Epic Games Store, behind the numbers
Epic Games Store gave us a glimpse of the past year in its sales revenues and giveaways.
Epic Games Store is a new online video game store that wishes to compete with the popular Steam store. The estimated PC market sales in 2019 stood at $30B, where Stem dominated most of the market with a revenue share of 30%. For every dollar spent in the store, 30 cents go to Steam and 70 cents are paid to the developer.
Epic Games is the developer of the popular battle royale game, Fortnite, and the creator of the successful game engine, Unreal Engine. In December 2018, Epic Games decided to challenge Steam’s hegemony in digital sales, and so they established the Epic Games Store.
Epic earns a tremendous amount of money from Fortnite sales. In 2019, they made an estimated $1.8B. In 2018, they received about $3B. This immense amount of cash convinced them to wage war against Steam by spending money and a lot. They paid developers and publishers to sell their games exclusively in the store and prevent selling the games in other stores such as Steam and GOG. They gave away free games almost every week. Tim Sweeney, Epic Games’ CEO, tweeted that they gave away more than $1000 worth of games to those who claimed all the free games. Epic sold coupons and gave discounts, and most importantly, they cut their share for game sales. If Steam would charge 30 Cents on the Dollar, Epic lowered it to 12%.
After a year, Epic Games revealed the numbers behind the store. They have 108 million registered customers and total revenue of $680m has been spent by PC players. They gave away more than 200 million copies of free games, worth around $1,455.
Tim Sweeney, the CEO, tweeted that Epic Games paid the developers for the giveaway.
I will try and sort out the information and analyze the numbers. Epic Games Store registered 108 million users in the store. It seems very good for a start, but we also know that players of Fortnite must sign up to the store to play Fortnite. It means that we can’t tell how many players signed up to play Fortnite. We don’t know how many PC players play Fortnite, but we do know that there are around 250 million registered Fortnite players. However, we can’t tell how many PC players make up the total count.
Considering that PC digital sales in 2019 were around $30B, we can assume that Epic’s market share was a little above 2%. This is hardly an impressive number, but wait, there’s more. Epic Games gave away more than 200 million copies free of charge to players, and Sweeney ensured that the developers received their fair share of the sale. I cannot tell how much money was transferred to developers; I can only assume. The average price of the free copies that Epic gave away is about $20, but I am going to give Epic Games a bulk discount and assume they paid half for it, at $5 per copy. Epic holds a share of 12%, which leaves us with $4.4 per copy. If they gave away above 200 million copies, this is about $880M in expenses, half of Fortnite’s income in 2019, and all for a market share of a little over 2%.
Unlike Epic Games Store, Steam does not release data about the store. We know for sure that Steam has about a billion registered users and 90 million active users. That is much more than Epic, but they have a few years to their advantage.
Epic games paid more than their market share to get that market share. They spent $880M for revenue of $680M. It could be that they paid less than that to the developers, but that’s highly unlikely since they see themselves as fair brokers. Other than that, Epic gave coupons, sales, and lots of free stuff that add up to the costs.
Now, I am not saying that Epic Games Store is a bad thing; on the contrary, Gamers need that competition as it serves the customers. Epic is fighting one of the biggest monopolies in the gaming industry, but their approach could be or should be different. I cannot estimate what would make it work. I can only say that this method is not generating value and other methods should be considered.
Epic is looking for its next revenue generator. A game store is an excellent idea for the company. Fortnite might be beyond its peak as revenues begin to decline, and the company is looking forward. Xbox game pass has been successful in the past years and has proved that the subscription-based model can get a hold among players. Steam is also aware of that and teamed up with Electronic Arts, which has had a subscription-based store for quite some time now. Epic could be going the same way; creating a vast library that will send players to the application every day can be an excellent achievement. Still, Epic Games Store lacks many essential features and UI features. “Me Too” strategy, a strategy that believes in cutting prices to get a market share tends to fail. People tend to value a brand and soft currency, as well as additional services and features. They sell the product better at a lower price.
It will be interesting to see how Epic Games Store will perform in 2020. How will the clash of the titans continue in the next year?