The legal battle between Epic and Apple has created a lot more heat than light so far, but every now and then some aspects of the case (or at least the various elements of document discovery and filing that occur. currently) manage to leave an illuminating glow in an area we did not know before.
This week, thanks to Apple’s research of the Epic Games Store’s finances, we get a sense of how much money Epic is investing in the company. Spoiler alert: that’s a lot. More than many, in fact, with the company apparently on the verge of burning somewhere just south of $ 600 million on the Epic Games Store by the end of this year. About $ 330 million comes from the money Epic guaranteed developers or publishers in return for exclusivity on the store, and has so far failed to recoup through sales.
These are Apple’s calculations, and obviously Apple and Epic aren’t exactly on the best possible terms right now – but far from disputing those numbers, Epic is treating them like a badge of honor.
The lawsuits will likely have nothing more than buying new boats for a group of lawyers – but by investing hundreds of millions in the Epic Games Store, Sweeney is absolutely right.
Tim Sweeney responded to the numbers report with a happy tweet describing the losses as “a fantastic investment in growing the business,” attaching an infographic showing how much money was spent on the store and how many free games were claimed, among various other stats.
Apple’s legal reasons for digging into what’s going on with the Epic Games Store are pretty clear – Epic’s gaming end, if it wins in its lawsuits against mobile platform operators, would be to expand its market. as an alternative app store on their platform, so the nature of that store and its business model is very obviously of interest to the business.
More generally, however, I think the winds of public opinion have grown increasingly hostile to Epic as its legal battles have spanned months, and the company’s huge losses on the store are seen by. some as further evidence scoffs somewhat – picking fights he cannot hope to win based on an ideological crusade rather than any kind of business savvy, regardless of the potential embarrassment of business partners who might be interested in using its Unreal platform.
Now to be clear, Epic is privately held and as long as its major investors and backers are happy with the way things are going, it doesn’t matter if people on Twitter or commentators on the websites think Tim Sweeney chooses his wrong crusades. That’s true for now, at least; one has to wonder if part of the reason this sort of lofty but almost certainly doomed quest against Apple and Google is currently due to the fact that it’s something the company needs to get out of its system before? to be able to think realistically about an IPO. . Once Epic is a public company, it will be difficult to get away with some savage shenanigans like deliberately removing its highest-grossing game from the platform that provides the lion’s share of its revenue just so it can. engage in a potentially long legal battle. on a point of principle with the largest company in the world.
On the specific point of how much money Epic spends on the Epic Games Store – which could well cost billions before the platform goes dark, even assuming it does happen at some point in the years coming soon – I don’t think the comparison to the company’s other crusade is deserved, let alone the claim that it shows the company is going off the rails in any way. Yes, the chances are good that the lawsuits against Apple and Google will only end up buying nice new boats for a group of lawyers – but on the question of investing hundreds of millions in the Epic Games Store , Sweeney is absolutely right. It’s an investment in growing the business – and at the scale we’re talking about, it’s not even a particularly gigantic investment.
Losing hundreds of millions of dollars when launching a product or platform in an extremely saturated market dominated by one or more major players, is exactly what you need to do from the start if you have the ambition. to compete in this market. There is no “brave start” way to produce a minimum viable product to compete with a platform like Steam; you could potentially take a start-up-style MVP approach to create a niche platform that fulfills a very specific role that Steam does poorly, but in fact, directly competing with Steam for market dominance is far from up. scope of this type of approach.
If the Epic Games Store has a problem, it’s not the amount of money spent
If you’ve got a problem with the way the PC digital distribution market is structured – like Epic is doing – and you’re planning on launching a competing platform to change that, it’ll cost you hundreds of millions. of dollars to get to the point. to even be taken seriously.
The fury over Epic losing so much money – whether it’s $ 330 million on minimum guarantees, $ 600 million by year-end, or whatever multiple of whatever the company hits before starting to revert back to black numbers on the balance sheet – seems to miss how much of a company Epic is. I think there’s still, in some quarters, a feeling of “Whoa, how the hell the little developer that makes some shooter games explode so much money?” – which misses the fact that Epic both releases one of the most successful games in the industry and provides the core technology that powers many more.
The company’s latest roundtable valued it at around $ 28 billion – which isn’t unreasonable given that publicly traded software Unity, its main tech competitor, currently has a market cap that nearly matches. perfectly at that – and Fortnite alone was generating hundreds of millions of dollars in revenue every year, at least until it lost the vast majority of that came from the iOS App Store. If Epic were in fact a public company, it would be considered a large-cap corporation – one of the big ones, by definition (though that definition hasn’t seemed so meaningful since the trillion-dollar companies became. something a few years ago).
Spending a lot of money to navigate tough markets is what big companies do. No one worried about Microsoft’s poor mistreated wallet when it invested money in its efforts to become a player in the game console market. People certainly questioned Apple’s common sense when it became clear that it was planning to compete in the mobile space, but not in general because they feared the company was overspending. silver.
For a recent example, Disney’s efforts to compete with Netflix in the streaming video arena have been largely rewarded with media praise and a rise in the share price from enthusiastic investors – despite the fact that, all Like Epic’s battle with Steam, it will take years and hundreds of millions of dollars before Disney’s streaming ambitions go black.
There is no brave way to enter the console market, the mobile phone market, or the video streaming market on a shoestring budget. The digital game distribution market may not be as high profile, but the business logic is the same.
None of this is to say that Epic necessarily plays all of its cards with the Epic Games Store. Some of her priorities for actually spending the huge amount of money spent in the store certainly seem questionable, given that complaints about the store continuing to lack some fairly basic social and storefront features continue to be common even after so many years. month.
There is a very real danger that the company will perform the customer acquisition part of the market entry process extremely well without first ensuring that it has an effective product to retain customers – this is which would mean in practice that it is offering a bunch of free software products as an incentive without having done the work required to turn recipients of that software into permanent customers.
If the Epic Games Store has a problem, however, it’s not the amount of money spent. The extent of Steam’s dominance in this market demands a gigantic financial commitment from any potential rival, and given that commitment, this is, in fact, the least pipe-dream of Epic’s ongoing battles.
The Epic Games Store still has a lot of work to do if it is to be a serious Steam competitor, let alone meet its larger goal of resetting expectations for profit shares in the industry – but those hundreds of millions dollars are likely to turn out to be a much better long-term investment than Epic’s stupendous outlay in the lawyers’ yacht funds.