Fortnite’s success is unparalleled in the gaming industry. Some allege that Epic generated over $3B profit in 2018.¹ But there’s a more important reason that Epic is worth more than you think. It’s because Epic could be on a path to build the first cross-platform, truly scalable metaverse games store.
- In December 2018, Epic released a games store with a 12% commission, undercutting Valve, Apple and Google by 60%.
- Fortnite’s total player count exceeds 200 million across all platforms. That’s about 10% of all gamers worldwide.
- Fortnite saw 10 million concurrent players during the Marshmello concert they hosted last week (a clear departure from the Battle Royale game).
- Fortnite is fully cross-platform — from console to mobile to desktop.
Here’s what I think the next major games store will look like:
- Fully cross-platform: you’ll be able to access the store from PC, console or mobile. Roblox has done an impressive 15-year job of creating the cross-platform games store for kids by combining a game with a game engine.
- Deeply integrated with games: Unity, Epic, and Roblox are building ecosystems of APIs and tools to integrate more deeply into the gaming experience. These engines are building everything from cloud services to ad networks to asset & app marketplaces. Importantly, these engines can provide social and identity tools to support a cross-game social network (remember Facebook games?).
- Identity-driven business model: As cosmetic virtual items continue to evolve, the avatar will play a central role in games. As we’ve seen with Fortnite, League of Legends, and Roblox, cosmetics can be an outsized source of revenue.
Epic can leverage Fortnite to create a highly immersive games store — a Roblox for everyone. Developers will be able to integrate with Fortnite’s social network while using Fortnite’s avatar system to monetize. Avatars and items will exist across games, as well as within the Fortnite metaverse.
Epic’s CEO Tim Sweeney has discussed the prospect of a metaverse from a technical perspective, specifically in the context of VR. But Epic may be able to implement the metaverse today by building a new kind of games store. This would be the origins of a future that hints of Ready Player One.
The challenge Epic faces is that they can only build a desktop games store today. Console and mobile distribution are monopolized by Sony, Microsoft, Apple and (to a lesser extent) Google. Will Epic be able to pull a Roblox and sneak a cross-platform games store onto iOS and console?
¹ I’m skeptical, as a 5x EBITDA multiple would be quite low for a company that owns (a) one of the biggest AAA game engines and (b) the most popular game in the world. For comparison, ATVI and EA trade at 35x and 20x P/E, respectively.
Thanks to Mahmud Din for discussing and reviewing.
