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Five reasons why Steam will destroy the PC games industry

By on 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?

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: