Epic Games' recent $15 billion valuation has generated skepticism — even an explosively popular game like Fortnite can't grow a user base forever. Fortnite does have 200 million players and they have brought in an estimated $1 billion through so-called in-game microtransactions, where players pay for cosmetic upgrades, according to Nielsen company SuperData. But the world's most viral video game is generating so much cash it is allowing Epic to push into areas that may ultimately become as important to its long-term value. A big reason Epic attracted $1.25 billion from venture and private equity leaders Kleiner Perkins and KKR is a bet that the gaming engine behind-the-scenes, called the Unreal Engine, that has turned Fortnite into a household name will become critical to technology across many sectors of the economy, from architecture to medical research and car manufacturing.

BROOKLYN, NY - AUGUST 09: CEO of Epic Games Tim Sweeney speaks onstage during Samsung Unpacked New York City at Barclays Center on August 9, 2018 in Brooklyn City. Mike Coppola | Getty Images Entertainment | Getty Images

"In a way, the Unreal Engine is to Epic Games what AWS is to Amazon. Both companies monetize the proprietary infrastructure used to support their core businesses. Over time, these infrastructure offerings have become core businesses of their own," said Jud Waite, senior analyst at CB Insights, which studies the start-up marketplace. Game engines like Unreal are the software that developers use to build their creations, offering tools that help render graphics and control actions in a game's environment such as collisions. Epic Games originally developed the engine for its Unreal series, then spun those development tools out into Unreal Engine. The Cary, North Carolina-based company, founded in 1991 in CEO Tim Sweeney's basement, has been a force in gaming and computer graphics for many years. Fortnite has been the best marketing tool yet for Unreal Engine's technological developments, particularly the cross-platform capabilities that allow the game to run on smartphones to high-end PCs. A key competitive advantage from Fortnite's scale and success is how Unreal designers can use feedback to upgrade the engine, Waite wrote in a September report. The game's success also allows Epic to experiment with new ways to make money, from a proprietary game store it just launched to esports, which Waite said should not be underestimated when thinking about long-term value. "With the success of Fortnite and other titles, the Unreal Engine has been able to experiment with new monetization structures and strategies," Waite said.

How Epic makes money from other companies

Today, Epic's revenue doesn't come directly from charging other companies to use the Unreal Engine — it is free. Epic takes a 5 percent cut of all gross revenue on applications (primarily games) created using the engine once they make $3,000 per quarter. As an example, Epic is earning money from Fortnite's main competitor, PlayerUnknown's Battlegrounds, developed by South Korea's Bluehole using the Unreal Engine. The company has some arrangements with game studios who may pay a custom fee rather than the royalty agreement, though Epic declined to name studios with which it has custom deals. The standard royalty model makes Unreal more accessible to hobbyists or even enterprise users looking to get started with the engine. In all, more than 7 million people currently license Unreal Engine 4 for both gaming and enterprise use, according to Epic data. Venturing beyond gaming isn't new for Epic.In 2007, architecture firm HKS used a previous iteration of the Unreal Engine to produce a virtual environment of the new Dallas Cowboys stadium that clients could virtually walk through. But as the technology advances and more industries incorporate high quality graphics, Epic's reach is spreading. Since releasing the latest version, Unreal Engine 4, for free in 2015, the company has grown an enterprise team that supports architectural visualization and other non-gaming markets. There are dozens of Epic employees who are now dedicated to supporting non-gaming markets, an Epic spokeswoman said. "Computer graphics became powerful enough to make photorealistic images in real time," said Epic CEO Tim Sweeney, a turning point that occurred a few years ago and opened up the possibilities for many more applications. Investors have taken notice. Epic's $1.25 billion funding round in October added to funding already provided by Chinese internet giant Tencent, which took a 48 percent stake in Epic for $330 million in 2012. The company is now valued at almost $15 billion. One such use case went viral this past September. As Hurricane Florence ravaged the Eastern seaboard, dangerous storm surge towered over a meteorologist – only she was safe inside a studio. Through technology from The Future Group and Unreal Engine, The Weather Channel mapped real-time water levels. https://twitter.com/weatherchannel/status/1040305773664980993

Corporate use of virtual reality is increasing