We at F4 Fund have spent months looking into the opportunity of investing in startups building for UEFN. We’ve also examined what Epic is doing, what they offer, and how players play these UEFN maps. We also decided to pull back a bit and look at where Fortnite is and what kind of a platform it is. And what an investor will be looking for when investing in this space.
What is UEFN? You can read more about the details here.
The Fortnite audience
The distribution of Fortnite players is heavily skewed towards younger players. As referenced in Simon Carless's piece on UEFN, the players love the IP slurry (i.e., Batman and Spiderman costumes mixed). Besides the gaming time spent on Fortnite, they heavily consume content outside the game on YouTube, Twitch, and TikTok. On YouTube, hundreds of creators with over a million subscribers focus solely on Fortnite content.
Since Fortnite is mostly a battle royale shooter game, we decided to look at what research was available on Fortnite players' player types and motivations. Based on Quantic Foundry's report, they are "Skirmishers" as they are called by report: “They enjoy fast-paced, explosive, team-based competition, but they care very little about world-building features.”
Based on the report, a young audience could discontinue playing Fortnite past adolescence. The Fortnite players might eventually graduate to games of a more hardcore nature like Call of Duty, Counter-Strike, and Apex Legends.
Characteristics of UEFN game development
Simon Carless puts it well in his piece on UEFN:
"Sandbox development in Roblox is very different from Fortnite, and you only discover Fortnite's limitations compared to as you enter Fortnite. Since there is no save state, crafting, etc. sandbox stuff available, the maps resemble the core Fortnite experience: you run around, participate in physics activities, collect guns, and beat other players to be the last man standing."
In UEFN, developers use tools to create maps and levels, which can be uploaded to Fortnite servers and then launched under the Fortnite Creative game mode for players to play.
Open question: What happens when they catch up to Roblox in features? Will it change things?
Motivations of Epic Games
First, Epic Games wants to broaden Fortnite beyond the Battle Royale. The broadening would allow them to cater to a broader audience outside Skirmishers, increasing active users.
Second, Epic hasn't clearly stated how it will evolve its monetization model. If you look at the UEFN roadmaps, there's a lot of talk about different gameplay modes being introduced, i.e., racing gameplay, etc. Nothing on developing monetization. Why? Epic might just like the skin monetization enough not to care about other free-to-play models popular on free-to-play mobile.
Third, are developers truly having first dibs on the player's engagement? When comparing UEFN to Roblox, the player journey inside the platform is different. Fortnite has creative maps, but it has a main game that the ecosystem owner, Epic Games, is developing. In Roblox, you only play content made by developers. There is no agenda to push a "main game."
Limitations of monetization
Even though Epic Games is pushing Fortnite to expand beyond Battle Royale, and there's great momentum with the platform, there are flaws with monetization on UEFN.
Recently, Epic stated that it's distributed tens of millions of dollars to developers on the UEFN platform. All this from selling skins. There is a big unknown if they’ll ever expand beyond skin monetization.
In Fortnite, your inventory is always empty when you start a match and collect gear and weapons inside the map. You can only buy and bring select skins to the match. Everything else is reset.
Developers can't open a shop and start selling virtual goods like on most platforms. The developer monetization comes from minutes spent by players on the maps. Since there is no selling of powerful gear, no selling quicker progression, and no content unlock by paying, you are limited to how the Fortnite skins sell.
Here's the tricky thing:
A new Marvel movie comes out, and the promotion skins sell like hotcakes. However, since the revenues are spread across many developers based on minutes spent in all of their maps, a single developer cannot use their skills to capture more of the monetization.
Your only metric to improve is how many players are playing your maps and for how long. But what if a competitor's map is trending on the charts and gains all the attention?
Here's another one:
You are marketing your creative map, but how do you time the campaigns so that you can attain most of the monetization and get a return on your marketing investment? What if Fortnite brings a new skin package for the season launch? Should you also time your marketing push to a season launch? But what if everything goes well on your end, but the season launch bombs and Fortnite sales of Vbucks are down? Screw your ROAS.
The investor perspective
To go into the depths of the investor perspective on UEFN, we need to look at what has been attempted by the entrepreneur so far in this space. A few business models have emerged on UEFN and similar creator platforms like Roblox.
1. The Gamefam model. A US-based company called Gamefam started developing and launching games on Roblox a few years ago. They would scale their portfolio approach by utilizing external developers, test the games aggressively, and eventually put major bucks behind promoting games that engaged the audience well. This model has been spreading to Fortnite, with Gamefam leading the charge inside UEFN.
2. The lone indie developer. Roblox has catered to solo game developers for ages. Most of the successful content on Roblox originates from indies, and solo game developers launching something fun on Roblox and then getting picked up and become a sensation. Sometimes, the pay is excellent; a solo developer could make $1 million a year. That's amazing if you are a solo developer.
3. Triple-A team attempt. A triple-A team with game design and development knowledge from decades in the industry could have the upper hand, and they could be the right people to innovate on UEFN to push high-quality game content that attracts new audiences to the platform.
To hone in on the investor perspective, here's an analogy that my partner David Kaye came up with:
Would you instead invest in a restaurant that operates inside Disney Land, or would you invest in McDonald's? The one inside Disney Land can profit by selling more burgers in exchange for Disney Dollars. McDonald's operates in a free, relatively open market with more avenues to growth.
But McDonald’s is already in a crowded market. What if the opportunity is inside theme parks?
If a business starts inside Disney Land, they’d probably want to reach as many Disney parks as possible and become the number one restaurant in all the parks. Then, they’d want to expand over to Nickelodeon's parks. Become the “Gamefam of theme park restaurants.” And that’s where VC bets start to make sense.
An investor should ask if Epic cares if the platform has thriving venture-backed startups. Do they want to facilitate a new Zynga to grow in this space, or are they happy with indie developers making maps? Undoubtedly, they will hold dear the ones who build the best content that engages users, be it indies or VC-backed startups.
In a way, a UEFN development studio resembles a game mobile studio searching for a hit game. But the main difference here is that it resembles the game studio working on Apple Arcade games more than one that is free to build a game that optimizes for the most user engagement and monetization.