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.
- Part 1: Company Backstory
- Part 2: Situational Characterization
- Part 3: Recommendations
- Appendix: Corporate Structure Example Applying the Theories
Appendix A: Corporate Structure Example Applying the Theories
As an example exercise to illustrate the previously described, consider the figure below and how the core and respective business units are modularized around the customer segment’s job to be done.
The core business can remain as the main entity, but three new disaggregated business units are created: one tailored to indie developers, another to target the non-games enterprise sector, and a third one to target indie players (as an example).
Epic Games: The core business, being tailored to the AAA business job to be done, maintains new Unreal Engine releases as a product and continues to run the sustaining business with a deliberate strategy.
- The core business continues to offer top-tier experiences to their AAA customers, and integrates its value chain to partners and providers.
- If the decoupling point for this space is the marketplace, the Epic Store may be maintained under this umbrella to support the AAA industry in their effort to commercialize games.
- Existing marks are maintained.
Unreal Indies: A new business unit, akin to a business accelerator, is created to target the indie developers’ jobs to be done to train, support, and select the best indie developer teams.
- The evangelism team and communities are deployed to provide hand holding, mentoring, and progress tracking to promising teams.
- The use of Unreal Engine for game development is encouraged, and the learning platform is offered to support the evangelism team’s efforts.
- Teams that achieve maturity are pushed to vetted publishers, or Epic Games can invest in promising teams as a publisher.
- The core business can support the indie business by providing marketing, business, store, and contact resources to facilitate their endeavors.
- If the decoupling point for this space is the moment of commercialization of the indie game, the firm may evaluate owning a stake in game development and commercialization, as is the case with various indie publishers.
- The indie business unit can also either acquire or repurpose the existing Epic Games store technology for this segment, supporting fundraising and preordering indie games to help indie developer teams create progress.
- Alternatively, an existing marketplace for that segment such as Itch.io might be acquired but kept separate.
- This unit requires an emergent strategy mindset to experiment and gather feedback towards nailing the indie job to be done.
Unreal Enterprise: A third business unit, tailored to high-end non-games enterprise, can be created for that segments’ job.
- An enterprise studio is created with resources, processes, and profit formulas tailored to enterprise industries.
- Products are launched for each enterprise segment, and boilerplate experiences or tools are created to ease corporate work.
- If the decoupling point for this space is the customized services, dedicated support can be offered to corporate accounts that may have technical issues adopting the technology.
- Offices can be spun out in strategic locations close to where the enterprise customer clusters are, in light of nailing each subsegment’s jobs, hiring key resources, understanding industry processes, and iterating profit formulas.
- Once a clearly defined job to be done has been nailed for one or more enterprise segments, the unit can then shift gears from their emerging strategy to a deliberate strategy to grow.
Epic MegaVerse: A fourth novel business unit is created to explore the performance criteria indies and players prefer.
- It could initially tackle the indie player, on an as-a-service on demand model. This assumes a job to be done related to constant access to entertainment and online social gatherings.
- Opportunities in the upper and lower layers of the game marketplace value stack must constantly be monitored for emergent strategy experimentation.
- An integrated hub can be offered for multimedia and immersive experiences to where players can access to and share spaces together.
- Events, movies, and games can all be played from this “megaverse”, and access to the platform is compatible with most cell phones.
- The capacity for players to create new experiences and share them in this world could also be offered.
- The world could be accessed via mobile devices, streaming services, and gaming consoles, providing a single, ubiquitous experience.
- If the decoupling point for this space is providing a concierged set of experiences, a subscription fee could provide access to such a service. Otherwise, microtransactions can provide access to special services, content, or virtual items to customize the experience and tailor it to each player’s preference.
- Social capacity allows for shared experiences, taking advantage of existing Epic Games Accounts, Epic Online Services, cross platform play, and technology developed for Fortnite Creative and Fortnite Party Royale.
The disruptive innovation theory suggests that creating new business units or co-opting new entrants by blocking or acquiring them are ways to face disruption risk.
The integration and modularity theory also suggests that understanding the performance defining component of each industry is key to integrating towards a decoupling point.
The resource allocation process theory also suggests that managers don’t always control what a company invests in, since by the time an opportunity reaches them, it has already been filtered by the corporate culture.
The good money / bad money theory suggests that new business units should receive patient capital, where exploration towards nailing a job to be done is encouraged over rapid growth. The above suggestions should fit that criteria by balancing emergent and deliberate strategies.
As can be appreciated, these business unit examples, although separate, apply the theories to tailor each segment’s job to be done. Each unit requires separate resources, processes, and profit formulas to explore and then grow towards that job. The theories suggest such a structure will lead to successfully capturing future emerging opportunities.