Lex Fridman: belief

Transcript context

…an undercurrent of powerful platforms and ecosystems encouraging developers not to compete on price. So, not being able to compete on price, we decided to compete on by doing exclusive deals, and we- We decided to compete on supply by doing exclusive deals, and we signed a lot of them. Paid developers lots and lots of money. I think we distributed over a billion dollars in net expenditures to developers beyond the revenue we actually made from games in order to get a whole lot of exclusive games. Some are successful, some weren’t. Borderlands did awesomely on the Epic Games tour, and we and Gearbox felt that it did just as well through Epic as it would’ve done on Steam because the players who wanted Borderlands wanted Borderlands and they came and got it. Whereas a lot of other games, some smaller games especially that didn’t have a dedicated audience that was absolutely going to play the game, typically benefited from exposure on Steam. They were reaching an audience that wouldn’t have reached organically. And so some of them in the end, we and they concluded that they did worse by being on the Epic Games tour exclusively in terms of reaching fewer customers. And we had these limited time exclusives. When they ran out, they put their games on Steam and lots of data was gathered to understand what worked. And this worked well for some games, didn’t work for other games, but companies seeking to compete, especially underdogs seeking to compete, have to offer some unique value, have to offer something that’s not available through the competitors. And I get that Steam users they just prefer using Steam and buying games on Steam, want to have their library in one place don’t like this. But you’re never going to have competition for better deals if you don’t support the competitive mechanisms that allow competitors to come about. And I think if Valve were forced through Epic Games Store’s success to compete with Epic Games Store, then developers would be getting a better deal. Consumers would be getting a better deal, and these 30% fees would be driven down quite a lot towards the actual costs that are required to support the stores. Yeah, I mean there’s a lot to be said there. I’ve gotten to watch Spotify try to do this with podcasts, enter as the underdog into the space and try to attract, they made exclusive deals with, for example, with Joe Rogan, where the podcast would only be published on Spotify. I personally think long-term, what I would love to see for EGS, for Epic Games Store, is to not do any exclusivity, similar to what Spotify is doing now. Even with Joe Rogan, they let go, it’s wide open. And instead compete on the space of just the non-clunkiness of the interface, because the foundation of what Epic Games Store represent with 12% is just philosophically. So you’re also competing on the sort spiritual realm of what it stands for ethically. That’s also a really powerful way to win. Now that there’s enough number of people using Epic Games Store to drift away, to move away from exclusivity, it’s understandable that it’s needed for the competition for the underdog to enter the scene, but it goes against the freedom, the free spirit of choice that I think you represent in a lot of the decisions you’ve made, which is making the games cross-platform and just, yes, giving freedom to the developers, giving freedom to the gamers to choose. So in that way, I think exclusivity a little bit goes against that. Well, here’s the conundrum. The exercise of soft power by all of the competing stores has made it intractable for almost any developer to offer a better price through the Epic Games Store than through Steam. You can imagine that if the effective Epic revenue sharing 12% to developers was that games just cost 22% less on Epic Games… Sorry, 18% less on Epic Games Store, that that would actually start to reshape consumer behavior significantly. People would start coming here for the better deals. But I feel like Steam giving developers nasty phone calls and so on, when they propose to do that, prevents developers from passing on savings to consumer. Then what’s the mechanism that drives users away from the incumbent store to the store that offers a better deal? If basically developers are fearful of competing on price through stores, what can possibly be done to get a dominant store with something like 90% of revenue share among multi-publisher stores in line so that a much, much smaller store can compete? I think some answer is required there. A better UI is great. Steam is super polished. Epic Games Store in time will hopefully be as polished. How does that overcome the fact that your entire library over the past 15 years is there, if developers have been afraid to exercise their own economic interests? Because it’s in a developer’s interest to sell on Epic and get 18% more of the revenue. I think there’s a real power to incumbents. It’s very hard to overcome for just being there and being as good.…

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