Hi [reader‘s name],
You may have noticed that the Epic Games Store gives away free games every single week. As a fellow gaming enthusiast, I know you‘ve probably claimed some of these free titles for your own library.
But how is Epic able to fund this constant stream of free game giveaways? Why are they so committed to providing free games week after week? And is this a sustainable strategy in the long run?
These were all questions on my mind too. So I decided to investigate and learn everything I could about how Epic does free games. In this letter, I‘ll share with you all my key findings. Let‘s dive in!
Overview: The Rise of Epic Games and its Storefront
First, some quick history – Epic Games launched all the way back in 1991 and is the developer behind many iconic games including Fortnite, Gears of War, and Unreal Tournament.
Epic is also the creator of the Unreal Engine, one of the most widely used game engines that powers titles across the entire industry. Licensing Unreal Engine to other game developers is a major source of revenue for the company.
In December 2018, Epic launched its digital PC gaming marketplace called the Epic Games Store. This was their attempt to compete directly against the long-dominant Steam storefront.
Epic‘s store differentiated itself in a couple key ways:
- It only takes 12% revenue share from game sales compared to Steam‘s 30% cut
- It provides free weekly games giveaways, which Steam does not offer
According to Epic‘s CEO Tim Sweeney, their goal with the store is to "[provide] a sustainable storefront for decades to come that provides healthy competition."
And Epic recognized from the start that competing with Steam would be an uphill battle given Steam‘s enormous established user base and library of over 50,000 games.
This led to Epic‘s free games strategy – a way to rapidly acquire new users and encourage them to engage with the Epic Games Store on a regular basis.
The Free Games Program: By the Numbers
Epic‘s free games initiative kicked off in December 2018 alongside the launch of the Epic Games Store itself.
Here are some key stats on how it has grown over time:
- At first, Epic offered 1 free game every 2 weeks
- They increased the cadence to 1 free game every week in June 2019
- In the first 9 months, Epic spent $11.6 million funding free games
- Those early free games drove 5 million new store users in the same period
- To date, Epic has offered over 100 free game titles
- Popular free titles have included GTA V, Borderlands 2, BioShock, Civilization VI
Offering so many free games doesn‘t come cheap. But viewed as a customer acquisition strategy, spending $11.6 million to gain 5 million new users works out to just over $2 per new user. Pretty cheap for acquiring life-long customers!
Epic hopes that once users come for the free games, they‘ll stay to buy full-price titles and bolster the store‘s overall revenues. But what actually enables Epic to fund this user acquisition initiative in the first place?
How Epic Funds These Free Game Promotions
Giving away dozens of free games year after year isn‘t sustainable without substantial funding sources. Here‘s how Epic can afford this:
Fortnite Revenues: As one of the most popular games ever with over $5 billion in revenue, Fortnite single-handedly provides Epic with a huge source of capital.
12% Store Revenue Share: By only taking 12% of sales compared to 30% for Steam, Epic makes less per game but hopes to drive higher overall volume.
Unreal Engine Licensing: Epic makes significant revenue by licensing Unreal Engine to other developers, providing additional capital reserves.
Increased Customer Life Value: Attracting millions of new users to the store provides the opportunity for future game sales and organic growth of the customer base.
So in summary, Fortnite earnings allow Epic to fund loss leaders, while their favorable revenue share attracts publishers to expand the store‘s catalog of games. Free games bring in new users, and Epic ultimately monetizes these users over time as they make other full-price purchases.
It‘s a strategy that costs tens of millions upfront, but the greater risk would be not acquiring customers and allowing Steam‘s dominance to persist unchallenged.
Epic vs. Steam: A Contrast in Storefront Strategies
To fully appreciate Epic‘s free games initiative, it‘s helpful to understand how their store strategy contrasts with leading competitor Steam:
| Epic Games Store | Steam |
|---|---|
| 12% revenue share | 30% default revenue share |
| Free game every week | No comparable free game program |
| 500+ total games | Over 50,000 games |
| Exclusive titles | Very few exclusives |
With over 50,000 games available and 120+ million active users, Steam has enormous scale and network effects that create a huge competitive moat.
Epic is attempting to overcome this with generous revenue sharing, exclusive titles, and – most relevant to our discussion – free games.
Free games help circumvent the classic "chicken and egg" problem for new platforms – how do you attract users without an extensive catalog, while also getting developers to support you without an existing user base?
Epic‘s answer is to use Fortnite money and favorable revenue splits to fund free game promotions. This attracts users quickly despite the smaller overall catalog. And in turn, the growing user base incentivizes more developers to publish on the Epic Games Store.
The Evolution of Game Monetization Models
To really grasp Epic‘s free game strategy, we need to understand some broader shifts that have transformed video game monetization over the past decade.
One-time purchases were the dominant model for decades – you paid $60 upfront and got the complete game. Straightforward and simple.
But two major trends have disrupted this approach:
Free-to-play: Games like Fortnite eliminate the initial purchase barrier and instead monetize through in-game transactions. This can significantly expand the potential player base.
Games as a service: Rather than being static products, games like Destiny 2 are now operated as ongoing "live services" with regular content updates, battle passes, etc.
Combined, these trends have led to games evolving from one-time purchases to services that can monetize players over months and years rather than just at launch.
For Epic, this context helps explain their willingness to give away games for free – essentially using them as loss leaders to attract users into their game service ecosystem.
Rather than focusing solely on maximizing revenue from each individual game transaction, stores like the Epic Games Store make money from customer lifetime value. And free games are an excellent way to get new users in the door to realize that long-term value.
Weighing the Ethics of Free-to-Play and Giveaways
The rise of free games and "games as service" models have raised some ethical concerns that are also relevant when considering Epic‘s practices.
On the positive side, free or low-cost games eliminate financial barriers to access. This allows more people to enjoy gaming as a form of entertainment.
However, some have argued free-to-play games are overly addictive and psychologically manipulative. Game developers leverage techniques straight out of the gambling industry to trigger compulsive in-game spending.
Additionally, while Epic pays developers a lump sum to distribute games temporarily for free, this could negatively impact consumer perceptions of game value. If players grow accustomed to getting games at huge discounts or no cost, it may undermine their willingness to pay full price for new releases.
And if free game promotions don‘t ultimately cultivate a financially healthy user base, it creates challenges for game developers trying to sustain high production budgets for premium titles.
But Epic would likely counter that expanding the potential gaming audience – even if partially through free games – creates a rising tide that ultimately lifts all boats. More players attract more developers which leads to more investment in ambitious, profitable projects.
So while the growth of free games raises some concerns, on the whole Epic seems to view these promotional offers as an investment that will pay dividends for the entire PC gaming ecosystem in the long run.
Epic‘s Grand Ambition: Building a Lasting Game Store Legacy
Looking at the big picture, Epic‘s willingness to burn millions of dollars per year on free game promotions makes sense when you consider their long-term ambition – to be the game store of the future that game developers embrace and players love.
They want the Epic Games Store to be more than just a mercenary operation to maximize short-term profits. Their goal is to build a game marketplace that thrives for decades.
Free games help kickstart this by rapidly attracting millions of users despite Steam‘s daunting head start. From there, Epic can leverage its committed user base and lower revenue-sharing to attract more game launches.
And the resulting growth becomes self-reinforcing. More games bring more users which brings more games, and so on.
But pulling this off required a massive upfront investment – likely over $100 million spent on free games to date.
For Epic, this is absolutely justified if it pays off in the form of stronger competitive positioning, increased user loyalty, and ultimately a bigger share of consumer gaming spend.
In short, free games are one pillar of Epic‘s long-term strategy to compete against Steam and eventually become the dominant digital marketplace for PC gaming. Only time will tell whether this bold bet fully pays off.
But as gamers, for now we might as well enjoy scoring great free titles every week thanks to Epic‘s generosity and forward-thinking game store strategy.
Your friend,
[Your name]