Some weeks ago I delivered a talk about future trends in the Gaming industry. While I’m not a gambler myself, I’ve always kept a close eye on the gaming industry. eSports have always attracted me due to their potential to upset the entertainment field, and this is specially true of games like Fortnite.
For years I’ve frequently been checking on it and keeping tabs of its evolution from the first tournaments, to the explosion of things like League of Legends or Dota 2.
The disruptive nature of Massively Multiplayer Online Games (MMOG)
The reason why I’ve always found it interesting is that it had all the ingredients to disrupt the market. Most disruptive products exhibit three distinct hallmarks:
- a small or unaddressed target market
- low gross margins
- simple product
For years, Massively Multiplayer Online (MMO) games like World of Warcraft (WoW), have shown their capacity to deliver a product that resonated well with an underserved market segment.
In 2011 WoW peaked at nearly 12.5 million subscribers. At the time many insiders considered it an impressive feat. But in a true disruptive fashion, many outsiders disregarded it as a secondary market.
When it comes to profits, World of Warcraft grossed Blizzard Entertainment something north of 9.23 billion dollars in revenue. This number turned WoW into one of the highest grossing online games in history.
However, if we take their net income and we spread it over 14 year period (Blizzard released WoW in 2004), the game netted a meager 164 million dollars a year on average. Not that it’s a small number, but it’s far from what other entertainment industries achieve. As impressive as it looked for the insiders, most other players kept feeling it was pennies.
As much success World of Warcraft brought Blizzard, it was still seen as a very niche product. While its players were diverse, the game itself was only appealing to a small subset of people.
The Big Picture: If we stitch all three trends, we have a product that connects with an increasing underserved base, that makes a growing amount of money with a technology that’s still limited. In other words, it always bared the mark of disruption all over it.
Enter Fortnite
Fast forward to 2018, and the key name in the gaming space is Fortnite, Epic Game’s blockbuster Massively Multiplayer Online (MMO) game.
By the end of 2018, the game had surpassed the 200 million users mark. While this number is impressive in itself, for me, the most mind-blowing metric is their 8.3 million concurrent users.
Fortnite is, in a way, the disruptive evolution of World of Warcraft. Epic Games turned the seed planted by Blizzard into a massive game that transcends the usual gamer demographic.
The game not only proved a broad appeal but also brought Epic three billion dollars in gross profit. Just in 2018. If we make a rough yearly comparison with World of Warcraft, Fortnite was nearly 20x more profitable.
But maybe, the most striking aspect of Fortnite, isn’t the users, the money or its fame, but the underlying magic, its platform. Creating a virtual world that can sustain such rapid growth and concurrent data load isn’t easy. Fortnite is much more than a game but a modular plug&play platform for entertainment.
“The company invited 125 million people to participate at the same time. Akamai said Fortnite set a game traffic record on its network July 12 with 37 terabytes per second delivered across its platform.”
How Fortnite approaches analytics, cloud to analyze petabytes of game data. ZDNet. Jul. 2018.
What’s next: Epic went all in with Amazon Web Services (AWS) for the Fortnite platform. Among the exciting things is their use of 24 availability zones (out of 58) to provide an optimal experience. In other words, Epic uses 24 data centers all around the globe to keep latency low. As I highlighted in the previous report, 5G will influence this, lowering latency even more and enabling seamless virtual experiences.
Fortnite the Platform
One of the least appreciated aspects of Fortnite is that it’s not just a game. The architecture behind it is closer to a plug&play entertainment marketplace than a game.
Most outsiders only see a shooter game (Battle Royal mode). Nonetheless, Fortnite is a place where people hang out, attend concerts and goof around with their friends.
This week Epic announced the addition of Treasure Hunt maps to the game. Time will say if users pick it up, but that’s beyond the scope. What’s fascinating is Epic’s ability to iterate over different entertainment modes with the flip of a switch. Epic has built a platform, a virtual world that’s becoming sticky for many heterogeneous users. Each player finds a different part of the virtual world appealing.
Why it matters: Such an extensible platform enables the company to try many different things in very short cycles. Being able to deliver new experiences frequently is tantamount to Millennial audiences. It also allows them to offer different simultaneous entertainment modes that go beyond just gaming.
Unification through Cryptocurrency
To date, only Epic has control over what new game modes or ‘mods’ get deployed. So far, it’s the company reaching out to individual partners for collaboration. That will eventually change. If Epic is smart, it will find a way to open up the platform to trusted third parties.
“The vision for competition in Fortnite is to make competitive play broadly available to everyone. This includes more game modes, playstyles, and formats in structured competition. This broadens the scope and definition of competitive Fortnite while also celebrating exceptional talent and a variety of gameplay skills across all of Fortnite’s game modes.”
Competitive Fortnite State of Development – Part 2. Epic Games Blog. Jan 2019.
One of the tools that will help link all the partners around the Fortnite ecosystem will be cryptocurrencies. At the moment, the official in-game currency is called V-bucks and trades at 1,000 V-bucks for 10 dollars.
V-bucks is the one token that’s linking all the different parts of the platform together. As it stands now, the currency is Epic controlled. As they partner with others, there will be an increased pressure to decentralize the currency. That doesn’t mean that the company will lose control of it, but that it will be far easier for others to use it within their ecosystems.
Go Deeper: As the platform grows, matures and provides money for others, the ecosystem around it will also expand. The bigger the ecosystem, the more critical it will be to make sure the whole universe is linked through something in common. That would be a fully blown cryptocurrency for the Fortnite world.
Long-term sustainability
As with any new trend, many are already calling in the death of Fortnite. From a strategic standpoint, it doesn’t matter. What Epic built goes beyond a single game. It’s a new platform. Even if the company loses ground, the idea that gave birth to Fortnite will still stick in the industry. If it’s not Epic Games, others will keep exploiting it.
One of those contenders is Electronic Arts (EA) and their new battle royale game, Apex Legends. While the game is impressive and it introduces exciting twists, it misses the whole point. What makes Fortnite different isn’t the graphics or the gaming mechanics, but its heterogeneous appeal and iterative nature. Apex is a great game, but it will struggle to stick around once gamers have exploited it enough. Meanwhile, Epic still has plenty of avenues to explore with Fortnite and many different combinations to test.
The bottom line: Epic is taking a data-driven, iterative approach. EA is playing the “Me Too” game and improving the feature set. They’ve missed the point behind Epic’s success. It’s not about the game itself, but about the combination of modes, that makes it successful.
“No, I don’t think ‘Apex’ will have a significant impact for ‘Fortnite,” Andrew Uerkwitz, an analyst who covers video games for Oppenheimer & Co., said in an email. “’Apex Legends’ will have longevity as a great shooter but it likely won’t morph into the social fabric of younger players like ‘Fortnite’ did.
“‘Apex Legends’ is a hardcore shooter by design, ‘Fortnite’ is further on the casual spectrum and more of a hangout.”
A competitor to Epic Games’ ‘Fortnite’ gains quick momentum. But will it have staying power?. The Charlotte Observer. March 2019.
Industry Disruption
While online games like Fortnite might feel like a fad, they underline a much more significant trend. We’re moving towards a ubiquitous virtual reality like the one depicted at Ready Player One.
Platforms like Epic’s success are changing our relationship with the entertainment industry. This has important repercussions beyond the gaming industry.
For starters, the next generation’s attention isn’t on Social Networks anymore, but on virtual worlds like Fortnite. Expect a significant development of better and more complex communication tools within the platform. As the attention focus shifts to virtual properties, new types of content will also follow. Marshmellow’s live concert was but one example of this.
Beyond the content aspect, Epic Game is but showing a tiny fraction of what the game could mean for the eSports industry. Gambling, betting and other odds games are already lining up to become part of the nascent Fortnite eSports market. With a sharp decline in traditional betting sports, it seems that eSports is the future of betting.
Business-wise, Fortnite’s is sustained through the trading of virtual goods. As such, the company has no incentive to push intrusive or data-hungry advertising. This is a significant departure from the free-to-use-as-long-as-we-own-all-your-data that Google and Facebook institutionalized. I expect a new wave of new businesses that will place such a model at their center.
Despite Epic’s success, it’s not clear if Fortnite itself will survive a long time or we’ll see other clones taking over. For now, Epic used its success to raise a new 1.25 billion dollar venture round. I wonder what they’ll use that war chest for.
If I had to predict their next move, I would say it involves Virtual Reality in some way. They’ll use the money to further the development around Fortnite, but I would be surprised if they don’t release a VR version of Fortnite in the near future.
In a nutshell, keep a close eye on the space because it’s turning into the next social network silo.
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