Network Effects and Fortnite: How the Free-to-Play Model is Taking Over the Gaming Industry
https://www.pcgamesn.com/fortnite/fortnite-battle-royale-player-numbers
https://www.theverge.com/2016/5/3/11577222/free-to-play-video-games-sales
http://www.espn.com/esports/story/_/id/25092441/fortnite-black-ops-4-pubg-stars-battle-twitchcon
In this class, we have lately been studying the idea of equilibriums in products and services that have what is called a “network effect”. A product that has a network effect is one in which the number of people using the product or service has an effect on how many people are willing to buy or use that product. A good example of a product with network effects is something like Facebook, Instagram, or other social networks. If these products were to have no users, there would be no point in using them. Research into the equilibria of these network effect products has revealed an interesting phenomena: for a product to be successful, it first needs to acquire a minimal amount of users such that it will attract other users. Beyond this “tipping point”, more and more people will use the good thus attracting more and more people. This tipping point effect will continue until the product reaches a new equilibria at a much larger number of users. If a product fails to reach the tipping point, less and less people will continue to use the product until the product has 0 users.
Thus, if you are the creator or seller of such a product, it seems to be in your best interest to try and gain enough users to reach this tipping point as fast as you can and to avoid staying below the tipping point at all costs. One such group of products that experience network effects are that of online video games. The more people that play a multiplayer video game, the more of your friends play that game, the more people you have to play against, and more money can be put back into the game to make it better. If a game is sufficiently large enough, companies can try to turn them into a E-Sport: a competitive league where the best players of the game will compete against each other for glory, fame, and cash prizes. Certain games draw hundreds of thousands of viewers and make the game more and more popular. Thus, for video game creators, it seems that in order for their game to be successful, they have to try and reach the tipping point at all costs. Typically however, video games sell for around $60. This high initial price can make it difficult for game developers to draw large playerbases.
Recently, game developers have begun to use a different, more effective model. Fortnite, the wildly popular Battle Royale game has been downloaded by 125 million players since the game’s release in July of 2017. How did this game get so popular so fast? Besides being a well-made, fun game, Fortnite is entirely free-to-play. Users who want to play Fortnite for the first time don’t have to pay a cent if they just want to play the game. Since there is no cost to play the game, the game was able to amass a very large initial playerbase, well beyond whatever the tipping point equilibrium for the game actually was. With their large playerbase, Fortnite developers Epic Games are able to sell optional cosmetic items in droves. Although the percentage of people who spend their money on these cosmetic items is fairly low, the sheer size of the playerbase allows Epic Games to make hundreds of millions of dollars. On top of that, the Fortnite e-sports scene is growing rapidly and Epic has been able to give away tens of millions of dollars in cash prizes to Fortnite “professionals” who win tournaments. These tournaments then draw in more players and Fortnite continues to grow in size. Through their free-to-play model, Fortnite has made significantly more money than they would have if the game had cost $60. It is likely that this trend will soon be adopted by the entire industry given the success of these free-to-play games.