Steam, and the Importance of Digital Distribution Software in Gaming

Automatic Updates, Cloud Saves, and the Rise of 'Microtransactions'

Image from : https://store.steampowered.com/about/
Image from : https://store.steampowered.com/about/

What Exactly is Steam?

Steam is a digital distribution service for video game products, owned by Valve Corporation. It is a software that can be installed on any Windows, Mac, or Linux device, and can be used to download video games for free, buy video games, and pay for video game content. It also automatically updates said video games, and was the first digital distribution software to have this feature, as well as include extensive social media features such as friends, groups, live-streams, an inbuilt modification interface called ‘Steam Workshop’ and item-trading. Steam has also had it’s fair share of legal trouble, with scams, account theft, gambling legislation, and bans on sexual content, yet despite all this has still managed to stay on top of the PC video game industry, with at least 90 million active users in 2019, who in total own 700 million games (Ahmad Kamal, 212).

The Steam ‘About’ page has a list of all Steam’s current features, albeit this information is presented with the acquisition of new users in mind.


How Old is Steam?

'Steam in 2003' : Posted by u/Teckel22 on r/gaming
‘Steam in 2003’ : Posted by u/Teckel22 on r/gaming

Launched in September 2003, Steam is a digital distribution service used to sell and update online video games (Ahmad Kamal, 212). Originally it was only used as a platform for the games of its respective developers, Valve Corporation, but has expanded to become a plentiful webstore for many different publishers. A cloud service was also launched in 2008, meaning that all content on Steam is not only automatically kept up to date, but able to be used on any device capable of running the program (Chaing). In 2010 Steam would overtake physical games in sales numbers, cementing it as a permanent force in the video game industry (Chaing). These leaps were made in addition to constant, and necessary updates to the User Interface (UI) to incorporate features such as server hosting, video streaming, friends lists, public groups, marketplace features for sellable in-game items, and a free application programming interface (API) which allows any user to modify and create content for games and the platform itself.

Steam has been credited as the iTunes or Netflix of videogames, and the digital distribution platform has been described as the most ‘elegant’ in it’s rise to power and approach to business, even by its competitors (Chaing).

The Steam User Interface Beta in 2010 : from InsaneNutter on Digiex forums
The Steam User Interface Beta in 2010 : from InsaneNutter on Digiex forums

Who Owns Steam?

Gabe Newell and his former colleague Mike Harrington, both former microsoft employees, founded Valve Corporation in 1996 (Chaing). In 1998 they made Half-Life, which sold 2.5 million copies in its first year and became a ‘classic’ video game, synonymous with the Valve brand (Chaing). In 2000 Harrington would leave the company, with Newell becoming the majority shareholder, but Steam would continue to rise (Chaing). Newell often claimed that listening to their audience gave Valve their success, as they could give them exactly what they wanted from a product (Baker). 

Valve itself is an odd company, especially for software, as it has no set power structure aside from Newell’s ownership. Valve functions like an ‘open source software community’ where there is a large amount of human resources willing to participate due to Valve’s namesake, and the company merely has to pick the most useful or talented to be part of the team (Baldwin, 6). Interestingly this resource pool often overlaps with Valve’s customer base (Baldwin, 6) Valve is a company with high return and due to this, does not need to exercise direct control over their work-force, which is unhealthy for morale in large companies, as direct involvement breeds disillusionment (Baldwin, 6). Valve’s workforce is low cost, it’s industry is high performance, and its use of direct-authority is minimal, which is favourable for a company of its scale, but can lead to some scathing layoffs (Baldwin). 

Occasionally ex-employees leak information on social media, leading to very hostile Twitter allegations about the toxicity of the company’s inner-workings.

Valve CEO Gabe Newell : from TechSpot
Valve CEO Gabe Newell : from TechSpot

How Does Steam Generate Revenue for Valve?

Originally in the 1990s, the video game industry relied on individual game sales for profit (Zendle, 1). These games were physically distributed with an unlimited license for the software enclosed, in exchange for the currency of an individual (Zendle, 2). In a few circumstances, a user would pay a recurring fee for access to an online game service (Zendle, 2). Then in the early 2000s the entire industry would move to offer more additional purchases in addition to the initial purchase of game software (Zendle, 2). These products are known as ‘microtransactions’ and would include ‘Cosmetics’, ‘Pay-to-Win’, and ‘Loot Boxes’. Steam serves as a digital platform for all of these, users can purchase ‘base’ games, downloadable content (DLC), and make microtransactions all in the one place. 

Steam Store Front Page : https://store.steampowered.com/
Steam Store Front Page : https://store.steampowered.com/

Every microtransaction generates revenue for Valve Corporation, while they simultaneously collect a percent margin of profits from all third-parties selling on their Steam webstore, and a percent of profit from any users selling on their Steam marketplace. This is all in addition to the base sales of their massively popular games, which they were able to promote on their own popular platform for free.  Despite appearances, Valve is not the only party benefiting, selling video games via Steam earns publishers 70% of sales, juxtaposed with retail earning only 30% (Chaing). This gives publishers a lot more freedom and flexibility with sales, and the Steam platform provides live data on market response (Chaing).


How Does Steam Interact with the Greater Video Game Industry?

A Diagram Of Steam's Place in the Video Game Industry's Ecology
A Diagram Of Steam’s Place in the Video Game Industry’s Ecology

Steam’s place in the videogame industry is complex, but also of high importance. Traditionally, game developers produce video games which then get distributed to retailers or distribution software such as Steam by their publishers. Game developers can be independent parties or in-house development studios owned by the publisher managing the release of their game. Since the success of Steam, publishers have also started creating their own distribution software, such as Ubisoft’s Ubisoft Connect, or the Epic Games Inc. Epic Games Store. Therefore, Steam simultaneously distributes for, and competes with publishers who are their partners. Recently Electronic Arts (EA) migrated all it’s videogame properties to Steam while their own distribution software  is going offline to be redeveloped. Steam is assisting a competitor transition between their distribution platforms, but also gaining from their sales, as previously EA had limited it’s availability on Steam. Valve is in the position where it’s Steam partners, competitors, and game providers are sometimes the same entity. 

Steam collaborating with a former competitor : from https://store.steampowered.com/subscriptions/ea
Steam collaborating with a former competitor : from https://store.steampowered.com/subscriptions/ea

Who Uses Steam?

Well, in short, anyone who can install and run it on their computer,

Steam users do not have to pay any money to download Steam, although their account will be limited in capability until a purchase of over 5.00 USD is made. Users are also required to be over 13. Nearly any computer can download and install the Steam client, but most video games are designed for Windows operating systems. Steam does have support for Mac and Linux devices, but with limited games, much to the dismay of Gabe Newell, who strongly encourages the use of Linux (Chaing). There are many Free-To-Play games on Steam, meaning that a large population of users can play video games without paying anything but their own time. Many of Steam’s most popular games are Free-To-Play and it is a very strong method of adding users to Valve’s customer base.


Why is Steam Important?

Steam has completely changed the way the videogame industry distributes it’s products, from automatic updates, to cloud based save-files, it is a hub of user-friendly features enticing players to migrate to their platform. Remote-play allows users to play over the internet as if they were playing split-screen next to each other on the couch, Broadcasting allows any user or developer to Live-Stream for other Steam users, Community allows for users to share art, screenshots, ideas, modifications and more in a social media-esque group based around video game titles, and all these features and many more are available in 28 languages, and even more localisation support planned. Steam has a colossal list of features under it’s belt.

Steam Games : From PC Gamer
Steam Games : From PC Gamer

However, Steam, and Valve, also revolutionized the economy of the video game industry. Making ‘Microtransactions’ more accessible to players, which was undoubtedly a detriment on the wallets of their users. Having small payments even more accessible than ever before makes Steam users more likely to make small purchases regularly, buying things they might otherwise avoid.

As mentioned previously there are three types of microtransaction, Cosmetic, Pay-To-Win, and Loot Boxes.

  • Cosmetic microtransactions are digital purchases that ‘offer no in-game advantage and are purely aesthetic’, these purchases often change character or weapon appearance in game (Zendle, 2).  
  • ‘Pay-to-Win’ transactions are purchases that directly provide the user with advantage over others by providing powerful in-game items or ‘boosts’ to the rate of in-game progression (Zendle, 2). Since the 2000s, Pay-To-Win Microtransactions have rarely existed outside mobile games due to their alienating affect on new users (Zendle, 3). 
  • Loot Boxes are the final category in the microtransaction business model, and are purchases made with currency that provide ‘a randomized reward of uncertain value’ (Zendle, 2). In 2018, Loot Boxes alone made the video game industry at least $30 billion in revenue, and have proved an extraordinarily successful business model, likely due to their connection with gambling (Zendle, 3).

The Loot Box Economy.

Valve Corporation has developed many games with such microtransaction models. Team Fortress 2 (TF2), a Valve owned game released in 2007 and made ‘Free-to-Play’ in 2010, was one of the biggest western games to first adopt the ‘Loot Box’ business model. In this initial model, before the known success of Loot Boxes, all items in the boxes could be gained through normal play over time, and money could be paid to speed this process up. Similarly, Valve’s Counter Strike: Global offensive (CSGO) was released in 2012, and made free in 2018. This game included both an initial purchase, the Loot Box model, and ‘Season Passes’, which would be a combination of DLC and Cosmetic (Zendle, 3). A user would pay real-money to gain temporary access to new features that allow for higher chance to gain cosmetic items. Steam users would then often buy, sell, and trade all gains from both TF2 and CSGO on the Steam ‘Community Market’ further generating profit for Valve.

Resale Price of an In-game 'CSGO' item on the Steam Marketplace : from Kotaku
Resale Price of an In-game ‘CSGO’ item on the Steam Marketplace : from Kotaku

In 2010, when Valve first made TF2 Free-To-Play, a study was conducted in which only 4.2% of players on Steam were estimated to be exposed to Loot Boxes in video games, then by 2014 this rate of exposure would reach 59.4% (Lin, 7). By 2019, after the free release of ‘CSGO’, Loot Boxes would be a staple of online video games revenue generation, with 71.2% of players being exposed to the microtransaction business model (Lin, 8). This study only includes active Steam players, and does not include the prevalence of Loot Box exposure on other platforms or consoles (Lin, 4). Exposure to Cosmetic Microtransactions has increased at a similar rate, going from 8.3% in 2010 to 85.8% in 2019 (Lin, 8).


Conclusion

Valve was at the forefront of the rise of these markets, while also constantly updating their platform, and irregularly producing video game content, such as their developments in VR, and their recent release of Half Life: Alyx, the long awaited VR title in the Half Life series which made them famous over 2 decades ago. Like all businesses, Valve’s success is partially based in the exploitation of their user base, but their success is what allows them to continue to innovate, maintain and update Steam according to user feedback, and produce games for their audience.

TF2 Halloween : from Metro
TF2 Halloween Cosmetics : from Metro

Bibliography

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