The first time I played Fortnite was back in 2018 when I was a senior in college. My friend showed me the game at his apartment. I was terrible at it, but I was intrigued because I’d never seen a first-person shooter where you could build a wall in front of you to protect yourself from incoming bullets. I was interested in checking it out for myself, so I asked my friend how much Fortnite cost.
My friend looked at me like I was an idiot, then explained to me that Fortnite was free. I was confused. I hadn’t really played a ton of games in college because I didn’t have a console at my apartment. The last time I regularly bought games was back when I was a sophomore in high school in 2012. Back then, a new video game usually cost around $60 dollars. I wondered how Fortnite could possibly be making money.
I later learned that Fortnite makes money by selling virtual skins, which do not give players any kind of a competitive advantage whatsoever. Despite the fact that users can play the game every day without ever having to spend a single cent, Fortnite made more than $10 billion from 2018-2020.
It might sound totally ridiculous. However, if we take a closer look at Fortnite, we can see that Epic Games has built an incredibly smart business model.
How Epic Games changed the gaming industry
The video game environment has changed drastically since I was in high school. Now, most people have access to reasonably fast Wi-Fi and can easily download a game on their PC or console. Since video game companies don't have to deal with burning a CD and packaging a game every time they make a sale, the cost of selling an individual game is essentially free.
Because the economics of selling video games had changed, it didn’t really make sense to stick with the traditional model of selling an individual game for $60. Instead, gaming companies recognized that the best way to monetize a game could be to make the game free and find a way to get money from hardcore fans.
After all, charging everybody the same price is an inefficient arrangement. There are some people that might want to check the game out but not spend any money. There are other people who love the game so much that they’d be willing to spend $1000. There’s probably someone else who just wants to spend $10. Ideally, a game company should be able to capture the value from all of these different customers instead of just collecting a $60 flat fee.
Plus, if a game is free, it’s much easier to get people to check it out, even if you’re a kid who doesn’t get an allowance. Elementary schoolers who saw their favorite Twitch streamer playing Fortnite didn’t need to ask their parents for money. All they have to do is go to the Epic Games Store on their computer and click the download button.
Why Fortnite’s free-to-play system is “fair”
Fortnite definitely was not the first game that was free for users. In the past, many games started out being “free to play”. However, they would eventually get harder and harder until the only way to advance was to pay money. The idea was that gamers would be so hooked at that point that they wouldn’t want to stop.
None of these games saw as much success as Fortnite for a simple reason: this arrangement feels totally unfair. It seems ridiculous to pay for something that you used to play for free. The vast majority of people would simply quit the game instead of paying to continue.
This isn’t something that’s unique to video games. When human beings make purchase decisions, we seek “fairness”. Generally, we’re okay paying higher prices at restaurants if it’s being used to subsidize higher wages for employees. However, we’re not okay doing this if it was done so the restaurant could make more money.
Either way, the customer has to pay the same price. Still, having to pay more for a meal just so some douche who owns the restaurant can buy a Tesla Model S feels “unfair”. As a result, we have a different emotional reaction to it and are less willing to make the same purchase.
Fortnite’s “free-to-play” system is totally different from how free games have typically worked. Because Fortnite’s virtual goods don’t offer any kind of in-game advantage, the system doesn’t feel unfair. If you lose a Fortnite game to some 13-year old in a Deadpool skin, it’s not because he was given some kind of an unfair statistical boost that was paid for with his parent’s money — you just suck at the game.
How Fortnite manipulates your mind
Epic Games seems to have a deep understanding of how best to manipulate human psychology to sell more virtual goods. It was explored in detail in this paper by Timo Schöber and Georg Stadtmann — I’ll give you a condensed version here. I’ve also included examples of how these psychological concepts influence purchase decisions in real life to help you better understand how they work.
Urgency
You’re walking through the mall in middle school and you’re deep in your scene phase. You see the Hot Topic storefront with a sign that says “30% sale, today only”. Immediately, you find yourself walking into the store. After all, you don’t want to miss out on deals that you’re going to regret later and be the only kid at your school without a cool Three Days Grace t-shirt.
This is a psychological concept that was identified by Robert Cialdini in his book Influence. It’s called urgency — if a deal is going away soon, people have the urge to jump on it immediately.
Fortnite uses urgency to drive the sales of more skins. Fortnite has Daily Items in its store every day, with a countdown timer that shows you exactly how long it will take before it's gone. Some Fortnite skins are only available on specific days like Black Friday or Christmas. If you see a skin that you really like, you need to make a purchase or risk never having the option to buy it again.
Peer pressure
You’re in high school and you see one of your friends show up to class with some fresh new Jordans. Immediately, you feel jealous as he gets compliments. You stare down at your beat-up Converse and you feel like a loser. When you get home, you start looking up Jordans on Amazon and wonder how long it will take for your minimum wage job at Jamba Juice to actually get you enough money to start looking cool for once.
Human beings are social creatures, so we’re always comparing what we have with what the people around us have. Economists even have a term for this: Keeping up with the Joneses effect.
When you spend multiple hours playing Fortnite with your friends who all have cool skins, you’re more likely to spend money to keep up with them. If you don’t play Fortnite, this might sound stupid — but when you consider how much time people spend socializing with their peers within the game, it’s no more ridiculous than a teenager spending a few hundred dollars to buy a jacket that will get them compliments at school.
Currency confusion
You’re spending a semester abroad in Europe and you and your friends all decide to go to London for your Spring Break. You’re at a bar and you’re ordering a drink. The bartender tells you that the cost for a pint is 8 pounds. You think for a moment and wonder whether you’re getting ripped off, but you can’t remember what the dollars to pounds conversion rate is. It looks like the Irish guy waiting behind you is starting to get pissed, so you hand over your money. You're unsure whether the bartender heard your American accent and charged you an unreasonable price, but you tell yourself you’re on vacation and it doesn’t really matter anyway.
Exchange rates are confusing and difficult to understand. When we’re using a new currency, we often feel disoriented and often make purchases that we probably wouldn’t have made in our local currency.
Every time you buy a skin in Fortnite, you make the purchase in V-bucks, the game’s virtual currency. There’s no easy way to convert V-bucks into dollars since Epic Games offers different exchange rates at different prices. So if you’re sitting down with your V-bucks, it can be hard to recognize exactly how much money you’re spending, which leads to more currency confusion and more bad purchase decisions.
Now look, I’m not saying that Epic Games is psychologically manipulating people into buying things they don’t actually want. The biggest reason behind Fortnite’s success is that it’s a great game that people enjoy playing with their friends. However, these psychological tricks do help to explain how Epic Games made selling virtual skins a multi-billion dollar business.
How the Fortnite model can come to other industries
Fortnite’s business model has revolutionized the gaming industry. Even established franchises like Call of Duty have borrowed Fortnite’s free multiplayer mode to reach more users. Soon enough, Fortnite’s influence will be felt beyond the gaming industry.
Chris Dixon, the lead investor in Andreesen Horowitz’s cryptocurrency fund, suggested that NFTs can allow creators to replicate Fortnite’s business model. While musicians and writers can’t sell virtual skins, they can sell the next best thing — NFTs of their creations.
It’s interesting because you’ll often see people attack the idea of NFTs because most of the jpegs and gifs that are being sold can easily be found online. However, Fortnite has already proved that you can make billions of dollars selling something that’s technically useless.
Earlier, we looked at how Fortnite’s business model allows it to capture maximum value from its audience. In a blog post, Dixon pointed out that NFTs can do the same thing. You can then slice them up into different tiers for casual and hardcore fans.
Creators who sell NFTs can borrow the same psychological tricks that video games use. In the podcast I linked to above, Dixon said that creators selling NFTs could have a “level up” system just like games do. For example, a musician could offer unique NFTs every time a fan attends a concert. If a fan gets 5 NFTs, they can combine to create a “next-level” NFT that’s only available to super fans.
In conclusion
Fortnite isn’t just a stupid distraction for children. It’s an incredibly smart business that’s going to be copied across different industries in the years to come. Epic Games figured out a great way to make money in the digital age — and the company has made billions of dollars doing it.
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