What the Epic Games Store got wrong
Before we dive in, there are two things to note about the Epic Games Store (EGS):
- It’s a way for Epic, a games publisher to leverage its huge install base of Fortnite, into the highly profitable business of games distribution.
- Its biggest competitor in the space is Steam, which is owned and operated by Valve, also a games publisher.
Since its launch, EGS’s strategy has seemingly been pulled out of its Fortnite playbook: give something away for free, and keep people coming back for more. And sell stuff along the way.
To that end, they’ve been pouring money into customer acquisition through offering a free game on the platform every er, fortnight, which people have to login to claim. If those people keep their desktop app running every day (or to actually play any of those free games), they get notified whenever there’s a new free game available. Oh and maybe those people will also take the time to browse and maybe purchase other titles along the way, which in turn further locks them into the ecosystem.
This is nothing new. EA tried the same thing in 2011, launching its Origin digital storefront, curating titles exclusive to their own platform, giving away some titles for free, and then making claims to offer a superior user experience to Steam less than a year later. 8 years on, they’ve done a 180 degree turn and have resumed publishing their own in-house titles on Steam. It’s hard not to read that as a sign of throwing in the towel. Ubisoft has tried the same thing with it’s Uplay digital storefront, but like EA, got caught in the tension between trying to promote its own developed titles over the third-party ones it also offered.
Epic’s big claim is that their store is much a much better proposition than Steam for developers and publishers, giving them a higher cut of every sale (reportedly Steam takes 20–30% of each sale, whereas under the terms of this deal, Epic’s take is 12%). The other thing Epic does, the aspect of this which makes them controversial, is they offer developers funding in exchange for a form of exclusivity. Specifically, that the game will not be made available on Steam (or a couple of other platforms, such as GOG.com) for at least 6 months.
In some respects, this seems like a great deal for some developers- more exposure compared to Steam (as there are far fewer titles on Epic’s platform to compete against compared to Steam) and also higher margins.
Some will point out that it’s hard to develop, publish and market games successfully on platforms like Steam- the competition is simply too fierce. But this is exactly how the market is supposed to work- if there’s a surplus of a good– in this case video games– then the cost of that good must be reduced in order to maintain sales. What Steam (and other digital storefronts) enable first and foremost is zero-cost distribution and effectively infinite (given the Internet) reach. These are the market forces that lead towards the “race to the bottom” economics that mean the most profitable games (and most suited to the widest possible audiences) are given away for free. Like, ironically, Fortnite.
But the focus of on publishers and developers is backwards. No-one “has to” make a video game, and they certainly don’t need to do it with an expectation that it will sell millions of copies and make it’s creators rich beyond imagination. These are businesses after all, not charities, and the expectation that developers are somehow automatically entitled to a share of the multi-billion industry is naive at best (as an aside, there no tangible information on whether it even works, which is even causing some developers to flat out turn Epic down).
However- and here’s the first thing I believe Epic have gotten wrong- in their strategy of putting developers and publishers first, they are putting their customers in a distant second place. Aggregation theory tells us why this is bad:
…no longer do distributors compete based upon exclusive supplier relationships, with consumers/users an afterthought. Instead, suppliers can be commoditized leaving consumers/users as a first order priority. By extension, this means that the most important factor determining success is the user experience: the best distributors/aggregators/market-makers win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle.
The practices that Epic are implementing are definitely not a good deal for customers. Indeed, there have been a number of documented instances of consumer discontent in this regard, ranging in tone from general disappointment earlier in the year, to full-blown (and somewhat extreme) outrage. But an editorial on price watch website Savygamer last year puts the issues into sharp relief:
The three year old Epic store/launcher is remarkably barebones. Comparing directly with Steam, there’s a significant list of missing features, some basic and some more advanced. By releasing exclusively on Epic launcher, these developers are denying their customers access to Steam features such as cloud saves, system-wide controller integration, big picture mode, native Linux support, Proton integration for running Windows games on Linux, family account sharing, robust regional pricing, tech support forums, universal user reviews, information regarding language support on store pages, automated refunds.
Epic is determined to compete in the marketplace by throwing money around, but not, apparently, by trying to build a better product.
It’s not like there’s not opportunity to compete at a product level either. Steam as a product is cumbersome and hard to navigate. Its storefront is crammed full of games of dubious quality, to the point where Valve have invested in machine learning to try and surface games to people. By contrast, EGS is lean, modern and focused. Superficially, this seems like a candidate for classic disruption, right?
Except Epic seem to be repeatedly missing the boat for getting even expected functionality into their app, let alone finding new ways to innovate. Meanwhile, Steam is leveraging its huge catalog and comprehensive feature set ever more successfully, for example its “Remote Play Together” which adds new functionality to games that people already own, (without requiring any investment from the developers).
And here’s the second thing Epic got wrong: in trying to compete directly with Steam, they’re competing against an established userbase, years and years of data that Valve have leveraged to make product decisions, to the point where of course no-one can truly compete on a level playing field. To be disruptive, Epic would have to take aim at an area that provides customer value and that Valve is unable to serve with its priorities and focus.
But even here it seems that Valve is way ahead of them. In July of last year, Valve recognised that its competition in the long term was not Ubisoft, or EA, or even Epic Games. It was a product called Discord. Discord’s thing was that it did chat much better than Steam did, and many people started using both. Discord leveraged that position to try and cut out Steam as the middleman, creating its own store. Valve quickly responded, updating its chat functionality in an effort to make Discord redundant.
This largely seems to have paid off- Discord doesn’t really seem to be pushing the store aspect of its product today (instead promoting a subscription service). One can’t help but wonder though, given its apparently endless pot of cash, why hasn’t Epic tried to do anything to actually understand how to best serve the users they’re so desperate to win.