How blockchain, AI are bridging Web2-Web3 gaming in the region

The global video games market continues to expand. In 2024, it is expected to reach a revenue of $282.30bn, with projections for 2024-2027 estimating that the market will grow at a respectable annual rate of 8.76 per cent.

The projected market volume by 2027 is estimated at $363.20bn and 1.5 billion users, while the global revenue generated by the industry is more significant than that generated by the worldwide music and movie industries combined.

The MENA region is following this trend, with the video games market size in the area expected to grow from $6.32bn in 2024 to $10.69bn by 2029.

Remarkably, at 11.02 per cent, the compounded annual growth rate (CAGR) for the industry in the area is higher than the global average. This is due to the rise in disposable incomes, the penetration of mobile phones and online gaming, and the younger demographic profile of the MENA population.

Gaming industry growing in the UAE

In the UAE in particular, the expansion of the industry is supported by a rising interest from several public and private investors, as well as the abundance of homegrown and global talent available in the region.

However, while still growing, the traditional video game industry is experiencing reduced margins across the board. It’s a mature industry, and as such, change and fresh ideas are needed to combat dynamics that have become obsolete. The industry has to look seriously at the issues bubbling beneath the surface to continue growing.

Traditional ‘free-to-play’ GaaS (games as a service) games, which have dominated in the last decade, are driving less revenue than before because of the combination of a market saturated by new game releases and the increased cost of user acquisition due to the restrictive recent changes to privacy policies.

The decreasing margins are quickly reaching a critical point and are fast becoming a severe threat to the future of the industry.

The change that is so desperately needed will likely come hand in hand with two new technologies: blockchain and AI. Many of the big names in the industry seem to agree.

A recent report published in December 2023 identified that 70 per cent of top gaming studios were investing in Web3 gaming either directly or indirectly. That is a significant share of some of the world’s most prominent players. But what is it about blockchain and AI that makes them such a great fit for video games?

On the one hand, blockchain technology will enable studios to create new, more profitable, and more sustainable business models in video games. This is particularly important because, as we have seen, the traditional Web2 GaaS model is witnessing decreasing margins.

At the same time, we’re experiencing an AI revolution in video games, which will benefit all interested parties.

For the user, AI opens the door to more engaging video games, with AI-driven character animation or natural language processing enabling a more immersive experience.

For developers, AI decreases production costs and enables new, more customized gameplay experiences, as well as enhanced player behavior experiences that can be fed back into the game.

Region well paced to leverage advanced technologies to advance gaming

It’s worth mentioning that the MENA region is particularly well-placed to take advantage of the opportunities that these technologies are bringing to the table.

There has been a growing interest in Web3 games in the area, with the UAE fast emerging as a global blockchain hub. Initiatives like the Dubai Blockchain Strategy and the many government-backed blockchain-related projects currently happening in the area are testament to this.

Globally, the confluence of blockchain and AI will power player engagement features in video games. Popular game elements such as user-generated content (UGC) will receive a boost, and creators will be prompted to build and engage with digital collectibles more than ever before.

Read: The MENA region is poised to be the next big mobile gaming oasis

AI will also catalyse interactions during game-play and fuel social engagement in blockchain marketplaces, for example by allowing players to chat with the digital characters they’ve acquired.

The gaming studios that leverage these new capabilities to their maximum advantage will break free from the limitations of Web2 and encourage players to follow them into Web3, provided that the quality and engagement value of their games are the right ones.

The writer is the co-founder of Games for a Living.