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GameStop goes full Web3

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Good morning! This Monday, GameStop can’t rely on its retail business anymore to prop up its inflated valuation. So what’s next for the company? NFTs of course! I’m Nick Statt, and GameStop and its paltry trade-in values made it my arch nemesis when I was 13.

Steering into the meme

GameStop is getting into the NFT market. The video game retailer wants to set up an online NFT marketplace for game developers to sell their virtual wares, as well as invest in the development of new blockchain-based games through partnerships with existing crypto companies. There are at least 20 employees now working on the effort, The Wall Street Journal reported last week, and GameStop’s stock soared more than 20% on news of the initiative.

If it seems like the death throes of a company that primarily sells software burned onto Blu-Ray discs, that’s an accurate read. GameStop management is very much dealing with an existential crisis around the future of its business, and what it should do with its inflated stock price pumped up roughly one year ago through Reddit memes and retail traders. Crypto, it seems, is the next wave of hype worth riding.

It was almost inevitable that GameStop would go full Web3. Prior to becoming a meme stock target, GameStop was on the express track toward irrelevance. The company had been bleeding money for years, and the COVID-19 pandemic hammered its business further with industry-wide store closures and hits to brick-and-mortar retail.

  • In January 2021, GameStop became the subject of an unprecedented short squeeze that pushed its shares up more than 12,000% from the year prior. The stock hit an all-time intraday high of $483 a share later on Jan. 31, 2021, before falling back down to earth.
  • Despite the momentary craze, and the subsequent SEC investigation, GameStop’s stock price remains far above where it was throughout 2020 and the years prior. That’s given the company the financial means to raise cash and stage a turnaround.
  • Executive shuffles in 2021 have put two former Amazon executives, Matt Furlong and Mike Recupero, in the CEO and CFO roles, respectively, while Chewy co-founder Ryan Cohen became chairman of the board. (It was Cohen’s joining the board that supposedly set off the meme stock gold rush in the first place.)

GameStop can’t rely solely on retail anymore. Though it happened much slower than other media, the majority of video games today are now downloaded over the internet, with a tiny subset of them streamed as you would a Netflix show.

  • GameStop has held for so long because up until recently, a majority of gamers were resisting digital downloads in favor of buying discs they could hold onto indefinitely or resell later. That changed during the pandemic, when the scales tipped in favor of digital downloads from Microsoft, Sony and Nintendo’s online stores and on PC marketplaces.
  • While game makers see better revenue splits on digital platforms, they’re incentivized to support GameStop through the store’s marketing efforts and its ability to reach casual consumers, parents and other demographics. Some of the biggest publishers are also the console makers, and they rely on GameStop to promote and sell new hardware and accessories.
  • GameStop’s profits exist there in the margins, where it sells its PowerUp subscription service and acts as a pillar of the used game market. But sales are shrinking, and GameStop needs new revenue streams.

It’s not clear how crypto will save GameStop. Like so much of the current Web3 and metaverse hype, a lot of it is based on unbuilt technology promising paradigm shifts in online behavior and commerce.

  • NFTs are the big focus right now, with some traditional game makers, like Ubisoft and Zynga, starting to dabble in the space and scores of new startups offering blockchain-based, pay-to-earn experiences.
  • GameStop is also interested in cryptocurrencies, as well as investing in new games with crypto partners, two of which it may sign deals with soon, the WSJ reported. The marketplace is slated to launch later this year, and GameStop is supposed to invest tens of millions into its overall crypto efforts in 2022.
  • GameStop appears to want to act as a middleman as it usually does, offering to sell NFTs for other game makers. But it’s not necessarily obvious that a developer savvy enough to develop its own crypto assets would not either build a store of its own or turn to one of the fast-growing online alternatives, like OpenSea (now valued at $13 billion as of last week).

There is no doubt that a linchpin of the Web3 movement will be gaming, and that many of the building blocks of the metaverse are right now being built out and experimented with by existing online multiplayer games. There is also genuine utility in assigning real-world value to virtual assets, which people spend inordinate amounts of time or money acquiring.

But it’s far from likely that GameStop is going to be the company that figures any of this out, rather than simply riding the coattails of other, more successful players in the blockchain gaming space. Will any of this save GameStop’s retail business? Potentially. But more important is giving investors a mountaintop to point to as the eventual destination.

— Nick Statt (email | twitter)

A MESSAGE FROM MASTERCARD

59 million Americans work outside the traditional employer benefit system - and more and more are moving away from that model as the gig economy grows. People, during the pandemic, are taking a step back and thinking about the traditional job setting and asking: ‘Is this what I want to do?’

Learn more

People are talking

A lot of folks in tech spent the weekend talking about Moxie Marlinspike's take on Web3:

  • "To make these technologies usable, the space is consolidating around… platforms. Again. People who will run servers for you, and iterate on the new functionality that emerges. Infura, OpenSea, Coinbase, Etherscan."

Also, people are getting a thing or two wrong about Web 2.0, Matt Mullenweg said:

  • “People seem to be redefining Web 2.0 as Facebook, etc, that own data, but Web 2.0 at the time was platforms like WordPress, Odeo … that had open data and interoperated.”

Katie Harbath said the Jan. 6 riot played a big role in her decision to leave Facebook:

  • “If I wasn’t going to be able to have impact internally, I needed to go somewhere where I could actually do something.”

Pantera Capital’s Joey Krug doesn’t think Ethereum will be threatened by rivals:

  • “If you roll the clock forward 10 to 20 years, a very sizable percent, maybe even north of 50%, of the world’s financial transactions in some way, shape or form will touch Ethereum.”

Coming this week

PCMA Convening Leaders 2022 started yesterday. The event, which focuses on the business events industry, is taking place in Las Vegas and online and, uh, there's a lot to talk about.

Micromobility World takes place Wednesday. The virtual summit is all about the use of small vehicles like scooters and e-bikes.

Public comment on Meta’s cross-check system ends Friday. The Oversight Board has been reviewing the company’s policy on how it handles posts from high-profile users for a few weeks.

NRF 2022 starts Sunday. The retail conference will feature speakers from companies like IBM and Walmart.

In other news

CES attendance dropped substantially. “Well over” 40,000 people attended the event compared to 171,000 in 2020, and the number of exhibitors nearly halved compared to 2020.

Reddit could IPO as early as March. The company could seek a valuation as high as $15 billion.

Amazon cut its paid leave in half for people who have COVID-19. The company is giving workers one week of paid leave instead of two after the CDC shortened the isolation time for those who test positive for the virus but are asymptomatic.

Meta has a new Privacy Center. The company is giving users guides and controls for privacy topics like shared posts and data collection, and for now it’s only been rolled out to some users using Facebook on a desktop.

Sunny Balwani’s trial was delayed again, this time because of COVID-19 concerns. It’s now set for March.

The European Union wants tech platforms to better address child abuse. The EU is planning a law that would require companies to find, report and remove child sexual abuse.

A few tech leaders are stepping down. Twilio’s Peter Reinhardt is leaving the company, Roku SVP and general manager of platform business Scott Rosenberg will depart, Twitter’s Paul Katsen is stepping back, and Meta comms head John Pinette is heading out.

Michael Aragon is joining Lululemon to lead Mirror and the company’s digital fitness efforts. Aragon was most recently the chief content officer at Twitch.

The blue bubble club

If you’re the one person in a group chat with an Android phone: Yes, you’re being judged.

According to a report by The Wall Street Journal, teens and college students said they feel social pressure to have an Apple device because it’s easier to text in group chats, make FaceTime calls and more. (Google, of course, seized the opportunity to publicly wish for a better way.) The pressure is sometimes so intense that Android users have apologized for having an Android device. That’s one way to keep up the walled garden!

Thoughts, questions, tips? Send them to sourcecode@protocol.com, or our tips line, tips@protocol.com. Enjoy your day, see you tomorrow.

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