Valve_Steam_Case
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VALVE & STEAM: A Strategic Marketing Case Analysis
By:
Ryan B. Rody, and Raymond C. Rody, Ph.D.
Introduction
In the case analysis we will closely examine the Strategic Marketing decisions made by Valve
and its subsidiary Steam.
Over the past 20 years, we have seen the rise of the PC gaming
corporation known as Valve. Their primary success can be attributed to their ability to pioneer
whether it be a new game genre or the entirety of the PC gaming market. What Valve has
accomplished is not only being the primary innovator of an industry but also the dominating
force in the industry. How did Steam become so dominate?
As we examine the rise of the PC gaming corporation known as Valve.
We will answer these
concepts as well as others:
How Steam/Valve became so successful.
Valve’s major innovations.
How Valve/Steam surpassed Microsoft, Epic Games, EA, Game Stop, etc. as a PC Game
Store Front?
To put things in perspective it is always helpful to look at revenue streams. Steam’s Store Front
Market Share and Revenues:
Valve & Steam are private.
So, we do not know exactly how much they make.
Revenue estimates are from $6B to $10B (that is not profits, but costs are low, so Profits
maybe $5B to $9B)
The History of Valve (STEAM)
Valve started as a videogame developer founded by Gabe Newell and Mike Harrington who
were both former Microsoft employees. However, Harrington left Valve in 2000. Their first entry
was the FPS game Half-Life (1998) which had resounding success and even today and is marked
as genre-defining.
In 2002, during the development of Half Life 2 (2000-2004), Valve created the online digital
store called Steam. Steam was released in September of 2003.
Steam was created for the
purpose of giving Valve more control over their Intellectual Property and allowing Valve to
update multiplayer games without disrupting their player base.
Previously during updated
periods, when patches were implemented to balance a game, every player would need to be
offline for a few days to download the patch.
The elimination of the 2-day downtime for
updates was a huge benefit to their player base, who hated prolonged interruption of their
gaming sessions. Thus, Steam was originally not a storefront, but simply a convenient way for
Valve to handle their games.
Valve was also often frustrated with 3rd party publishers which would interfere with their
videogame development. Thus, they also created Steam to allow themselves to be their own
publishers. From here, Steam would expand to publish more niche videogames from
independent developers who also would rather avoid the traditional publishers, which was
possible since Steam was an online marketplace that would not need to worry about the
success or failure of a physical game (DVD production/distribution costs).
https://www.youtube.com/watch?v=JoV9o6b91Sc
This also eliminated the power & influence of 3rd party publishers who typically facilitate retail
releases. Game Publishers finance video game development, promote the games & more
importantly handle the physical release of the game (such as on DVDs). Steam releases games
via online downloads. This a faster seamless release process with lower costs.
This also
facilitates game assessment by the marketplace (player can try it) rather than game assessment
by the 3rd party publishers. This is intern increases the number of games released.
Starting out as videogame developer, led to strategic advantages for Valve as they began to
service other developers’ needs. Which led to Steam becoming the dominate videogame
publisher we see today.
For every game you buy on steam the developer gets 70% & Valve gets
30%. In contrast, Epic (Steam’s biggest competitor) awards 88% to the developer. In 2008 Valve
created the SteamWorks software development kit that allowed developers to publish to Steam
without Valve’s direct involvement (a seamless expedited process with a publishing guarantee –
or very close to that).
With the seamless release of games, many game developers, became
even more inspired to create new games.
So, why can Steam charge more? Some of the
reasons are: 1) better service, 2) faster gaming release, 3) less burdensome for the publishers, 4)
Steam is willing to take chances on untested games (since they have only minor costs when
releasing), 5 etc.
From here Valve would started hiring developers who happened to make good mods
(modifications often by semi-amateurs) and enlist them to make more official versions under
Valve’s banner. Valve embraced game modifications early which eventually because an
additional strategic advantage.
While many other developers provided no support to Modifiers
or even ostracized them. For example, TF software which created the Team Fortress mod of
Quake would come to make Team Fortress 2 a multiplayer FPS game that is still popular today
(since 2007).
https://www.youtube.com/watch?v=mBuoXonstOw
Another benefit of owning and controlling Steam, for Valve, was to monitor piracy and deal with
cheating in their online games.
Player’s hate to compete against others with advantages
derived from cheating.
Steam imposed harsh sanctions on cheaters (when they caught them),
such as, blocking them from games, etc.
Steam Store Front:
https://www.youtube.com/watch?v=pvOqbOIbAL0
From here, Valve would continue improving Steam with various features such as making steam
have better navigation tools to find games, a built-in interface that allowed users to use various
features of Steam without disrupting their game, players being able to create and share guides,
the steam workshop which allows players to easily distribute mods (modifications) to games
they play, a messaging system, and various other features that would further cement Steam as a
centerpiece in the gaming industry.
The Steam Marketplace
However, one of the most important newer parts of Steam is the community market in which
players could trade various high-value digital items in their game. Such as, weapon skins in
CSGO. A huge alterative revenue stream.
An important note is that any money you use in Steam cannot be converted back directly into
cash. Using steam, you can convert your money into steam credit which can be used to buy
games and items offered by players for games but if you ever want to convert that steam credit
into money you would have to use methods outside of steam. When trading through steam the
developer and Valve take a certain cut of the money from the transaction. (Similar to taxes or a
casino’s commissions on poker or sports wagers).
Valve also started releasing digital trading cards which can be gathered for different games and
can be used to create different things like special emotes for the game that can be used in
Steam’s messaging service.
Valve’s VR Game for Half Life
Valve continues to innovate in both large as well as small ways.
The Half-Life VR System/Game
is another great example.
The reviews for Half-Life VR system have been excellent.
For
example, Christopher Livingston of PC Gamer magazine declares: “I played the final three hours
of Half-Life: Alyx in a single session…... I was completely enthralled and unwilling to stop
playing.”
In addition, Valve created their own VR headset, known as, Valve Index.
It is currently
considered by most to the best VR system available, but it is expensive ($999).
Conclusions:
In conclusion, Valve/Steam have provided us a masterclass in strategic marketing.
They clearly
provide better service to both ends of their supply chain, that is, the player and the developers.
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The also provide revolutionary games.
They relentlessly Innovate in multiple business areas,
such as, The VR system for Half-Life. They integrate their Systems, such as, game play, the
purchase process, trading items, etc. They use loss-leader strategies increasing site traffic, such
as Half Life, which is a great game and free to play.
They focus on Ease of Use (for customers,
game developers, etc.).
They provide favorable publishing conditions for game developers.
All
of this had led to Valve/Steam becoming the marketplace leader for the sale of PC Games
Online and a One-Stop-Shop.
Case Questions:
1.
How did Steam become so dominate?
-
Steam's dominance in digital video game distribution may be ascribed to its extensive
game catalog, user-friendly features, robust developer support, and continual
dedication to innovation. This has allowed Steam to not only protect its dominating
position, but also to adapt to changing market conditions and preserve its position as
the industry's leading platform.
2.
What are Valve’s major innovations?
Valve's major innovations in the gaming industry include:
-
Steam Platform: Revolutionized digital game distribution.
-
Steam Workshop: Enabled user-generated content and mods for games.
-
Source Engine: A versatile and advanced game engine.
-
Virtual Reality (VR): Contributed to VR technology with the HTC Vive.
-
Steam Early Access: Allowed gamers to participate in game development.
-
Steam Controller and Steam Link: Innovative hardware products.
-
SteamOS and Steam Machines: Forayed into living room gaming.
-
SteamVR: Supported VR development and experiences.
-
The International: Set a standard for esports tournaments.
-
Dynamic Narrative in Games: Innovative storytelling in titles like Half-Life and Portal.
3.
Valve started out as simply a videogame developer for PCs.
Could this have led to
strategic advantages as they began to service other developers?
-
Yes, Valve's beginnings as a PC video game creator gave them significant strategic
advantages when they expanded their services to include game distribution and
development tools for other developers. Overall, Valve's transformation from a game
developer to a multi-faceted gaming corporation enabled them to harness their
insights and expertise to offer services and solutions that suited to the expanding
demands of the gaming industry. As they expanded their services outside game
creation, their reputation, awareness of both development and user viewpoints, and
creative processes presented them with strategic benefits.
4.
Why can Steam take a higher percentage of the revenues from developers for the same
game versus other store fronts?
-
Steam can take a higher percentage of revenues from developers (typically 30%)
because it offers a dominant platform with a large user base, infrastructure, services,
discoverability, and promotion opportunities. Developers often find the benefits of
Steam's ecosystem worth the higher revenue share. However, some other platforms
offer lower revenue splits (e.g., 12% to 20%) to attract developers and compete with
Steam. Developers choose platforms based on their specific needs and goals.
5.
How critical will VR game integration be to Steam’s future?
VR game integration was important for Steam's future but not the sole factor. Steam's
success relied on a diverse portfolio, competition, user demand, and developer
support.
-
Growing VR Market: The VR gaming market was expanding, and Steam was a
significant player in this space. Steam's VR integration, through platforms like
SteamVR, allowed it to cater to both VR developers and users.
-
Diversification: While VR integration was important, Steam's success was not solely
dependent on it. Steam had a diverse portfolio of games, software, and other digital
content, and it was widely used for traditional PC gaming as well.
-
Competition: Steam faced competition from other VR-focused platforms like Oculus
Store, but its established user base and reputation provided an advantage.
-
User Demand: The success of VR integration on Steam also depended on user demand
for VR content. As VR became more accessible and affordable, the demand for VR
games and experiences was expected to increase.
-
Developer Support: Encouraging VR game development and providing tools and
resources for VR developers was crucial.
Support Material:
1.
https://www.rockpapershotgun.com/valve-explain-why-steams-front-page-shows-the-
games-it-shows
2.
https://store.steampowered.com/app/440/Team_Fortress_2/
3.
https://en.wikipedia.org/wiki/Valve_Corporation
4.
https://www.shacknews.com/article/84088/report-37-of-steam-games-are-never-played
5.
https://bettermarketing.pub/how-valve-makes-billions-in-passive-income-f0372e8693d2
6.
https://steamcommunity.com/discussions/forum/0/496880503076725668/
7.
https://www.feedough.com/how-does-steam-work-steam-business-model/
8.
https://www.cnn.com/cnn-underscored/reviews/valve-index#:~:text=Compared%20to
%20other%20wired%20headsets,for%20high%2Dend%20PC%20gaming.&text=If%20you
%20have%20the%20budget,VR%20headset%20you%20can%20buy
.
9.
https://www.pcgamer.com/half-life-alyx-review/
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