Description
Case Questions:How did Steam become so dominant?What are Valve’s major innovations?Valve started out as simply a videogame developer for PCs. Could this have led to strategic advantages as they began to service other developers?Why can Steam take a higher percentage of the revenues from developers for the same game versus other store fronts?How critical will VR game integration be to Steam’s future?
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VALVE & STEAM
A Strategic Marketing Case Analysis
By:
Ryan B. Rody
&
Raymond C. Rody, Ph.D.
Valve’s PC Gaming Pioneering
The rise of the PC gaming corporation known as Valve.
• What do you know about Valve/Steam?
• Do you use Steam to play PC games?
• How did Steam/Valve become so successful?
• What are Valve’s major innovations?
• How has Valve/Steam surpassed Microsoft, Epic Games,
EA, Game Stop, etc. as a PC Game Store Front?
Valve’s PC Gaming Pioneering
• Valve is now not only the primary innovator of
the industry, but also the dominating force in the
industry.
• Valve & Steam are private. So, we do not know
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’s Foundation ( in 1996)
• 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.
Gabe Newall
The Pioneering Days of Valve
Analyzing Valve’s history
• Valve started out as simply a videogame
developer for PCs.
• Could this have led to strategic advantages as
they began to service other developers?
• Their first entry was the FPS game Half-Life
(1998) which had resounding success and
even today and is marked as genre-defining.
• https://www.youtube.com/watch?v=JoV9o6b91
Sc
The Pioneering Days of Valve
•The introduction of Steam
•It was in 2002, during the development of Half
Life 2 (2000-2004), that Valve would start to
create the online digital store called Steam.
Valve & Steam
• Steam was released in September of 2003.
• We now know Steam as a very prominent online videogame publisher
that many people use it to play their favorite videogames on
computers.
• However, Steam was created for the purpose of giving Valve more
control over their Intellectual Property and allow Valve to more easily
update multiplayer games without disrupting their player base.
• For example, 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.
• How much would you value automatic patch implementation versus 2-day
interruptions of game play?
The Pioneering Days of Valve
• Valve was also often frustrated with 3rd party publishers
which would interfere with their videogame
development. Thus, they 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).
The Pioneering Days of Valve
• 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
rather (they can try it) than by 3rd party publishers.
This is intern increases the number of games released.
Valve & Steam
• Initially, Steam was only for Valve games, but eventually it
began publishing third party games in their online store.
Valve would take a 30% cut from sales, and this led the
unique position Valve has today in the PC Gaming Market.
Valve’s success was now driven by the PC gaming market.
•So, for every game you buy on steam the developer
gets 70% & Valve gets 30%. In contrast, Epic awards
88% to the developer. Why can Steam charge
more?
The Pioneering Days of Valve
Analyzing Valve’s history (continued)
• From here Valve would pick up developers
who happened to make good mods
(modifications) and enlist them to make
more official versions under Valve’s banner.
• Was being a player in the game modification
trends beneficial to Valve?
• 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
Valve & Steam
•Additionally, Steam allowed Valve to
monitor piracy and deal with cheating in
their online games.
• How do you feel when you competed against others
with advantages derived from cheating?
Valve & Steam
• It was only through the natural progression of Steam did Valve start
becoming fully integrated into PC gaming as Steam eventually started
inviting third-party publishers to use Steam as a medium to sell their
game. Before this, Steam was not a storefront but simply a convenient
way for Valve to handle their games.
• Initially, for individual developers Valve would have to be the publisher
for their games since Valve had the sole access to steam’s database and
engine.
• However, 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).
• As a game developer, would this inspire you to create more games?
Steam
Store
https://www.youtube.com/watch
?v=pvOqbOIbAL0
Valve & Steam
• 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.
The Steam Marketplace
• 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).
The Steam Marketplace
•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 continues to innovate in both large as
well as small ways.
Valve’s VR Game for Half Life
• 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).
• Should Provide VR access to Steam’s 200 games, but some will be much
better suited for VR than others.
• https://www.half-life.com/en/alyx/
• https://www.youtube.com/watch?v=f1SwlsZMUWE
Apple AR: Vision Pro
• https://www.apple.com/augmented-reality/
Apple AR: Apple Glasses
• https://www.youtube.com/watch?v=DxvcB
Xef6p4
Omni One
• https://www.youtube.com/watch?v=99OuoNGKNqM
Meta
•VR Headsets
•Meta Quest Pro: $999.99 USD
•Meta Quest 3: $499.99 USD
Meta
Jan 19, 2024 — Meta is stockpiling
nearly $9 billion worth of Nvidia chips
Nvidia chips are the main chip
necessary to do AI.
Conclusions
• Revolutionary Games
• Relentless Innovation (in multiple business areas)
• Integrated Systems (Playing Games, Buying Games,
Trading Items, etc.)
• Loss Leader Strategies (increasing site traffic)
• Ease of Use (for customers, game developers, etc.)
• Favorable publishing conditions for game developers
• The Marketplace Leader for the sale of PC Games Online
• A One-Stop-Shop.
Additional Support Material
• https://www.rockpapershotgun.com/valve-explain-why-steams-front-page-showsthe-games-it-shows
• https://store.steampowered.com/app/440/Team_Fortress_2/
• https://en.wikipedia.org/wiki/Valve_Corporation
• https://www.shacknews.com/article/84088/report-37-of-steam-games-are-neverplayed
• https://bettermarketing.pub/how-valve-makes-billions-in-passive-incomef0372e8693d2
• https://steamcommunity.com/discussions/forum/0/496880503076725668/
• https://www.feedough.com/how-does-steam-work-steam-business-model/
• https://www.cnn.com/cnn-underscored/reviews/valveindex#:~:text=Compared%20to%20other%20wired%20headsets,for%20high%2Dend
%20PC%20gaming.&text=If%20you%20have%20the%20budget,VR%20headset%20y
ou%20can%20buy.
• https://www.pcgamer.com/half-life-alyx-review/
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).
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:
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.
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?
2. What are Valve’s major innovations?
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?
4. Why can Steam take a higher percentage of the revenues from developers for the same
game versus other store fronts?
5. How critical will VR game integration be to Steam’s future?
Support Material:
1. https://www.rockpapershotgun.com/valve-explain-why-steams-front-page-shows-thegames-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-neverplayed
5. https://bettermarketing.pub/how-valve-makes-billions-in-passive-incomef0372e8693d2
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/valveindex#:~:text=Compared%20to%20other%20wired%20headsets,for%20high%2Dend%2
0PC%20gaming.&text=If%20you%20have%20the%20budget,VR%20headset%20you%20
can%20buy.
9. https://www.pcgamer.com/half-life-alyx-review/
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