Epic vs. app stores – Heavy metal glove.

Epic throws down the gauntlet to the app stores.

• In another direct challenge to the app stores, Epic has decided to launch its own app store for PCs, which if it gets traction, may end up on mobile in another direct challenge to the existing status-quo in app economics.
• Thanks to the huge success of Fortnite, Epic now has the momentum to have a reasonable chance of challenging the dominance of Steam on PCs and potentially Google Play on Android.
• For developers, Epic’s proposition is extremely interesting as it promises to keep just 12% of the revenue earned by developers selling through its store as opposed to the 30% that Steam charges.
• In a perfectly timed announcement, Steam followed Apple and Google down the discount path cutting its share to 25% between $10 and $50m in revenue and 20% on everything above $50m.
• Of all the challenges to the current status quo where Steam dominates the PC, Google dominates Android and Apple with iOS, this is by far the most credible.
• This is for 2 reasons:
  • First, momentum: Fortnite is currently the hottest thing since sliced bread in the gaming industry and this momentum gives Epic a head-start in terms of getting going.
  • If it exclusively makes Fortnite available through its store (as it is almost certain to (like Android (see here)), then anyone who wants to play the game (almost everyone) will install the store on their device.
  • Once the app store is installed, most of the really heavy lifting has been done and Epic has a good chance to sell other games through its store.
  • Second: Unity: Epic already has a very strong relationship with many developers who use its Unreal Engine to write many of their games.
  • This combined with the much more attractive economics that Epic is offering will allow developers to make more money at lower prices to users.
• Putting this together with the fact that many players are going to download the store anyway to play Fortnite, creates a real opportunity for Epic and a real threat for Steam in my opinion.
• Furthermore, I think that this strategy does not stop at PCs and that Epic has Android squarely in its sights.
• Epic has already pulled Fortnite from Google {Play meaning that anyone who wants to play on Android has to download it independently.
• This creates risk as the user has to enable installations from unknown sources and there are already a large number of fake sites that claim to offer Fortnite but are in-fact offering malware.
• This is a major problem for Epic on Android but one which could be reasonably easily solved by offering its app store on Android.
• However, whether Google would allow this rival app store onto Android remains to be seen and should it fail to make it onto Google Play, then the fake problem is likely to persist.
• I think that this is by far the most serious challenge to the existing app economics status-quo and Epic’s timing is spot on.
• If Epic is successful, this is going to trigger an erosion of the rates that distribution platforms can charge for their services.
• This is not going to affect Google too much because Google Play is a rounding error in its overall financial performance and I don’t think that it makes a very large amount of money from it.
• However, for Valve, this could be catastrophic because its business depends on the current 30:70 revenue split which could now be seriously harmed if it has to follow Epic down the price curve.
• Apple will be insulated from this for now because it can prevent both the Epic app store and non-app store installs of Fortnite.
• Fornite players on iOS also have some advantage in their playing performance thanks to Apple’s software and hardware integration and so they may choose to stick with Apple even at a higher price.
• They key to Epic’s success will be its ability to get developers onto its platform and despite Fortnite’s huge momentum and its existing relationships, this far from given.
• This is yet another example of verticalisation that is occurring in the digital content industry where the distributors are getting squeezed out leaving the content creators and the platform owners will all the money.
• Spotify, Apple Music, Disney, Netflix, ATT & Turner all examples of this trend which is almost certain to continue and gain momentum in 2019.
• It is in these companies I would want to look and I would leave the distributors well alone.