The company behind 'Fortnite' is taking on Apple, Google, and Steam with its next move: a digital storefront for games (AAPL, GOOG, GOOGL)

"
There are more than 200 million registered players in "Fortnite," which means there are more than 200 million Epic Games accounts. That puts Epic on top right from the jump.
Epic is offering an attractive incentive to game makers and publishers: an 88% share of profits, which undercuts the industry standard 70-30 split by 18%.

In September 2017, Epic Games added a new "Battle Royale" mode to "Fortnite" — a low-key, third-person shooter that launched earlier that summer.

In the subsequent 15 months, "Fortnite" has become a household name.

Epic Games says that more than 200 million accounts have been registered in the free game across the many platforms it can be played on; more than 80 million people are playing monthly.

And if you're one of the millions of people playing the game on PC, Mac, or Android, you're already using your Epic Games account with the Epic Games launcher — software created by Epic Games to manage your account and game library. It's a service that's very similar to Apple's App Store, or Google Play, or Valve's Steam. The software keeps games updated, allows you to communicate with friends, and tracks your progress, purchases, and more.

In the near future, the Epic Games launcher is turning into the Epic Games Store.

"Soon we'll launch the Epic Games store," Epic Games CEO Tim Sweeney said in a blog post this week. "The store will launch with a hand-curated set of games on PC and Mac, then it will open up more broadly to other games and to Android and other open platforms throughout 2019."

Make no mistake: This is a direct shot at Apple, Google, and — most directly — video game industry heavyweight Steam.

"V-bucks" are the virtual currency in "Fortnite," which can be earned through play or purchased directly with real money. BusinessInsider

Epic is offering a deal that game makers and publishers cant refuse

If you make video games, either as a developer or publisher or both, you need distribution services like Apple's App Store or Valve's Steam. Not only do these services offer exposure to massive audiences, but they offload the management of a lot of technical stuff.

And for that, the services take a cut: For every game sold on Steam, Valve gets a percentage of that sale price.

The industry average, whether you're on Valve's service or Apple's or Google's, is 30% — a significant cut of the profits. So it's no surprise that when "Fortnite" launched on Android this summer, it didn't go through Google's Play Store.

"The 30% store tax is a high cost in a world where game developers' 70% must cover all the cost of developing, operating, and supporting their games," Epic Games CEO Tim Sweeney told Business Insider earlier this year.

And now, with the Epic Games Store, Sweeney is putting that argument into practice: Epic will take just 12%, well below the standard 30%. "Developers receive 88% of revenue," Sweeney said in the blog post this week. "There are no tiers or thresholds. Epic takes 12%."

The breakdown is pretty stark:

Valve recently moved to a tiered system where it took a lower percentage cut when games sold over a certain profit threshold, thus Sweeney's statement about "no tiers or thresholds." BusinessInsider

In addition to making the most popular game in the world, Epic Games produces the Unreal Engine — a set of tools that developers use to create games. Unreal Engine 4, the latest version, is widely used in the game industry. Everything from "Street Fighter V" to the upcoming "Yoshi" game uses Unreal Engine 4 — and yes, "Fortnite," too.

The Unreal Engine tools are free to use; Epic Games gets a 5% cut of profits from any games created with those tools. But if that same game is sold on the Epic Games Store, Epic will waive the engine fee. That means that for a developer using Unreal Engine 4, the difference between selling a game on Steam and selling a game on the Epic Games Store is a whopping 23% difference in profit.

Those are some pretty strong incentives to sell your game through Epic's storefront rather than those run by Valve or Google. In the case of the PC, that same logic applies to the digital storefront run by Microsoft, the Windows Store.

In the case of Apple's iOS devices, there is no choice but the App Store — Apple outright doesn't allow third-party storefronts on iOS devices. Still, Epic Games pushing back on the industry standard could put pressure on Apple to take a smaller slice from publishers on the App Store. And on the Mac, Apple's storefront is far from the only game in town — anyone playing "Fortnite" on a Mac already has the Epic Games launcher, which will now become the Epic Games Store.

null BusinessInsider

A smart move

The Epic Games Store is a smart, logical move for Epic Games.

The company is already processing millions of digital sales through "Fortnite," and it's already scaled across every game platform. Epic is also in a financial position to take the risk: A recently announced $1.25 billion funding round, in addition to the hundreds of millions in monthly revenue generated by "Fortnite," are enabling Epic to make the risky push from game publisher to platform operator.

Whether game makers and players flock to the Epic Games Store remains to be seen, but Epic is in the rare position to actually give it a shot.

The company behind 'Fortnite' is taking on Apple, Google, and Steam with its next move: a digital storefront for games (AAPL, GOOG, GOOGL)

Epic is offering a deal that game makers and publishers cant refuse

A smart move

Enhance Your Pulse News Experience!

JOIN OUR PULSE COMMUNITY!