Steam is in a position of power due to Valve’s exclusives, and Epic Games is now trying to fight for PC gaming market share the same way. The Epic Games Store is officially here, and it’s bringing a console war-like mentality to your PC.
That move is going to shake things up in ways that could reach even the PlayStation and Xbox marketplaces. Your gaming PC used to be a relatively peaceful place, with Valve sitting comfortably on top. Epic Games seems willing to go to war.
The Epic Games Store has a fighting chance because of Fortnite
PC gamers didn’t initially install Steam to buy games, they installed Steam to play Half-Life 2. You couldn’t authenticate your retail copy without a Steam account, which was a relatively new idea for 2004.
People were annoyed at the time, but the mandatory Steam installation was a wise move. Soon Valve had a program on the computer of a large percentage of serious players, and was positioned perfectly to grab the majority of digital purchases. It’s been on top ever since. It was a well-timed land grab during an era when few other companies thought it would be necessary to sell their own games online, much less anyone else’s. It took time for Valve to grow Steam into what it has become, but the service was in the right place at the right time. Valve was smart and hungry.
And that head start is the real power of Steam in 2018: The large amount of time it’s had to build up users and offer a huge back catalog of games. It’s an advantage that has seemed impossible to overcome for at least a decade. Everyone has to fight what Steam is today, not what Steam was when it launched.
Until Epic Games moved in, at least.
Fortnite’s own massive success means that a critical mass of players already has the Epic Games launcher on their PC or Mac. It’s launching a store that’s likely to already be on your PC. And first-party exclusives aren’t good things for these digital storefronts to have, they’re absolutely essential at the front end if a developer or publisher wants to compete with Steam.
Think of installing a new service the same way you think about buying a new console: You go through the trouble because there is a game you want to play that you can’t get anywhere else.
The joke these days is that Valve doesn’t make games anymore — which isn’t very accurate — but Steam hasn’t been about Valve exclusives for some time. Its power lies in its number of users, the games they have bought through the service and the number of games being offered.
Epic’s challenge, now that it has those initial numbers and a functional store, is to grow at a steady pace while chipping away at Steam’s dominance. But Epic Games is one of the few companies in gaming that’s already in a position to begin that process.
No one stays on top forever, and it was once silly to imagine that Sony could compete with gaming giants like Nintendo and Sega. Yet here we are.
And this is a console war, even if you don’t see it that way
Valve doesn’t do much to advertise Steam or tout its exclusives because it’s never had to; Steam has always been the de facto leader in digital marketplaces since the early days of buying games online.
Epic Games has done something remarkable in the past few days; it has recontextualized PC gaming to get players to understand that Steam is just one place you can buy games, and Steam doesn’t even have all the games anymore. Heck, the Epic Games Store has a bunch of games that Steam doesn’t! You have options!
Seeing so many Epic Game Store logos pop at the end of trailers without Steam logos right there is the big story out of #ThaGameAwards.
— Mike Futter (@Futterish) December 7, 2018
And that’s the brilliance of how much Epic is pushing the Epic Games Store, compared to Valve’s strategy of just assuming you’re already using Steam and will stay there due to momentum. What used to feel like the status quo now feels like a console war, complete with heavily advertised exclusives and a rush for players.
Installing a new storefront or buying games through one doesn’t feel like buying a new console to the player, because there’s no mandatory initial purchase of new equipment. At the most, it takes a few minutes to download the launcher and set up an account. But for the company behind that storefront, this is absolutely a console war, and Epic Games knows that better than anyone else.
It’s about exclusives, but it’s also about attention. If you play Fortnite, you have an Epic Games account. But if you want to play Journey on the PC, you’re also going to need to get one. The Pathless is another Epic Games Store exclusive. Hades is available now on the Epic Games Store.
This is a console war mentality: Get the best games on your platform, and your platform only, to make sure players spend time and money with you. Once they’re comfortable doing so, they will be your customers for the long haul.
Epic knows that you probably have a large number of Steam games, so the company is giving you a free game every two weeks to fill out your Epic Games Store library and to give you a sense of investment in the platform. Attention and installations are worth more than straight revenue in the early days of an online store — or console, for that matter — which is why Epic Games is making sure it has the exclusives, freebies and deals to get your interest.
It’s not like Valve has any leverage with the developers themselves, since discoverability on Steam has been getting progressively worse and the recently increased revenue share only benefits big-name games. You can’t strong arm anyone who can take their game off your service and march it over to a hungry competitor who is only taking 12 percent of revenue instead of 30 percent.
Which brings us to the following, big picture issue: The Epic Games Store could shake up the literal console wars as well.
The issue of revenue share
Valve takes 30 percent out of each sale on Steam, although it will give developers a bit more these days once revenue reaches the $10 million mark. This is the industry-standard rate when it comes to platforms like iOS or Android, and it’s in the ballpark of what Sony and Microsoft take on their respective platforms. If you’re on someone else’s storefront, this is what you pay.
Epic Games is shaking this up by offering developers 88 percent of their revenue out of the gate, and they’re discussing this openly. Revenue share is often hidden behind non-disclosure agreements, but Epic is drawing a line in the sand. Sell your game through us, and you’ll keep more of your money.
It’s an even better deal if you’re already using the Unreal Engine for your game. “Developers receive 88 percent of revenue,” the company wrote. “There are no tiers or thresholds. Epic takes 12 percent. And if you’re using Unreal Engine, Epic will cover the five percent engine royalty for sales on the Epic Games store, out of Epic’s 12 percent.”
Epic is able to undercut everyone else because it’s a huge, already profitable company that’s operating a scale business. It’s breaking what seemed like a handshake deal between platform holders to take a larger than necessary cut of the revenue. But it will still be profitable.
“The math is quite simple: we pay around 2.5 to 3.5 percent for payment processing for major payment methods, less than 1.5 percent for CDN costs (assuming all games are updated as often as Fortnite), and between 1 and 2 percent for variable operating and customer support costs,” Epic’s Tim Sweeney told Game Informer. “Fixed costs of developing and supporting the platform become negligible at a large scale. In our analysis, stores charging 30 percent are marking up their costs by 300 to 400 percent. But with developers receiving 88 percent of revenue and Epic receiving 12 percent, this store will still be a profitable business for us.”
This is a game changer, and it means other platforms may have to give revenue back to the developers actually making the games if they want to compete. Steam already has.
If I were Valve I would be less concerned with the details of the Epic store right now and instead be wondering why it’s been met with such a largely positive and almost desperate welcome.
— Rob The Red Nosed Reindeer (@retroremakes) December 4, 2018
This means that the Epic Games Store has already been a huge positive for players and developers: The people making the games keep more money, which means more studios have more money to make more games. Your world doesn’t change if Valve continues to reap massive profits from the games it sells, but it might with smaller developers keeping a larger cut of revenue, meaning more games and better working conditions for gaming’s creative class at a small cost to the platform holders.
It’s hard to overestimate how big of a shift this could be in gaming if other platform holders are willing to adjust their share of the revenue. Imagine what will happen to the next generation of consoles if even one other platform holder gives developers a bigger cut of revenue in reaction to Epic Games.
This isn’t a fight Valve was ready for
Valve has never had to compete on that level before, and the current evidence suggests that the company may not know how. Valve hasn’t released a new game that has caught the popular imagination in a long time, and many developers have been unhappy with how much Valve seems to take them for granted.
Valve has given up on curating Steam and instead relies on the players to help the good stuff rise to the surface. This leads to a service that often feels like a dumping ground for low-quality games, where neither the players nor the developers feel like Valve cares about their experience.
The drama unfolding between Epic and Valve is nothing short of fascinating.
•Fortnite leaves Google, proves the model is possible.
•Valve lowers their cut so high sellers don’t jump ship also.
•Epic announces new store, offers better rate.
•Valve releases free BR game.
— (@ryguygames) December 6, 2018
What would an advertisement or promotion for Steam even look like? What could Valve point to that it does better than its competitors? The company suddenly has to worry about these questions, because what used to look like a monopoly now looks like — you guessed it — a console war.
The Epic Games Store is a very big deal
Bringing a console war mentality to PC gaming storefronts is a bold move, and it puts Valve in a defensive position while making Epic Games seem like the rare gaming mega-publisher with a strong sense of vision for the future. And it could be a profitable future for everyone involved.
Steam has almost no curation, while the Epic Games Store has a carefully selected group of games and exclusives. Steam takes 30 percent from smaller devs, while Epic Games is only taking 12 percent. Epic is ready to promote its store like a brand-new option that’s hungry for your money and attention, while Valve has never had to do so.
The new console war has begun, and it’s taking place in an unexpected location: your gaming PC.