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Five reasons why Steam will destroy the PC games industry

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May 26, 2010 |

In the feedback for How to Publish a Game, one element stood out.

I had suggested that it made sense for a developer making PC games to work hard to get on all the distribution platforms. Not just Steam, but GamersGate, Metaboli, Direct2Drive and so on.

Bollocks came the resounding response.

No-one wanted to be quoted. But Steam seems to account for by far the majority of the revenue of every single company who came back to me. People were suggesting that Steam outsold, by a factor of 10 or more, all of the other sites combined.

Steam logo

All kudos for Valve for building this service organically to be so dominant, but this is terrible news for the PC games industry.

We’ve sleepwalked into letting Valve be the dominant platform holder for core PC games. And they did it without having to provide the marketing muscle, financial support and hardware innovation that Microsoft and Sony needed to give us to get their consoles of their ground.

In short, Valve is becoming a dangerous monopoly.

Why does that matter?

Reason 1: Monopolies stifle distribution innovation

In a free market, innovation and improvements are encouraged by competition. The problem occurs when one company is so far-and-away ahead that no-one else can catch up. Think of Google. Think of Facebook. And now we should be thinking of Steam in the same way.

Reason 2: Monopolies stifle creative innovation

I keep hearing that is getting harder and harder to get onto Steam, and if you don’t, then your game won’t sell. The PC has always been an open platform on which it is easy to distribute games. If Steam becomes a de facto monopoly, Valve decides which games we see. A bit too competitive to Half-Life? No distribution. We don’t like Match-3 games? No distribution. We’re not sure that anyone will want a game based on farming? No distribution.

Reason 3: The little guys don’t get a look in

Helping the little guys is hard. When you’re big, and profitable, and important, it’s easy to prioritise the big publishers over the little guys. The little guys are already struggling on the console (although PSN provides one route to market), but the PC has been their lifeblood. A megalithic monopoly could rationally decide that it is no longer cost-effective to support the little guys.

Reason 4: Steam has all the pricing power

Retailers won’t work with indies: it’s not worth their while and, more importantly, indies don’t give them marketing support.

What if that becomes true of Steam? Valve is in a position to say “your game won’t sell without us. We want a bigger cut, or upfront marketing commitment, or some form of guarantee.”

Reason 5: Valve doesn’t need to promote the platform

For all their weaknesses, Microsoft, Sony and Nintendo spend a lot of money promoting and improving their platforms. Steam doesn’t improve the PC as a gaming device. I am a lot more comfortable about oligopolies when there is something in it for the consumer (like subsidised home consoles, for example).

Aren’t Valve the good guys?

To be clear, I’m not saying that Valve is doing any of these things right now. They are a great developer that has created, from scratch, a dominant digital distribution platform, mainly through making it so damned good that consumers don’t want to use anything else.

I am pointing out the risks of letting one company completely dominate a market.

Are there any silver linings?

Sure. As PC games disappear almost entirely from High Street stores, Steam is an incredibly valuable distribution platform. It may, in fact, be the only thing stopping the PC games market from abrupt extinction.

Elsewhere, social and online games (i.e. service games, not product games) are not dependent on Steam in the slightest. In fact, they pose a great threat to Steam, as gamers start playing free-to-play MMOs monetized with virtual goods, rather than spending £29.99 on a game in a virtual box from Steam.

So we’re in this weird place. Steam’s dominance is, in my view, bad for the industry. Yet the emergence of new service-based business models is a terminal threat to Steam.

How Valve chooses to react to that threat will show whether they are PC gaming’s saviour or its monopolistic exploiter.

Which do you think?

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  • MonopolyOrNot

    I can only imagine one way for steam to become a monopoly, if they heavily expand to markets abroad, specially markets that have a higher tax rate than the United Sates ex.  Brazil, Czech Republic, Mexico and others, in those markets steam would thrive,they would never be taxed in those countries since they do not legally ”exist” there costumers cannot be taxed from buying online abroad because there is no easy way to do so, as a result steam would have absolute supremacy in those markets because a local game store would have to pay over 60% taxes on import fees alone just to sell the game same game that is available on steam “tax-free”, so Steam has the edge in those markets only because they don’t exist in those markets yet there they are, I know they know this, the prof is that they have expanded heavily on third world markets recently adding support to several languages, when none of them were available in the past.

    Free 2 Play games are their way to creep in the piracy cultures of the third world, all my friends and countrymen that used to only play pirated games now have a steam account and started buying games… I used to know only 3 or so ppl IRL that had a steam account now I know of dozens, I used to be a pirate because I couldn’t bring my self to pay over 100% taxes for a single game in a local store and now I own 70+ games in total, my pirating days are over, and the local game stores in Brazil are over as well.

    Origin is not an alternative in those markets,  because they exist in those markets, they used to distribute physical copies of valve’s games in those markets and their billing is in the currency of those markets, so every time I wan’t a 59,99 USD title all I do is speculate on the future dollar a little bit and pay 100 BRL tops, if I wen’t to the game store I’d pay around 220 BRL or so.

    I guess I’ve made my point clear just remember that in the same situation I am others are as well, all over the world and no we cannot afford to care if it becomes a monopoly.

    [Reply]

    Someone Reply:
    January 19th, 2012 at 5:34 am

    Steam does infact tax you. Taxation can accure from online transactions from foreign companies. For example I get charged VAT when in the UK and GST when in Jersey. Brazil’s induvidual tax rate is actually average and lower than that of the average USA and UK taxes.

    The reason games are cheaper on steam is the distrobution costs. Steam has to maintain industrial scale FTP servers, whereas conventional publishers require manufacturing to delievery networks, which cost more. Sure there is then import taxes etc. Steam is probably massively overcharging for its established system, however it is still undercutting classic retail sales, and will always do so.

    Steam also has a fairly worldwide monopoly on games, in many countries for quite a while.

    If steam hypothetically destroyed conventional retail it could charge what it wants.

    Anywhos, going off… Onlive is the big thorn in steam’s butt at the moment. They are offering owners of decent broadband streamable content, aka “cloud computing” or “cloud gaming” which essentially is an excellent alternative. Steam could easily delay the inevitable by matching Onlives services (bar the cloud). Onlive currently “loans” you games for as long as they are on their servers. You can also rent games. If steam offered this for the AAA market then I reckon Onlive would be dust in no time. However, Onlive has some strong financial backing due to the counter-piracy effect of cloud computing.

    As much as Onlive is a competitor, the internet requirements, quality of service, and soley loaning games is a big dent for it. Unfortunately I think its been released a few years too early, but we shall see ay?

    But then again, technology changes. Steam will be in forefront of digital distrobution untill a genuine alternative starts to become more viable or undeniably better or more appropriate for the hardware. Apple will always be the biggest media distrobuter for as long as people dont understand the alternatives.

    Monopolies are everywhere. And IMHO, as long as Mr. Gabe is in charge at Valve we have little to fear. Its when he passes his developed monopoly onto money hungry executives who care little for the products/morals, ala Gibson Guitars, for example…

    People follow trends too much. Advertising works. Look at Google and Facebook. They practically control the day-to-day flow of the internet. which is far worse than Mr. Gabe selling me the odd game every now and then that I can play on any machine, anywhere in the world with an internet connection.

    [Reply]

  • PC Gamer

    I must confess, I spend more on PC Games *because of valve*

    They make it easy to buy, and see new content, and market indie titles, and save me a trip, and link to reviews, and show top sellers, it’s so efficient it’s mind boggling.

    In addition to spending more, I also now directly support indie games that I would never have purchased before.  They support the bejeezus out of indie games, PC INDIE games.  They have pumped new life into the PC game industry for the time being.

    Lastly, PC games are dying, the PC is dying, and I’ve played the first PCs and nearly any relevant game and I miss the golden 80s of gaming..but it’s going.  Why sit at a desk for *anything* when you can walk around with an ipad and lay on the bed, or sit on the couch, etc.  People will not want to be chained to a desk, even a notebook pc.  Steam will add some lifespan, but in the end portable wins.  The consumer demand for it (based on real reasons) is overwhelming.

    [Reply]

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