E-Business
Valve Corporation and Steam
Chédiny Clément
International Business School 5

Content Summary

Executive summary: 3

Introduction: 5 Company background: 6 Innovative strategy: 8 Business processes: 10 Business model: 11 Technologies adopted: 15 Conclusion: 17 Sources: 18

Executive summary:

It is clearly going to be “cliché”, but as most part of guys, I like Video Games. Being a soldier, killing the bad guys, or being the new star of European soccer fields scoring in the final of the UEFA Champions League, every men “normally” constituted has dreamed at least once to be in that situation, and video games can procure that kind of excitement.
This is the reason why I choose to make my final e-business assignment on video games.
Concerning my choice for the company, for me it was obvious to choose Steam. In my point of view, they have been the precursor of many things in e-business, or at least they were one of the first that used “e-novations”.
Through the years, they have succeeded in being one of the most important company in this sector.
Many factors have to be pointed out.
First, the fact that they have created one of the best games ever made which is Half-Life. It allows them to have a world-wide recognition.
Secondly, the Valve platforms, with its large numbre of games available, the exchange of data and information between players and users, have made them the first online retailer for video games.
But Steam is not only benefic for players and users. It is also a way for small companies, small producers and developers to launch their game. The process is simple, quick, and less expensive than other distribution channel. In effect, they don’t have to produced CDs, they don’t have the transportation costs to pay, they don’t have the same taxes and they enjoy the Steam’s recognition being on their platform.
To be always on top and keep this advantage against their competitors, Valve is always trying to be one of the first using new technologies. Cloud computing is the perfect example.
But listening to the consumer is also important for them. This is why they are now openings their range of product allowing non video games software to be present on the platform as the users asked it.
Through this assignment I try to describe the Business model of Valve and show how they succeed in this rough sector, always evolving, with rough competitors such as Electronic Arts, and I will finished it by talking about possible evolutions of the company and the market.

Introduction:

According to Anita Frazier (2012) “when the industry started it was all about, games that were sold were made for consumers characterized as hardcore gamer, like a young man or a teenager, sitting in his parents basements, playing games for hours on in”, but now it has changed and “we have more casual gamers, that plays during 10 or 15 minutes, and it has changed the way that games are distributed. It used to be all about what was sold on retail, but now games are digitally downloaded, you can play on your smartphone on your computer on social network game, they are all kinds of ways that the consumer can game and that are gaming.”
This described perfectly the new situation and what it is actually.
Touching and having more targets, this is the new trend for video games. For example, the new PC game, “League of Legends” created by Riot games, which is only playable online, and which has already attracted 70 million players, 32 million active users during a month. It has become in only 2 years the most played Free 2 Play game.
It the very beginning I wanted to make on this new game and the Riot company, but I thought there was not enough innovation and it doesn’t have enough specificity. Has a strong player and user of steam, it is naturally that I decided to make my assignment on it.
Through this assignment I will analyse and make a study on the company’s back ground, on what is realy innovative in Steam, but also on what is their business process and model an in a conclusion, I will talked about some future trends for their market.

Company background:

Valve Corporation a computer game development company was founded in 1996 by Gabe Newell and Mike Harrigton. Both of them were former Microsoft employees. Rapidly, they knew the success through the “Half-Life” game which received about 50 Game of the Year Award, but also thanks to other famous games such as Team Fortress, Portal or Left 4 Dead.

It’s in 2002, that “Game Developer's Conference in San Jose, California, Newell, the founder and managing director of Valve Software, formally announced Steam, a method for buying and downloading games online” (Case, L. (2002). Valve Steams Ahead. Computer Gaming World, (2515), 38).
Nowadays, Steam is considered as “the leading platform for PC and Mac games and digital entertainment, serving over 1500 games to over 35 million active users worldwide” (CA-GamersFirst-APB,2011).
This success is due I think, because of the recognition of Valve. In effect, at the very beginning, consumers can only buy Half-life, Left 4 Dead, Portal and team Fortress, and the biggest success of valve Counter Strike, which is played by thousands of players.

This allowed steam to create a real community inside it and around the different games.
The large number of games shows that the business model of steam is a real success. The number of games available on steam has increased rapidly, and more and more people choose this way of purchase than the classic one. But even if this is increasing, the online purchase still fares away behind the classic retail discs market.
This allows Valve to dominate the digital sales channel since 2003. Nowadays, with the lack of competition, Steam reaches the 80% of market share.
But larger companies are starting to understand that digital sales are becoming important. As we can see for the video on demand. People prefer buying the use of the product than the product itself. This why competition is starting to come on the market, and EA developed its own platform named Origin. But they still have some delay looking to Valve and steam.
They are only present on windows and Mac OSX whereas Steam as a major advantage is adapted to several platforms, as Microsoft Windows, Mac, Sony Playstation 3, Apple IOS and Android which allows them to reach more people, because is not restricted to one specific games console, moreover, with only 21 publisher partnership compared to the 50 that Valve has created they still really fare away from Steam. but the major point of difference, is the number of games they offers to the consumer. Steam sales more than 1 800 games against only 100 for Electronic Arts. This is mainly due to the fact that Electronic Arts sells only their games, so even if they produced a lot of games for different kinds of targets this is not enough to touch the maximum of customers.

In 2011, the total revenues of Valve Corp. are about $1.44 billion, which makes it the second most important actor of this sector just behind Electronic Arts which have $3.87 billion.

Innovative strategy:
But clearly what Steam can offer you!?
As I said previously, Steam is 50 major publisher partnerships, which offers you 1800 different games that you can play in almost all the different platforms existing nowadays.
40 million people are registered and have an account at steam.
We can say that Steam, it’s a kind of cloud computing for games. The installation of steam is free. You downloaded it on internet and install it on your computer or game console and you have access to many things.
The main point of steam is that you have a direct access to a lot of games. The consumer doesn’t need to go on the street find its game store, expecting that they still have the game in stock, because in general for games such as Call of Duty or Fifa, the interest of consumer is such important that all the products are sell the first day. With Steam you don’t have this problem, you just have to stay home, order it and pay it through the Steam interface. The large range of product you can find, allows them to target many different kind of customers.
Steam is also a huge community. 40 million people are registered on steam. You can creates groups, you can form teams, chat with people. You can also create a group of friends, which allows you when you want to join them and their party and play with them. The interaction is a key issue for Steam. They have done everything possible to make people talk with each other. This is why they have reached an agreement with the program Skype and create a partnership, in aim to make communications between players much easier. They are using the Skype’s SILK Codec since last year.
But Steam and communities is not only about video games. You can also find groups where people exchange their opinion about things of life, where they can post concept art, announce news…

As I said just before, Steam, is kind of the cloud computing for video games. I can say that because, once you have our account you can go on every computer you want in the world if you have downloaded Steam on it, you just have to connect you to your session and you will have access to all the things you had on your personal computer. It means, the game you’ve bought, but also all your personalized settings like your mouse, your gamepad configurations etc… And an amazing thing that makes Steam more different from its competitors is that you can also buy a gift to a friend directly from your personal account, he will received it on its own. Share with people and a mostly friend is one of the major value of Steam.
I think this part is very important for Steam, because nowadays, (as we have seen in class) cloud computing is part of this new generation of e-business, it becomes very important for people and Steam is one of the precursor of that new way of sharing. Since the very beginning, they have been working with that system and it gives them a huge advantage compared to other competitors.
And finally one of the latest characteristic of Steam, as we talked a little at the beginning is the fact that you can have it on several platforms, like PC or Mac, or even your mobile phone and your television. With the development of new technologies such as Iphone or Ipad, Steam had to follows the trend. This is why they are always trying to improve things, and as an example, recently they are trying to adapt Steam to Linux and make bigger their possible targets.

Business processes:
To reach this perfection, Valve had to create a good synergy between lots of different parties. At the very beginning, it was very easy, because only Valve’s games were sold through Steam. Nowadays, the business process is divided in three parts. We have got on one hand Valve Games, which is in charge of the development of games such as Half-Life, Portal, Team Fortress… On another hand we have got the Social Entertainment Platform,which Steam and that allows consumers to benefits of a lot of games and a huge community. And finally there is the technological part, which is “Source”. “Source” is their game engine which allows them to create those famous games. Actually, Source is considered as the most powerful, comprehensive and flexible game development environment.
But Valve is also acting in B 2 B sector.
In effect, Valve, through Steam is able to sell other game’s companies, and this is not the only situation in which they will work with companies like Cybercafe.
In aim to be highly productive with those companies, Valve is divided in 4 sections.
The first one is called Steam Works. It is dedicated to companies that want to sell their games on the Steam’s Platform offering them a lot of services.
The second one is Steam Distribution, which as indicated is in charge of the whole distribution of the products.
The third one is called Source. Source is in fact a website, where you can find “The Source” engine, which is used to support Valve’s games. The engine is available for other developers. They in fact sell their knowledge to other companies. This is mainly done for small companies, small producers, which have a lack of resources or knowledge is this sector. And with the law prices of the Steam’s Platform, Steam is a really good thing to develop, produce and sell its product. But don’t be blind, doing this, Valve has a huge control on the game, because they are at the beginning (the creation and production of the game) and at the end also (with the Steam’s platform on which the sell the product).
And finally, the last section, Valve official Cybercafe is dedicated to Cybercafe as indicated in the name provides companies a large range of the most popular games, additional promotional materials and marketing support, but they can also support tournaments created by the Cybercafe and they finally provides a specific forum made for the café.
Once they have agreed with the producers of the game that it will be present on Steam, it is up to the consumer to buy the product or not. And it is here that the chain ends, with the final consumer, which can buy the games he wants, having access to a large range of product, a strong community of gamers and others non-gaming software with the famous cloud computing.

Business model:

In 2010, “Valve’s Steam service took almost $1billion in revenue and has quickly approaching the size of some declining retail markets” (VGCharte Ltd, 2010).
In effect, as we have seen previously a lot of game producer companies are attracted by Steam, and this for many reasons. The first one is that there is no production cost. I mean, that they don’t have to produce all the CDs and all the supports they need to sale their products in physical stores. In addition, they don’t have any transportation costs, because again there is no product to deliver to stores and everything happen through computers.
And another major point for game producers is that they don’t need to make a lot of advertising. They can use the brand image of Valve & Steam, which have a worldwide recognition, but I think the most efficient advertising for those companies is the word of mouth, made by users of the game. People can share with their friends all their games information’s, all their results, they also can post screenshots. They have notification when a friend buys a game, and this is very important because information goes very quickly with internet which is a great benefit for producers. And if game producers can reduce their expenses, this means for Valve & Steam that they can buy their products shipper than the physical retailers. And is they buy it shipper, this means that they can sells games shipper than the physical retailers do. But the most surprising point in all of that is that Steam succeeds in having a margin more than 2 times superior to the physical retailers. The percentage is about 70% (Tom’s Hardware, 2010), because they are excluding intermediaries.
An anti-cheat system has also been integrated in the platform, in aim to avoid cheaters and make that the game plays as the company was hopping to.

But Steam is also a lot of advantages for consumers which allow them to reach more people.
As I said previously, people don’t have to go on the street and the stores to find the latest and best games. They can stay at home, look for the game they are looking for, without the bad surprise we all had, when the store tells you that they don’t have the game in stock and that you waked up for nothing…
Buying games on internet at home is not the only major point that leads the customer to buy through Steam.
The community aspect is very important. Thanks to the internet, now people can play with their friends from their home. They can share their results, see at which game they are playing and join them during the party.
Forums are also important and people can share their ideas, the things they liked or disliked, the new trends, the new games…

This is a good way to make promotion for games. If you see that a friend is playing a game every day for 3 weeks, and that you don’t have this game, you will think of buying this game, or if you have good comments on a forum concerning a game that you don’t have, you will do the same and buy this game. It is the “word of mouth” of the internet. We could call it “the word of mouse”.
Other services are making Steam as a very interesting retailer for customers. Like in 2011 when they integrated the codec SILK produced by Skype. It facilitates communication between gamers. Like during online tournaments, people from the same team can talk with their teammate.
And Last but not Least, point is that they are always making promotions. Every time you go on the Steam store, you can find discounts as seen in the picture below:

More of that in general discounts are very attractive, and it pushes the consumer to makes impulse purchases. When you find the game (as shown on the picture) the game Grand Theft Auto: Vice City which is very famous all around the world at 2.49€, you are more or less obliged to buy it.

Thanks to that, in 2010, Steam earned $910 million of revenues with 85 million units sold, which was representing more or less 80% of the total PC digital market. (Pete Davison, Computerworld, 21.03.2011).

Technologies adopted:

I think Steam is a combination of different technologies.
The main one is the use of the cloud computing. According to Dr. Ellas A. Hadzillas (2012), “cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources, that can be rapidly provisioned and released with minimal management effort or service provider interaction.” This is exactly what happened with Steam. No matters where you are, if you have a computer and you have installed Steam, you will find all the information you have registered previously and all the games you bought.
I already talked about the Skype technology SILK which allowed people to talk between each other’s.
As all online retailers, they are different ways to pay your product.
You have got the easiest ones, paying with “carte bleue”, Visa, Master Card, American express, Dicover card or JCB card. But you will find also other ways, to pay. You can pay with “WebMoney”, “Paysafecard”, “clickandbuy” or “moneybookers”. All those kinds of payments are accounts that you have created on their own websites. On those accounts you deposit money and through Steam when you want to pay, you are redirected to those secure accounts where you can finally pay. And this is very important for the loyalty of the consumer. If he knows that he is not going to have any problems, he will certainly come back and buy you other products.
In my point of view, the newest and maybe the smartest things that Steam have done recently is creating the Steam Greenlight.

Steam Greenlight, is more or less like the crowdfounding already existing for future singer, but without the financial aspect. They allow developers and publisher, to put threw Steam Greenlight information about their game. Following this, the Steam users can vote and the one who gets the most part of votes have the right to see its game on Steam. This interaction with the consumers has always been important with the community and became over more important with this adaptation of crowdfounding.
“The 40 million gamers frequenting Steam are interested in more than playing games. They have told us they would like to have more of their software on Steam, so this expansion is in response to those customer requests” says Mark Richardson an employee of Valve Corporation. Here Mr. Richardson talks about the fact that Valve incorporated, in Steam, non-gaming products, as we can see on the picture.

They are opening the range of Businesses customers, opening the door to non-gaming developers which is very important for their future.

Conclusion:

I maybe haven’t approach all the points that characterized Valve Corporation, because is such a huge company that it is hard to talk about everything, but I am sure to have explained the major one.
If Valve Corp. and Steam, has succeeded in few years of being the most important computer games retailer, it is because of the combination of multiple tools and innovation.
Thanks to the synergy created between those tools, in 2010, they reached an incredible $910 million dollars of revenues, representing the 80% of the PC digital market.
But Steam, have to be careful. In effect, recently, in July 2012, Gabe Newell, the founder of valve and steam, announced that Steam was going to be developed for Linux. And the reason to this was because as he says: “working with a single distribution is critical when you are experimenting”. And with the launch of windows 8 adaptable with Xbox 360, the competition will be harder for Steam.
This kind of market is always evolving and for this reason they have to be aware of the new technologies as they have done with the cloud computing and crouwdfounding.
Listening to their customers has always been a major point for them, as we have seen with Steam Greenlight, they are always giving them more importance which is very benefic to them. Sources: * PR, N. (2011,December 6). APB Reloaded Joins Steam Network. PR Newswire US. * Case, L. (2002). Valve Steams Ahead. Computer Gaming World, (2515), 38 * Mlot, S. (2012). Valve: Steam for Linux Fueled by Windows 8 'Catastrophe'. PC Magazine, 1. * Lovell, N. (2010), The online games market was worth $15 billion in 2009, and will grow to $20 billion in 2010. Games brief. http://www.gamesbrief.com. * Brightman, J. (2010), Online Game Market to Surpass $15 Billion This Year, says Analyst. Industry gamers. http://www.industrygamers.com * Prigg, M. (2012), FIFA 13 fans hit out at 'rushed' game as freezes and server problems plague world's best selling sports title. Dailymail. http://www.dailymail.co.uk. * Valve.(2012), Valve launches Steam Greenlight. Valve News. http://www.valvesoftware.com * Store.steampowered.com/about/ * Valve, (2012), http://www.vavlesoftware/business/ * Davison,P (2011), Top Story: Video game Software sales top $33billion in 2010. GamePro. Computerworld. http://news.idg.no * Chartier,M (2011), Steam améliore son chat avec Skype. PC World. http://pcworld.fr * Valve, (2012), Official cyber café program. Valve Official cybercafe. https://cafe.steampowered.com * Valve, Business Solutions (2012), Welcome to Steamworks. http://www.steampowered.com/steamworks/ * Parrish,K. (2012), Blizzard and Valve at War Over Dota Name. Tom’s hardware. http://www.tomshardware.com * * Parrish, K (2012), It’s Official: Steam Expanding Beyond Gaming. Tom’s hardware. http://www.tomshardware.com * Rue des Joueurs, (2012), Click and Buy – Inscription, Utilisation et Conseils. http://www.ruedesjoueurs.com * Cochard, S. (2010), Le crowdfunding se décline à toutes les sauces. http://www.20minutes.fr * Steam & Game Stats, (2012) Current Steam Users. http://store.steampowered.com * Frazier,A (2012), Video Games Market Research. https://www.npd.com * Gaudiosi,J (2012), New Reports Forecast Global Video Game Industry Will Reach $82 Billion By 2017. http://www.forbes.com