Some Sea’s Digital Entertainment charts for housekeeping purpose.
Talking Points in DE
- Fully self-developed game, Free Fire, launched on iOS App Store & Google Play Store on December 4, 2017. Free Fire is a battle royale type of mobile game developed in-house by Garena.
- Daily active user (DAU) from over 130 markets worldwide
- 1Q20: 80m peak DAU
- 4Q19: 60m peak DAU
- 3Q19: m peak DAU (cumulative adjusted revenue reached US$1 Billion)
- 2Q19: m peak DAU
- 1Q19: 50m peak DAU (450m global registered users)
- 4Q18: 40m peak DAU (350m global registered users); (self-dev: 44.5% DE adj rev )
- 3Q18: 27m peak DAU (200m global registered users)
- 2Q18: 16m DAU (in June, self-developed game accounted for 13% DE adj rev)
- 1Q18: 13m DAU
- 4Q17: 6m DAU
- Daily active user (DAU) from over 130 markets worldwide
- Macro Trend
- Smartphone penetration in the region (4Q17)
- Strategic Update
- moving from PC-only to mobile-first
- moving from pure game publishing to both game publishing and development
- expanding from a regional footprint to a global presence (core -> )
- partnership with Tencent (granted a right of first of refusal to publish its mobile and PC games)
- Game publishing:
- 1st party (Free Fire)
- 3rd party – Tencent under right of first refusal agreement such as Tencent’s Speed Drifters and Activision & Tencent Games’ Call of Duty: Mobile
- 3rd party – Others such as PUBG Corporation’s PUBG LITE
- Game development: studio in Shanghai (200+ developers as of 4Q18)
I’ve been procrastinating for a while on the update of early reaction Epic Games’ disruptive pricing on game / app storefront space and the ecosystem approach to the gaming industry.
With more news coming in, I finally decide it’s time to give update as we have seen some development in terms of storefront and ecosystem.
 Two developer / publisher jumped on the bandwagon:
- [1.1] Saber Interactive announced that its upcoming co-op game World War Z will launch as a PC-exclusive on the Epic Games Store. The games was revealed in Epic Games Store’ launch lineup trailer during The Game Award 2018. Saber Interactive’s CEO , Matt Karch, provides rationales behind the decision to put its next major title on Epic Games Store as a PC-exclusive in an article at gamesindustry.biz.
- [1.2] On January 10, 2019, Epic Games released a statement that it’s partnering with Ubisoft to bring Tom Clancy’s The Division 2 to its Epic Games Store and additional select titles to be announced during the coming year.
[1.1 Saber Interactive’s Decision]
Below are few sentences in the article I find interesting:
Saber has already announced that our upcoming co-op game World War Z will launch as a PC-exclusive on the Epic Games Store. (Editor’s note: A Saber representative said Epic is not paying the company or giving it an advance to put World War Z on the store, but “there are incentives for the PC version being released exclusively there versus Steam.”)
Epic Games provides incentives which might be less financially linked for developers to put games on Epic Games Store as exclusive. This is supply side acquisition in addition to attractive pricing probably due to less features or functionalities on the platform which is still in early stage.
Epic is the first company tо have a real chance to break what has amounted to a virtual pricing monopoly by the major digital game distribution platforms.
Discord is also trying building up a game storefront from user side by leveraging the embedded Discord and it provides even more aggressive pricing on supply side. Why was Discord not mentioned here? Are there any distinctive features in Epic Games Store or in the ecosystem that Epic Games is building?
While Steam provides a whole host of services and features that have been built over the years and upon which many developers have relied, the reality is that for many developers these features are unnecessary. Many game makers already provide much of that functionality on their own; in other scenarios, players either don’t need those features or have broadly opted to provide them on their own using third-party services.
Obviously a strong feature set is important for a platform in the broadest sense, but for companies like mine, paying for features we don’t need and that our end users don’t want ultimately means compromises on development and unnecessary costs passed onto consumers.
I understand that some developers of course do need and/or enjoy these features, and for them the new Epic platform might not yet be a viable option.
It seems that STEAM is up-selling distribution with a bunch of services bundled and charging distribution fee of 30% rake. Maybe STEAM can un-bundle those services providing them as add-on and charging a reduced distribution rake for suppliers doesn’t need services. The first problem of un-bundling is pricing. What price tag as a rake STEAM is going to attach on distribution and add-on features. It might create other problems that some developers would ask for refund if they did’t use those services. And when the service is un-bundled, it will become much easier to do comparison between platforms. While Epic Games Store might lack some features and provide features that are less polished as of now, those features are likely to be added to the platform later. If Epic Games Store sticks to 12% rake only, basically those added features will be free for developers. It will be hard for products with price tag to compete with free products. Of course caveat is that those free products are good enough to compete. What do you think Epic Games will do? I expect Epic Game Store would follow product/feature improvement trajectory. It’s just a matter of time that most features on Epic Game Store will be added and good enough for smaller developers to rely on. As Epic Games has abundant resources, it won’t take long time for Epic Games Store to reach a state that its supplementary features can compete with established platform.
Check the following thread:
Epic Games store now supports 30 different regions (130 countries in total) for regional prices. We don’t have local pricing for all the countries yet, but that’s a start.
We use US Dollars for now for most of them because adding regional currencies will take time.
— Sergey Galyonkin (@galyonkin) 2019年1月11日
It’s been noted for years, even by Valve itself, that the state of product visibility and discovery on Steam leaves a lot to be desired, and this often comes at the cost of developers. While Steam has my utmost respect for what it’s achieved in terms of influence and functionality, the sentiment among indies seems to be a growing fear their games will be lost in a rapidly expanding ocean of both legitimate and junk/spam titles. For a competitor to come onto the scene and offer — for a much smaller fee — a curated experience complemented by PR support that helps ensure visibility among players and influencers is huge, even if it doesn’t add up to as impressive a list of features available at launch.
Visibility and discoverability are issues that distribution platform will face when it become more crowded. Not sure what kind of curation the platform will implement. I think Nintendo Switch’s eShop is facing similar issue but I haven’t read news about that recently.
[1.2 Partnership between Epic Games & Ubisoft]
The Division 2 on PC also will be available for purchase online from the Epic Games store and the Ubisoft Store following the release of the game.
“We entrust Epic to deliver a smooth journey for our fans, from preordering the game and enjoying our Beta to the launch of Tom Clancy’s The Division 2 on March 15,” said Chris Early, Vice President of Partnerships. “Epic continues to disrupt the videogame industry, and their third party digital distribution model is the latest example, and something Ubisoft wants to support.”
As I mentioned in my initial analysis: “If this platform can provide benefits similar to operating their own storefronts/launchers while saving fixed costs in operation, probably having in-house distribution channel might be hard to justify economically”, Ubisoft just took the first step to explore how to leverage a lower-priced distribution platform in tandem with its own store. In the short term, integration is required but in the long run the platform might be able to offer modulized features to replace the infrastructure of in-house store.
 Unexpected saga gave Epic Games a opportunity to show its ecosystem commitment:
- Improbable, an UK-based cloud gaming startup, announced that Unity had blocked SpatialOS due to changes in Unity’s terms of service in a blog post on January 10, 2019.
- Improbable then released an update on the event.
- Unity released a response stating that Improbable’s blog post was incorrect and developers can keep working on SpatialOS games.
- [2.1] Later Epic Games and Improbable made an joint announcement that the two companies are establishing a US$ 25M combined fund to help developers transition to more open engines, services, and ecosystems.
- Unity updated their Terms of Service on January 16, 2019 so Improbable is no longer in breach by providing developers a service while SpatialOS is not a supported third-party for Unity.
- Improbable announced that SpatialOS will support Unity long-term on January 17, 2019.
[2.1 Epic Games’ Swift Reaction and its Ecosystem Approach]
This highlights a point: In the ecosystem like Unreal, Unity or Godot, companies live and die by the ground rules that are established. Devs have put years of their lives into building something, and nothing is worse than changing the rules and confiscating their investments.
— Tim Sweeney (@TimSweeneyEpic) 2019年1月10日
No particular comments on this event. However, the new flow shows that Epic Games is prepared to make swift decision with financial resource signaling the market their commitment to ecosystem approach.
It seems positive feedback loops and reflexivity have kicked in and thing will start to gravitate in way favorable to Epic Games master plan. In the perspective of path dependence, these early stage, “small” events in the history all have similar chance to play as determinants in the following development.
~ My related Posts ~
The Wall Street Journal reported that Epic Games will challenge mobile app store business model dominated by Google and Apple. But what factor differentiates Epic Games from incumbents whose network effects are working in this case? The answer is disruptive pricing on the supply side of storefront (12% rake on revenue that apps generate). This is not surprising as Epic Games has already adopted the strategy at its Epic Games Store since December 2018 when it launched the online storefront. Basically gaming online storefront and app store share the similar business model of digital distribution.
— Yui Nausicaa (@yuinausicaa) 2018年12月30日
WSJ also reported that Epic will start selling games (if you can distribute app game, of course you can distribute other apps) for Android devices where the ecosystem is more open (Epic distributes Fortnite at its launcher bypassing Google Play).
So what will Google react to that disruptive pricing? Mostly likely Google will wait and see until it senses that Epic’s storefront has the potential to become de facto app store on Android devices.
Analyst suggests that if Google decides to reduce the rake on Google Play, the move might force Apple to adjust rake on App Store. There might be a chain reaction but this is different from the competition on PC/Mac gaming storefront. Basically the customer bases between iOS and Android are different. The difference will determine whether Apple will follow the move, when to follow, and the magnitude in rake reduction if it follows.
Below is the chart illustrating how Epic Games’ disruptive pricing might impact game digital distribution (and more). Disruptive pricing will have less impact on closed ecosystem in the short term. That said, in the long run, closed ecosystem might be indirect influenced by another open ecosystem (Google Play’s move might have impact on App Store) and a functionality that makes the ecosystem less closed (Epic Games is rolling out cross-platform services in 2019). Enabling cross-platform will commoditize access devices for games potentially playable across platforms. Consoles with special form factors or strong exclusives will face less pressure from cross-platform. This might be the reason why Sony is reluctant to cross platform.
While some industry analysts predict Steam will maintain its game storefront dominance, at least in 2019, my posts on game storefront competition analysis has showed that Epic Games and Discord’s potential to gain market share and disrupt the digital distribution space if they systematically execute strategies in their playbooks. Don’t be surprised if the competition landscape changes much faster than you think.
~ My Related Posts ~