Editor's note: Inc. magazine's 2018 Company of the Year is Bird. Here, we spotlight a contender for the title.
The Cary, North Carolina-based gaming studio now valued at $15 billion was founded in 1991 by then- 19-year-old Tim Sweeney. Over the years, its hits have included Gears of War, a third-person shooter video game series, and Jazz Jackrabbit, an early 1990s-era computer game. The company is also behind the Unreal Engine, a 20-year-old software platform widely used by other game developers to build their own creations.
And while its marquee title--a third-person shooter game where characters wearing "skins" dubbed Brite Bomber and Tomatohead fight to the death on the magical island of Athena--should get ample credit for waking the world up to the otherwise sleepy company, there's more going on at Epic than you might think.
"This is a firm that has been very dedicated to its craft for a very, very long period of time," says Brad Twohig, partner at Lightspeed Venture Partners, a San Francisco-based venture capital firm. Epic declined to comment for this article.
Behind the Craze
Epic is well-versed in its trade, says Joost van Dreunen, co-founder of research firm SuperData. The company was quick to capitalize on consumers' growing interest in "battle royale" games like PlayerUnknown's Battlegrounds (PUBG), a popular multiplayer game, which inspired Fortnite's Battle Royale. That 100-player shooter game within the Fortnite environs launched in September 2017. The original, single-player version was released in July 2017.
And despite the similar formats, Fortnite is unique from other multiplayer games on a number of fronts, says Jim Drewry, CEO of Gamer Sensei, a Boston-based e-sports training platform. The game's graphics and design are a lot more cartoon-like than PUBG's serious-looking characters.
Fortnite also cuts across many different "demographic and psychographic lanes" in a way that other games don't, suggests Drewry. "On an absolute basis, there are more people probably playing all the other e-sports games than playing Fortnite," he adds. "But those games don't have the cultural cache, the cross-over value, and the broad appeal necessarily."
Indeed, Fortnite's users are legion. The battle royale version alone has amassed more than 125 million registered users, with nearly 80 million people playing the game every month. In 2018, World Cup soccer players celebrated goals mimicking Fortnite's quirky dance moves, celebrities raved about it on social media, and parents hired Fortnite coaches in hopes of priming their kids for e-sports college scholarships.
Though it is free to play, users can pay to personalize their characters' costumes, known as skins, and weapons with in-game purchases. All told, the multiplayer video game has generated more than $1 billion in revenue across multiple platforms, according to SuperData.
Epic Games is also unique in that it managed to convince Nintendo, Microsoft's Xbox, and Sony's PlayStation--fierce rivals in the gaming industry--to allow interoperability, or cross-platform playing, something that Epic's Sweeney publicly advocated for. "Facebook is only interesting because you can connect with all your friends," he said during a keynote in Berlin last April. "If you could connect only with your friends on iOS, that would suck."
You can play the game on your computer and battle someone who is using a Nintendo Switch, a smartphone, an Xbox, or a PlayStation console. Before Fortnite, "no other games had the clout to actually get the platform holders to all agree to [cross-platform playing]," Drewry says. "Nobody wanted to miss out on [Fortnite], so they changed the rules."
That kind of popularity naturally encourages greater scrutiny. Within months of launching Fornite's Battle Royale mode, the developers of PUBG sued Epic for alleged copyright infringement. The lawsuit, filed in South Korea in May, was dismissed a month later--though it's unclear whether a settlement was reached, Bloomberg reports. The company has also been criticized for its penchant for suing alleged cheaters, some of whom have been minors. TV actor Donald Faison (Scrubs) and rapper 2 Milly have both claimed the company copied their dance moves and used them in the game without giving any credit or compensation to its authors. On Wednesday, 2 Milly filed a lawsuit in California against the company for alleged misappropriation, use and sale of his dance.
Epic's Unreal Growth Engine
Despite all of this attention, the most exciting part of Epic Games' business has nothing to do with Fortnite, suggests SuperData's van Dreunen. Long before Epic's Fortnite fame, the company had created the Unreal Engine, which is a platform used by game developers to build their games. Just as Squarespace lets users create their own websites, developers can use the Unreal Engine as a "technological backbone" for their games. And that's the real money maker, adds van Dreunen, though he declined to make those numbers public.
Epic is also tightlipped about its financial results, though one can extrapolate. Based on publicly available information, the Unreal Engine gives Epic 5 percent of gross revenue from every game that earns more than $3,000 per quarter. In 2017, Sweeney told gaming site Polygon that Unreal developers had earned more than $10 billion in sales globally. The company also makes money from its Unreal Marketplace, where developers can sell and buy different assets, like characters or weapons. This week, the company announced it's also launching its own game store, with an 88/12 revenue share split.
After launching in 1998, the engine itself has become instrumental for developers, says van Dreunen. "In the same way that a painter uses brushes, game designers require tools and engines to make things work, to create this 2-D or 3-D environment," he says.
It's this influence that has investors circling. In October, the company raised $1.25 billion from multiple investors, including private equity firm KKR, and VC firms Kleiner Perkins and Lightspeed Venture Partners. Tencent, the Chinese tech juggernaut, already owns about 40 percent of the business, which it acquired in 2012 for $330 million. Today, Epic is valued at nearly $15 billion, up from an estimated $4.5 billion in May.
Epic's biggest challenge going forward is how to define its future, says Lightspeed's Twohig. He believes Sweeney's business has the potential to become a "next generation media company."
"I keep thinking about this business in terms of how it can really create new types of interactions between users--it's pretty significant," adds Twohig. In early November, Epic surprised users with a worldwide event that momentarily transported every player to a white alternate space. Users loved it. Will the company also pioneer new ways for humans to interact with technology? Maybe so, says Twohig. "I've never seen anything like it."