Epic Games Case Notes Nick Brown 1. How sustainable is Epic Games’ compe ve advantage in online gaming? To determine if Epic games has a sustained compe ve advantage, the resources of the firm first need to be evaluated. In the case of Epic games, there is strong evidence of financial resources. This can be seen with Epic’s advantage on the Free to Play (F2P) and Microtransac on (MTX) market through the ownership of Fortnite. Fortnite is one of the largest games of all me and has revolu onized the gaming industry. The use of F2P and MTX within Fortnite has forced compe tors into similar strategies while being the driving factor of Epic’s valua on nearly doubling in 4 months. Another area of financial resources for Epic can be seen with the investment backing of Chinese firm Tencent. This financial backing not only brought the firm a large amount of capital for investment, but the partnership also allowed Epic to license Fortnite in China, which contributed heavily to its unprecedented success. In regard to physical resources, Epic’s strongest resource is the con nual licensing of their unreal engine for other developers to use. This asset brings in flat fees as well as royal es, and is one of the only engines available outside of the triple A developers like Ac vision and EA. This asset has also helped Epic expand into industries outside of videogames as companies such as McLaren, Fox Sports, and film companies have used the engine as well. Another physical asset of the firm is the Epic games store which provides compe on into the E-store market against stores like Steam. Epic has put many efforts into growing the store and has proven that, though it will be difficult, it is possible to steal market share from Steam. One more asset the firm posses are their actual games with the largest and most profitable being Fortnite. Fortnite is the biggest game in the world and a massive asset to hold. Fortnite has single handedly put immense pressure onto other firms as well as altered the profitability landscape of gaming. The human capital that Epic possess, lies in the deep experience of their leadership. Their CEO and top brass have been not only with Epic for many years but also in the development and sales side of the video game industry. This exper se is extremely powerful for the firm. On an organiza onal level, Epic has found an asset in the culture of being on the side of developers. By trying to cut costs for developers with the end goal of improving products for users, Epic has delighted the developer community and once more applied pressure to compe tors. Next, the analysis must move to look at the value, rarity, inimitability, and organiza on of the firm. First, the value is abundant and obvious. The combina on of the unreal engine along with the massive hit game Fortnite is enough to make any firm in the industry jealous. This value neutralizes compe on through Fortnite’s dominance, the F2P model, and revolu onary revenue genera on through MTX. The value also comes from exploi ng the advantage of allowing other developers and outside the industry firms to use their engine. The rarity of this firm is evident through the fact that they are the only non-top triple A firm with a great working engine, while also offering developer friendly deals. EA and Ac vision both have spo y records with dealing with developers and do not offer as friendly of deals. Another source of rarity comes from the partnership with Tencent allowing access the Chinese market. The firm’s resources are not inimitable as the unreal engine would take an enormous amount of experience and capital to recreate. Fortnite can also not easily be recreated as though there are many similar compe ng games, none have amassed the customer base and success that Fortnite has. Finally, is it clear that the organiza on has a great capability for u lizing these resources. The leadership of CEO Tim Sweeney has proven very successful, innova ve, and forward thinking. His experience, along with his team’s experience have driven Epic to their heights and prove there is a mindset to keep growing and innova ng. This is evident also through Sweeney’s excitement for the future with interac ve applica ons in film, which could prove to be a lucra ve new fron er. Overall, with extensive resources and a proven track record of u lizing these resources, Epic games has established themselves as a strong leader in the video games industry. Though the industry undergoes rapid changes, this evidence suggests Epic Games has a sustained compe ve advantage. 2. How transferable are the sources of advantage as Epic Games moves into new industries? As seen in the previous analysis of Epic Games, the suitability for moving into new industries is very good. Epic has already begun to test the waters of new industries through opening the licensing of their Unreal Engine. This product has been used by different firms like McLaren, Fox Sports and in film produc on. The prospects of advancing this engine for uses in virtual reality and interac ve applica ons in film has enormous poten al. This interest can be seen from CTO Kim Libreri who stated, “There’s no reason why an animated movie can’t be rendered on demand and generated on your cellphone with your specific preferences…” This innova ve idea, created through advancements in an exis ng product shows the enormous poten al of the Unreal Engine. CEO Tim Sweeney also men oned his long-term vision for the Unreal Engine’s usage in virtual reality saying, “I think it’s a steppingstone to the future of the industry…” The spirit for the innova on of the future by the top brass of the organiza on shows the strong human resource the firm contains. Combining this with the powerful resources of the Unreal Engine and the game Fortnite itself allow for the capability of unprecedented success within the gaming industry. These sources of advantage are very transferable and will help propel Epic Games as they a empt a move into new industries. Notes: Resources: Financial: - Advantage on microtransac on revenue External investment from China, allowed for licensing in China 4 months nearly doubled valua on Physical: - Unreal engine, for other developers to license, also used outside of video games Epic Games Store Fortnite Interac ve applica ons in film Human: - Developers, leadership with years of experience Organiza onal (Culture/structure): - Developer and user focused Capabili es (ability to use resources): - Excellent, firm has played to strengths with Fortnite and Unreal engine Ques on of Value? Yes, neutralizing compe on with Fortnite + exploi ng F2P, MTX. Ques on of Rarity? Yes mostly, immense compe engine. on, does have strength with Fortnite and unreal Inimitability? No, firms cannot create another engine easily, they can implement similar prac ces on specific games though. Organiza on? Yes, heavily developer and user focused, leaning into developer empowerment
