Fortnite – Genesis.

A new breed of digital ecosystem may rise.

• Fortnite is showing early signs of expanding from gaming and offering other Digital Life services leading to the possibility that it could become a digital ecosystem in its own right.
• Fortnite is a hugely popular massively multiplayer online (MMO) game where players typically fight each other to the death with the last one alive winning the game.
• Fortnite has over 200m registered users (Nov 2018) with 78.3m (Oct 2019) active at least once per month (MaU) who generate something like $200m in revenues (Nielsen) for Epic Games per month.
• To date, Fortnite has been all about gaming but on 2^nd February DJ Marshmellow played a virtual concert that was free to any Fortnite player who placed his or her avatar in Pleasant Park.
• 10m players showed up (see here) making this event one of the best-attended music events of all time.
• This establishes Fortnite as a major online venue and opens the door for Fortnite to expand its regular offering from Gaming to the Digital Life segment of Media Consumption.
• This would give Fortnite 40% coverage of the Digital Life Pie putting it on par with Apple and Sony and ahead of Baidu, Snap, Amazon and Twitter.
• Marshmellow has also closed a direct deal with JioSaavn (Indian Spotify) to release a track directly on the platform with no involvement from the record labels.
• This is something I have been expecting for a long time (see here) and I expect more and more artists to follow Marshmellow’s lead.
• For Fortnite, the door is now open for it to expand into many other areas of Digital Life with Instant Messaging and Social Networking being the next obvious targets.
• Furthermore, because Fortnite earns an average of around $2.50 per MaU per month, it does not need to reach 300m MaU to be financially successful.
• However, if it decides to become a digital ecosystem in its own right then it will need to reach this number in order to able to earn a return from the other Digital Life services it will need to provide.
• With 78.2m already, it is well on track to pass 100m MaU in the short-term which will give it the critical mass for other Digital Life services to be viable while it executes a strategy to reach 300m.
• Fortnite has already disrupted the app store ecosystem (see here) by using its popularity to push users to download its app direct from its website on Android thereby keeping 100% of the revenue rather than having to give Google 30%.
• There is a new crop of potential digital ecosystems (Fortnite, ByteDance etc.) that may one day challenge what is becoming the old guard (Google, Facebook etc).
• Both of these have large Chinese based ownership and represent a potential method for the Chinese ecosystems to spread their influence overseas.
• This is something that has proved to be quite difficult but the popularity of both Fortnite and TikTok have opened an avenue for foreign expansion.
• Of these, Tencent is the obvious place to invest.
• Its regulatory problems related to gaming have now passed meaning that it should return to growth in another quarter or two.
• I don’t think ByteDance will be coming to market any time soon (see here).