The ongoing Apple-Epic lawsuit brought more interesting facts to light regarding the Epic Game Store and the kind of return on investment Epic saw when it started giving away free games. Data is only available for the first 11 months of 2019, but the company saw a remarkable return on minimal investment in free games per new user gained.
High-profile exclusives and free games both brought new users into the Epic Game Store ecosystem. While the overwhelming majority of free gamers never spent any money, the company successfully converted 7.13 percent of the 18.55 million gamers it attracted to the store via free games into paying customers.
Other documents show that Epic spent approximately $11.6 million to bring more than 5 million new customers to the store (two documents give somewhat different numbers on this point). The lower figure works out to just $2.37 per customer, while the higher is $2.12 per customer.
This is not to imply that Epic wasn’t spending huge amounts of money. It just hasn’t spent that much offering free games, specifically. The company had spent $542B in 2019 and anticipated spending hundreds of millions more in order to secure future exclusivity deals through minimum revenue guarantees, in which Epic agrees to make up the difference between a game’s actual sales revenue and whatever target Epic has agreed to pay.
The company carefully gamed out what its future might look like depending on how Steam chose to compete with the Epic Game Store and how much money Epic decided to plow into minimum revenue guarantees going forward. It predicted between 35-50 percent market share for itself by 2024 (five years beyond 2019, when these documents were written), depending on how Steam chose to react to its presence, or a build to 20 percent followed by a slow decline down to 8 percent if Epic decided to cut back in its active investments. Note that the minimum revenue commitments don’t represent the amount Epic actually spent, but only the amount it had to be ready to spend to anchor its own deals if the Epic Game Store couldn’t drive sales revenue independently.
In that sense, it doesn’t matter if Epic incurred the costs or not. When the company was looking at these figures, it had to consider them from the context that it could wind up on the hook for hundreds of millions of dollars a year in revenue payment to other companies if the store didn’t take off.
Getting the Epic Game Store up and running was by no means cheap and it’s no accident that Epic waited to push this kind of initiative until after Fortnite was released. The fact that the company had to commit to over $500M per year in guaranteed revenue to drive game exclusivity is a sign of just how hard it is to enter these markets in the first place. In the years before the Epic Game Store came to market, the closest thing to a competitor Steam had was either the vendor-specific storefronts like Origin or niche services like GoG. Epic’s court filings shine a light on why. It’s incredibly expensive to play this game. Hat-tip to Ars Technica, where you can find Epic’s entire presentation.
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