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Independent from the global market, the Japanese blockchain gaming industry is thriving.

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Although the Japanese market has issues with being closed and localized, the development team has distinct characteristics and goals.

Original author: Aiko (Twitter: @0xAikoDai)

Editor's note: The author of this article works at Folius Ventures, focusing on the field of crypto games. The author spent half a month in Japan and deeply felt the vitality of the Japanese BCG (Blockchain Game) market. It is a unique ecosystem independent of the global market and liquidity. The author has summarized his observations below.

IP

Small factories (similar to the NFT IP teams we often see): Japan's entertainment products have a small but hardcore fan base, so it's not surprising that subcultures thrive and flourish, and web3 is also respected as a niche culture.

Millions of comic fans can enter the store for sales, and meme/sticker IP can also start selling peripheral products with tens of thousands of fans. Web3 is only seen as a new means of long-term interaction with fans, but generally lacks scalability. Therefore, it is often seen that IP/character businesses emerge, but it is expected to lack the ability to onboard users on a large scale.

Big companies: All game companies except Nintendo have fallen, and IP animation companies are also gathering together to find opportunities. Even if they use well-known IPs (such as Hatsune Miku NFT), it is just a passing trend. Business leaders of large companies lack understanding of web3, and have no plans for long-term delivery, breaking through the ceiling, and improving conversion rates. In addition, in order not to offend IP fans, big companies will also choose to prepare new IPs for web3 companies or vendors to help them produce and distribute. The ability to globalize and break through boundaries is still uncertain.

There is a blockchain intellectual property committee in Japan, and almost all major IP/animation companies (such as Shueisha) have joined. In the future, there will be a dedicated chain called Sanpō, where all NFTs will be issued, which is very localized.

Product

- Japanese developers can shield themselves from external market interference and focus solely on developing their envisioned web3 product, without being too sensitive to external market conditions. Moreover, the commercial and artisanal spirit of Japan's (the birthplace of Gocha) soil can indeed foster interesting web3 tokenomics and design principles.

- Japanese people are generally pragmatic in their speech and do not overpromise. From the development of blockchain games such as Axie to STEPN, there have been no major scam/rug incidents with local projects, so the social atmosphere is generally positive.

- There are various forms of collaboration in the encryption industry, and it is common to use vendors to develop for oneself. For example, a certain animation company is responsible for the IP, and the CV is handed over to one company, while the development is entrusted to another company. The complex intermediary brings significant risks. Previously, there have also been cases where multiple parties participated in the entire chain from financing platform to production to distribution, but the game could not be successfully launched.

- Medium-sized mobile game developers in-house may be more secure, but there are also cases of riding the web3 concept to pump up the company's stock, or situations where celebrity producers endorse but development capacity cannot keep up. Therefore, there are not many traditional mobile game companies that have succeeded in their business, have a deep understanding of web3, and are willing to fully invest and globalize. Companies with high recognition and suitable for deep cooperation are rare.

- Many of these developers were inspired by STEPN to start their own businesses. Their experience in heavily participating in web3 native products and communities is very helpful for entrepreneurship. Most of the products are similar to trading cards + economic model optimization. It's a bit similar to the various tokenomics optimization projects that appeared at the end of 2021 (such as the Four Great Classical Novels). Personally, I think that most of these projects are not suitable for venture-backed investments. The opportunity lies in (local) CEX because of the strong wealth effect and high trading volume. If you can attract a few users to the exchange, it's still very good.

Marketing

- Japanese consumers are particularly numerous and have a good tolerance for paying for products. Products with exquisite shells naturally have high traffic. As for game categories, some KOLs may have their own preferences (such as preferring card/simulation/leisure games and not being good at competitive games, etc.), but some guilds also have a demand for competitive games (FPS/MOBA/MMO) and hope to have cooperative games with guilds. However, overall, they prefer products with high picture quality and backed by large funds (especially Western VCs).

- It is possible to do massive marketing (advertising) in Japan, and advertising is still more effective than short video apps. The top one or two communities are cooperating with advertisers, and even the boss started doing advertising marketing in web2. In addition, more traditional advertisers are gradually entering the market with their thinking on marketing logic. For example, the most popular GameFi Project XENO is looking for the second KOL of Pokermon Go in the country to promote their product. This person is famous for doing Pokermon Go unboxing live streams, so even though the game looks ordinary, they can keep brainwashing people with advertising until everyone comes to play. Of course, this corresponds to burning funds, but Japan is currently the only market that can and is suitable for large-scale brainwashing-style advertising for consumer apps. Except for casinos, all types of apps can advertise, and some YouTubers cannot promote P2E, but if it is free to play, they can.

Requirement

- Due to language barriers, Japanese teams generally lack overseas capital endorsements and links to the globalized market and exchanges. Local Japanese exchanges are more like traditional listings, focusing more on web2 company architecture and legal affairs, which are unrelated to the design, product, and value of web3, and their liquidity is completely incomparable. Therefore, there will be a small number of teams who truly have ideas about web3 community products and want to go global.

- Further optimization of Web3 tokenomics.

In short, although the Japanese market has some issues with being closed and localized, the development team has distinct characteristics and goals, and the value-add that overseas capital can provide is very clear, with low screening (two-way selection) costs. Moreover, a company with a strong entertainment consumption aesthetic (pure blood two-dimensional), coupled with unique tokenomics and product design thinking, and able to leverage advertising and marketing advantages to capture the huge local consumer market, and then explore the global market, such a team has a very high ceiling and is worth further investigation and cooperation.

Finally, the purpose of this article is to discover first-level investment opportunities. It is impossible to cover all aspects, so the team's guidance in Japan GTM is not included. If you want to learn more about practical methodology, please feel free to DM at any time.