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Epic Games under the Disruptive Strategy Lenses: Part 3

12 min readAug 15, 2020


Disclaimer: This is a 4 part analysis I wrote as an assignment for a strategy course. It looks at Epic Games, a game development company, through the disruptive strategy theories of Dr. Clayton Christensen, based on publicly available information.

I decided to share the analysis under the Creative Commons Attribution-NonCommercial-NoDerivatives-4.0 International (CC BY-NC 4.0) license, as a response to recent events (#FreeFortnite), in hopes it could be of use to the company in its efforts to disrupt the gaming industry.

3. Recommendations

Epic Games can be characterized as a high-tier (AAA) sustaining innovation company that is trying to disrupt two markets: a low-tier (indie) market, and a wide new-market of corporate non-consumers (enterprise).

The company should deliberately continue to serve and improve its offering for the latter sustaining innovation market, but also allocate resources to harness emerging opportunities.

The following risks must be addressed by the company’s upper management and CEO:

3.1 Indie Developers risk: Asymmetry Motivation Risks for Unreal Engine

Figure 1: The game industry tiers, and Unreal Engine’s performance surplus in respect to the indie segment.

By focusing on hyper-realistic technological capabilities and high-end partnerships, which is the criteria the AAA high-end industry values, the resource-constrained indie segment may be pushed to switch to “good enough” alternatives.

When indie developers compare Unreal Engine with its competitors with widest adoption, such as Unity, the competitor’s offered experience is seen as “good enough”, due to a simpler interface, low-tier equipment requirements, a larger asset store, and a multilingual beginner developer community. As a response, Unreal Engine has tried to co-opt the market or continue serving upward, as is predicted by the Disruptive Innovation theory. Epic Games may have even evaluated abandoning or co-opting the indie market offering.

The Unreal Engine technological experience may be overserving indie developers, without successfully shortening their learning curve and development period. This poses a performance surplus and an asymmetric motivation risk for Epic Games in the indie games market.

In attempting to disrupt itself as a consequence of the open distribution model, Unity may be able to fly under the radar and capture the low-tier and mid-tier game development markets from Epic Games. The theory suggests Epic Games may be either forced to cede the low-end indie market to Unity, attempt a growth-driven co-option, or attempt a defensive co-option, if a new autonomous business unit is not created.

Risk Mitigation

To mitigate this risk, Epic Games can consider dis-integrating their indie operation to explore emerging opportunities from the ease of use standpoint. An example could be offering a new, simplified engine tailored to low-end indies.

3.2 Indie Developers risk: Asymmetry Motivation Risks for the Epic Store

From the developer’s perspective

Another risk the company may enter into with the indie development segment is steering away from the commercialization aspect of its job to be done.

Epic Games’ processes, resources, and profit formula are historically structured to support the AAA game industry’s efficiency focused job to be done, as opposed to the indies’ job to be done focused on bootstrapped product development and commercialization.

Additional exploration is needed to validate if the Epic Games Store is an effective commercial pathway for indie developers. Beyond paid promotions, it might be important to highlight the artistic aspect of the indie game offering, and evaluate new channels to commercialize indie developments. Moreover, exploring how having indie games alongside AAA games affect indie game visibility may be worthwhile. So far, reactions from developers have been positive due to a lowered anxiety to commercialize games, but additional observation is needed to understand the job to be done behind indie marketplace adoption.

Figure 2: An example of a new indie developer performance criteria for marketplaces, as seen from the Disruption Strategy Lens.

From the player’s perspective

Reactions from end consumers (players) have been mixed regarding the Epic Games Store. A risk of overlooking the players under the assumption that their job to be done is “help me use the platform that’s most comfortable for me to play with my friends” can be detrimental to the company’s long term strategy.

The theories suggest that believing that a strategy which allowed a business to become successful will not always be the one to produce success. In other words, a good strategy is only temporary and will not always lead to growth.

The appearance of many indie marketplaces may indicate that the current commercialization layer in the game sales value stack may be becoming modular. This may also hint that access to game content may become commoditized in the near future, and where money used to be made may not be where future money will be made.

Figure 3: An example of a new player performance criteria for marketplaces in contrast to developer’s performance criteria, as seen from the Disruption Strategy Lens.

Additional observation may be needed to better understand players’ measures of performance, and Epic Games may already be working to address this, but the theory suggests that a new extremely affordable entrant offering low prices, acceptable player experience, and access to high volumes of indie games, or a partnership from incumbents in the industry to make games available across console platforms, could disrupt the Epic Games Store alongside other marketplace competitors.

New “good enough” entrants tailored to the indie player market, that also provide a fair deal for indie developers, as well as broad access platforms, could soon come “from the fringe into the mainstream”.

Risk Mitigation

To mitigate this risk, Epic Games can explore a marketplace strategy into a separate business unit, to ensure appropriate resource allocation, to enable profit formula exploration, and to avoid brand confusion. This will be explained in detail in the course correction section.

3.3 Non-games enterprise risk: Organizing for Innovation

Epic Games’ existing AAA profit formula, resources, and processes could be extrapolated to the non-games endeavor to a point, since both offerings target high-tier customers. However, the enterprise segment has differing jobs to be done relative to the AAA games industry.

Figure 4: The non-game enterprise markets, as seen through the Disruptive Innovation lens.

Success stories related to Epic Games’ high-tier collaborations, such as Disney+’s The Mandalorian using Unreal Engine to streamline their production process, Audi’s digital automotive showrooms and autonomous vehicle training efforts, The Weather Channel’s interactive visualization of hurricanes, and Precision OS’ real-time medical simulations, show that Epic Games may be close to nailing enterprise jobs to be done.

Risk Mitigation

An emerging strategy exploring various opportunities may have proven successful to achieve initial success stories, but the Epic Games enterprise team may be entering an inflection point where it may need to focus towards one or two deliberate strategies.

Epic Games may consider hiring new resources, establishing processes, and exploring profit formulas exclusively for the various enterprise sectors.

3.4 Purpose Brand Dilution and Self Disruption Risks

The Disruptive Strategy theory says a company cannot disrupt itself. At this point in time, the sustaining high-end game industry, the low-end indie developer segment, and the various new-market non-consumer enterprise segment offerings are being served under the same roof.

This poses a brand dilution risk, since customers may be confused about the Epic Games and Unreal Engine brands’ respective purpose.

This is also an organizational risk for the company, as its embedded resources, processes, and profit formula are historically tailored to serve the high-tier AAA gaming industry, and may steer resource allocation processes to serve and fund what is known.

The profit formula dissonance between the low-end indies and high-end AAAs is made apparent by the growth of Epic Games’ direct competitors in the lowest-tier of the indie market.

The mixed reaction to the launch of the Epic Games Store to support indies shows a similar dissonance between the indie developers’ jobs to be done, and the jobs that need to be done for the players.

The unified website, organization, software launcher, and brand umbrella may also create confusion to different segments.

And finally, the compatibility among existing processes and profit formulas which prioritize high-tier customers shows the apparent success of the high-tier enterprise industry strategy, but a single enterprise brand may create confusion in the message provided to these enterprise customer segments.

Risk Mitigation

Creating various business units with limited funding to explore emergent strategies is recommended.

3.5 Course Correction: Dis-integrate into new business units

As the theory of commoditization would suggest, the floor of an industry may shift, when its performance defining component changes over time. This forces a company to shift its offering to where the money will be made.

A highly integrated strategy has been successful for Epic Games in the past. However, as new entrants come into the mix and game development engines become commoditized, this forward integration overhead may prove a hindrance to their competitive capacity in multiple markets. Given that nowadays Epic Games serves various customer segments, dis-integrating the company to tailor each segment’s job to be done may be necessary.

Consider dis-integration around jobs to be done for each market segment

Modularizing each unit described in this analysis (indies, AAA games, various enterprise segments) by job to be done is recommended as the main course correction. These business units should be initially funded with “good money”, with an expectation to generate profits instead of rapid growth. Once a business unit has received consistent feedback from customers that it has found and nailed a job to be done successfully, as may be the case for some enterprise sectors, then money can be injected into those units for rapid growth.

Creating new business units by industry sector (e.g. indies, architecture, automotive, film) or by job to be done (e.g. game commercialization, immersive experience deployment, hyper-realistic pipeline optimization), the company will break the good money, bad money cycle of deliberately investing on growth without a clear purpose.

Once the various business units have been created and the decoupling point for each value stack has been defined, a customer experience can be designed for each that ensures nailing each segment’s job to be done. Organizing around jobs to be done provides brand clarity and can steer future technological improvements in the right direction.

By considering the creation of autonomous business units for each of the new customer segments it now services, including indie game developers and the various enterprise industries, Epic Games can add flexibility to its structure, enabling it to respond to changing landscapes and commoditization with modularity and dis-integration.

At present, Epic Games should evaluate if decoupling its game development operation from their Epic Games Store, as well as separating the AAA marketplace from the indie marketplace is worth the effort.

Keep dis-integrated business units separate from the core business

The proposed dis-integrated units should remain separate from the AAA games core business, but should benefit from the core company’s contact base, leadership, and expertise when appropriate.

This will allow the new units to hire new resources, create new processes, and test new profit formulas as emergent strategies to service each market, while not being encumbered with the high-tier AAA licensing and sales company culture. This will also bring clarity to consumers around each unit’s value proposition.

Moving resources from the core business to the new units, or creating these new units under the existing core business structure to tackle market disruption is discouraged.

New resources should be hired directly into the aforementioned new business units. Otherwise, the resource allocation process for these units’ initiatives may start to prioritize opportunities aligned to the AAA incumbent culture.

Purpose brands can be used to separate business units

These jobs to be done, experience, and integration strategy stacks can be finalized with a corresponding purpose brand.

The new business units could be grouped under the already recognized “Epic” or “Unreal” words that already have market recognition.

For the enterprise case, for example, creating “Epic Architecture”, “Epic Automotive”, “Epic Manufacturing”, “Epic Films”, and so forth may be positioned as trademarks to remember when a customer thinks of a job to be done.

Conversely, creating an “Epic Enterprise” business unit created to initially explore modularized enterprise business models could be used if deemed strategic as a kickoff point.

New tools could be developed to serve each enterprise segment’s needs, similar to the Twinmotion offering for architecture.

An “Unreal Indies” purpose brand can be a sound approach to the indie developer segment, while keeping the indie customer experience separate from the AAA customer experience.

Consider forward integration to better serve indies and players

In the future, both the indie and player segments may be at risk of shifting their performance defining components. It is plausible that various end consumer sub segments exist: Indie game consumers could be different from AAA consumers, and may have different and shifting performance-defining components and jobs to be done. The growing Virtual and Augmented Reality markets add complexity to this mix.

The theories suggest that shifts in the marketplace often move above or below the current layer in a value stack..

For players and indies, going up the value stack, a shift could mean that a game portfolio as a service solution, a game streaming service, free games with microtransactions (as is the case for Fortnite), or a free virtual world providing paid or service access to indie experiences, will be possible spaces where money will be made in the future.

Going down the value stack, a new money making opportunity example could be related to blurring the line between players and indies, where consumers can become creators. Either by offering basic development tools inside games, or by means of offering games within a larger immersive experience, conscious integration is required. Fortnite’s Creative Mode and Party Royale are experiments in the right direction.

Modularizing the game consumer experience as a marketplace or a service model may prove beneficial for desired indie visibility and players’ performance criteria, however, each business unit, especially the indie and store units, may need to evaluate forward integration towards a decoupling point.

Understanding each end consumer sub segment’s jobs to be done and its respective causal moment of purchase that leads to the hiring of a game console, marketplace, or competing entertainment platform to acquire games, may be key in improving future game sales gross margins.

Analyzing how online streaming communities such as Twitch and YouTube affect consumers’ causal decisions to hire a game for themselves is also an important factor to account for.

An appendix is included to illustrate these course corrections by means of a hypothetical example applying the theories.

References for Part 3:

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  2. Making the Switch from Unity to Unreal Engine, Unreal engine Online Course, as retrieved on July 4, 2020. URL: https://www.unrealengine.com/en-US/onlinelearning-courses/making-the-switch-from-unity-to-unreal-engine
  3. The Innovator’s Battle Plan, Clayton Christensen, Scott Anthony, and Erik Roth for Harvard Business School (September 6, 2004), as retrieved July 4, 2020. URL: https://hbswk.hbs.edu/item/the-innovators-battle-plan
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