Retail

How Fortnite Turned ‘Free’ Into $3B In Profits

How Fortnite Turned 'Free' Into $3B in Profits

Until extremely recently, the word “fortnight” was a fancy way to say “two weeks” – and it wasn’t likely to come up unless one happened to be studying for the SATs.

But in the year 2018, that changed – the word went from being a piece of anachronistic English to a certified cultural phenomenon (albeit spelled a bit differently) that almost no one was anticipating. In fact, the first version of Fortnite, “Save the World,” which challenged players to work cooperatively to fend off zombies by building structures, never quite caught on.

But in September of 2017, Fortnite’s second iteration, “Battle Royale,” hit the web, and went on to spend much of 2018 going viral. The game’s concept is pretty simple: 99 players are dropped into a virtual battleground, at which point they gather weapons and digitally fight to the death until one player is left. That player wins.

As of today, there are an estimated 200 million Fortnite players worldwide, and the game can be played on consoles, PCs and iOS and Android smartphones.

“Fortnite is everywhere because the barrier to entry is so low,” said Jeff Gerstmann, editor-in-chief of Giant Bomb, a video game review site. “It’s available everywhere. Almost anyone can play it on a phone, anywhere they can play games. By virtue of it all over the place and free to play and a very popular type of game in terms of Battle Royale stuff, it’s kind of a perfect storm. It really all came together for them in a big way.”

A big way, and a lucrative way. Epic Games, the developer behind Fortnite, has not released official figures on how much revenue or profit the game has brought in, but according to sources with knowledge of the business, it’s roughly $3 billion.

Note profit – not revenue.

And while that is a staggering figure – $3 billion is more profit than American Express generated in 2017 – it is perhaps unsurprising given the $15 billion valuation Epic Games brought in after its most recent funding round in fall of 2018.

So how did Fortnite do it – and can it keep the party going?

The Magic of Micro-Transactions

Freemium games that make their money via in-game microtransactions are not a new idea –in fact, they’ve become a standard in the era of mobile gaming.

The structures can vary – and in a minute it will become clear why those variations matter – but the common basic structure is downloading a game where the basic play is free, but the player is then offered the opportunity to buy other digital goodies that enhance their experience once they’ve started playing the free version.

Freemium models can generate a lot of revenue, but they do not have a stellar track record when it comes to delighting consumers. The common complaint is that these games are far from free, and actually are designed to coax consumers out of large sums of money over the course of dozens of microtransactions. Those transactions, gamers often complain, don’t merely become expensive overtime, but eventually ruin the playability of the game itself.

The most notable explosion over freemium games and add-on microtransactions blew up about a year ago alongside the debut of EA Games’ Star Wars: Battlefront II, a highly hyped holiday season release that came so loaded down with clunky microtransactions that customers revolted. EA eventually had to unplug the storefront feature entirely, forgoing any in-game transaction revenue, to stem the rising outrage from the video gaming community.

So how did Fortnite manage to sidestep that issue?

Simply stated: The game doesn’t charge players to play or even win – they charge them for looking cool while doing it.

The basic gameplay of Fortnite is the same whether one is playing for free or is investing in game commerce. Every player starts out with a pick-axe as a tool/weapon, and the island is laid out with lots of ammunition and building material so that one can fight their friends all over the world to the death without investing a single dime or ruining their gameplay.

What players can buy with real money are V-bucks – Fortnite’s in-game digital currency – and then put those funds toward enhanced gameplay. Those funds can be put toward Battle Passes, which give players additional in-game challenges and reward opportunities beyond “murder everyone you encounter/build structures to prevent your character from being murdered by everyone you encounter” and which cost between $9.50 and $25. Players can also buy specialty outfits for their characters to wear, usually matched to some ongoing theme within the game itself at that time (superheroes and Halloween costumes have been past themes).

And then there are the emotes.

An emote is – for lack of a better term – a victory dance that one can purchase (or find through gameplay in some cases) to celebrate in the game. One can literally lose hours on YouTube watching Fortnite characters dance, watching real people attempt Fortnite dances or watching entire NFL teams celebrating in the end zone with a Fortnite dance.

Emotes can get expensive – at the bottom end, they run at around $2 apiece, and at the upper end they can cost closer to $8. It’s not a small price if one buys a few emotes – and the game’s $3 billion in profits indicates that people are buying a lot of them. But most reviewers reflect the sentiment of this Forbes reviewer, who noted that because the add-ons don’t really affect essential gameplay, they are more of a boon than a bother.

“Yes, they’re pricey, but they’re also optional and the base game is free, so it’s just hard to find any reason to be mad about the current set-up,” he said.

And given that gamers as a consumer group can always find a reason to be mad, that is high praise indeed.

But can it last?

The Long Term on Fortnite

Entertainment as an area is given to faddishness, and video games perhaps most especially face the problem of fickle consumers. Pokémon Go was on everyone’s phone and was all anyone was talking about – until one day it wasn’t. What was heralded as the beginning of a new era of AR-backed mobile gaming turned out to be more of a blip on the screen, something that consumers liked for a while before moving onto the next thing.

Fortnite could, as many popular gaming ideas before it, flare up and out by the end of 2019. And the firm faces some legal challenges in the next year, as some of the dancers behind the dances featured in the emotes are suing the company, alleging that Epic Games stole their intellectual property by digitizing their moves.

Most legal scholars don’t think those cases will ultimately be successful, because while choreography can be trademarked and owned, individual dance moves usually cannot. But fighting that lawsuit will come with costs – and Fortnite runs the risk of seeing its large wells of goodwill dry up if it seems it is ripping off artists. It will certainly be a challenge.

However, Fortnite has already seemingly figured out a challenge that has bedeviled game developers for some time, by turning game microtransactions into things customers actually like and look forward to being offered, as opposed to things that make them angry and eager to complain. That wasn’t a small challenge, and Fortnite did it well enough that it has gone from a game that no one had ever heard of 24 months ago to one that is reportedly raking in ten-digit profits annually.

That’s a whole lot bigger than Pokémon Go ever was.

And whether or not they can keep that up in 2019 – or overcome their emerging legal challenges – that fact alone probably merits at least one celebratory round of flossing by the Fortnite team this weekend.

——————————–

Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The May 2019 AML/KYC Tracker, provides an in-depth examination of current efforts to stop money laundering, fight fraud and improve customer identity authentication in the financial services space.

TRENDING RIGHT NOW

To Top