On July 27, 2019, Fortnite celebrated its second birthday by hosting a huge extravaganza, fittingly dubbed as the Fortnite World Cup, and gave away millions of dollars in prizes. (By some accounts, the company gave away over $30 million in prizes). Kyle "Bugha" Giersdorf, a 16-year-old from Pottsgrove, Pennsylvania won $3 million and the bragging rights of becoming Fortnite's first World Cup champion.
Fortnite is a free-to-play video game set in a post-apocalyptic, zombie-infested world. It was created by Tim Sweeney and released through Epic Games Inc. in July 2017. Fortnite has been a huge success, although the game's format is not entirely unique; there is a prevalence of shooter-type games in the industry. There are variations to its free-to-play business model, but everyone can play a fully functional game at no cost.
This free-to-play business model set Fortnite apart from its peers and has proven to be one of the reasons for its success. In its first 10 months, it amassed an audience of 125 million players and netted $1.2 billion in revenue. When the Fortnite App launched on iPhone on April 1, 2018, it reportedly made $2 million a day from players on Apple Inc.'s (AAPL) iOS. While other games have netted $1 billion in the first year after their launch, Fortnite was the first game to generate such a massive amount of revenue as a game that is offered for free by its developer.
Key TakeawaysIn 2019, Fortnite brought in revenues of $1.8 billion, according to data reported by SuperData Research, a Nielsen Company. As of March 2019, the CEO of Epic Games, Tim Sweeney, reported that there were close to 250 million Fortnite players.
Fortnite's Business ModelThere are two games that fall under the Fortnite umbrella: Fortnite: Battle Royale, and a more recent version of the game, called Fortnite: Save the World, which was released in a paid-for early access version in July 2017. Although a free-to-play version was rumored, it has yet to become available. In Fortnite: Battle Royale, 100 players drop onto a storm-torn island and survive, fight, or build their way through a shrinking map in order to be the last one standing.
Fortnite is a multi-platform video game, so it can be played on computers, mobile phones, or consoles, including Sony's (SNE) PS4, Microsoft's (MSFT) Xbox One, and Nintendo's (NTDOY) Switch device. The game is played, watched, and talked about obsessively by teenagers, celebrities, and athletes alike, which is the type of marketing muscle that allows Fortnite to make money, despite being free to play.
While many popular shooting games, such as Activision Blizzard's (ATVI) Call of Duty franchise, attempt to mimic reality with graphic violence, Fortnite sets itself apart with its inclination towards comic mischief and customizable whimsy. Although players are competing for the coveted "Victory Royale," they are also given the option to team up with one another in the "Save the World" version of the game.
Fortnite fans not only can play together, but they can also watch together. On March 14, 2018, a game of Fortnite attracted 630,000 concurrent viewers on Twitch TV, Amazon's YouTube-like service for watching competitive video game streams, shattering the previous record of 388,000. During an October 2019 event hosted by Fortnite, there were more than 7 million concurrent viewers across Twitch, Twitter, and YouTube.
How Does Fortnite Make Money?Ranked by February 2020 earnings, Fortnite was the fourth-highest grossing video game on consoles, according to SuperData Research. So, what is the secret behind Fortnite's success? How have they managed to make money by giving away their product free-of-charge? While most console releases make money from selling a hard copy or digital version of the game itself, Fortnite's revenue comes entirely from microtransactions.
The monetization occurs when the player wants to acquire additions, dubbed "costumes" and "skins," which they have to purchase. While users can continue to play Fortnite for free, a vast majority of players pay for these ancillary products that generate vast amounts of revenue for Epic Games. The game also includes a unique feature called the "Battle Pass," which costs about $9.50 for a quarterly subscription.
Battle Pass generates the bulk of Fortnite's revenue. The quarterly fee gives the purchasing player exclusive access to the game's system updates–like changes to the map and character features–that a free player does not get. Additionally, it allows the player to buy the game additions for a cheaper price than if they were to buy them separately.
In addition, Fortnite players also have the option of spending money on in-game currency, called "V-Bucks," which can be used to make in-game purchases. Although there are special deals that incentivize players to purchase higher quantities of the in-game currency, the exchange rate is roughly one U.S. dollar to 100 V-Bucks.
Players cannot use V-Bucks to buy anything that will actually affect their performance in the game. Instead, the currency is used to purchase cosmetic skins, dances, and pre-released game modes, which range from 200 to 2,000 V-Bucks (or $2 to $20). Many accessories in the Fortnite shop are available on a limited-time basis, prompting players to purchase coveted items before they disappear from the virtual store.
The creators of Fortnite have managed to leverage the concept of exclusivity and merge it with an enjoyable user experience that incorporates a social component. This has proved to be a winning combination. Playing Fortnite for free would be fun for a while, but for many users, whatever sense of accomplishment they get from just playing the game may fade. By purchasing costumes, skins, Battle Passes, and V-Bucks, players can enhance their user experience.
This appears to add to their sense of achievement and compels them to continue playing. For example, once a player purchases a Battle Pass, and is exposed to the extra perquisites that it offers, they are unlikely to go back to playing the free version. Aside from the psychological rewards of experiencing something that is exclusive, the prospect of unlocking more content for their avatar appears to produce enjoyment, and users are willing to continue paying for this.
Has Free-to-Play Impacted the Gaming Industry?Fortnite became a national and global phenomenon so quickly that industry leaders, such as Take-Two Interactive Inc. (TTWO), and Electronic Arts Inc. (EA), have not been able to offer much in the way of competition.
For its game, "Call of Duty: Black Ops 4," the company Blizzard Activision announced the development of a Fortnite-style game mode. While the video game giant appeared to be following in Fortnite's footsteps, it stuck to a familiar business model. Call of Duty was priced at $59.99 and offered in-game purchases. This suggests that many in the analyst community attribute Fortnite's success to its innovative game mode rather than its business model.
So, as long as Fortnite continues to be innovative, then it should continue to experience success. But what happens if that spark of creativity wears out? What if the release of new skins, new dances, and new features does not translate to the expected amount of microtransactions that are the foundation of Fortnite's profitability? Epic Games seems to be wary of just such an outcome and has made efforts to diversify the Fortnite experience in order to stay ahead of its competition.
Key ChallengesAlthough Fortnite has been unbelievably popular over the last few years, there is evidence that the phenomenon is fading somewhat. Notably, viewership for competitive Fortnite games has declined. In addition, data for the highest-earning games in the month of June 2019, released by Superdata, shows a significant drop in Fortnite's profits in relation to both its past performance as well as its competitors.
The key challenge for any product is to keep its existing customer base, while also trying to attract new customers. In the gaming industry, this is especially true given the fickle nature of the players, mostly younger with limited attention spans. The consensus appears to be that Fortnite lacks variety, especially when compared to its main competitors.
While it has slipped, Fortnite is still considered to be a cash cow for Epic Games. Whether it continues to be a consistent moneymaker going forward will largely depend on whether it can be successful in adapting to a quickly changing marketplace. Epic Games has not indicated that it will adopt a more traditional business model.
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