Valve_Steam_Case

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Florida International University *

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4804

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Information Systems

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Dec 6, 2023

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docx

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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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