focus on providing building opportunities and letting their players create unique 3D venues and experiences.

Figure 4: The Sandbox, the biggest UGC Ethereum-based metaverse and gaming ecosystem

The Sandbox is a community-driven platform where creators can monetize their voxel assets and gaming experiences on the blockchain. The Sandbox offers a comprehensive UGC production experience through three integrated products. Users maintain copyright ownership over their user-created content through smart contracts. There are several ways creators can generate revenue within The Sandbox metaverse, like creating and selling voxel NFT assets, building and monetizing games with the Game Maker, and owning LAND. 88,302 Sandbox NFTs has been sold, there are now 21,136 The Sandbox owners, owning a total supply of 142,084 tokens. And the company has generated a total of USD 7 million by Q4/2021.

While only a limited number of Web3 gaming projects have adopted a UGC-based strategy so far, a number of blockchain games in development have started to add UGC elements into their gameplay including Nyan Heroes, Shrapnel, OccupyWallStreet, ArchLoot, Project Enuule, Chillchat, etc. Given the many advantages both for players and games, eventually the majority of blockchain games may integrate some level of UGC capabilities.

UGC in the Metaverse

User-generated content is already a powerful force in games. It will become even more important as we enter the Web3 / metaverse era. UGC games have huge market potential. We’re going to see a future in which UGC will fully leverage the power of blockchain technology and redefine the concept of GameFi. There will always be a market for more traditional styles of gameplay, but the way in which the market is shifting right now is strongly in favor of those that incorporate UGC.

The metaverse is all about bringing people together. By incentivizing people to create, share their creativity with the world, and connect with other users in ways they otherwise couldn’t, UGC will help make the metaverse a more vibrant and exciting place for everyone.