In the internet age, a lot of money is spent on intangibles. An entire library’s worth of books can exist inside your handheld reading device. Your album collection likely lives on your phone or computer, or you pay for a subscription to a streaming service. Rather than taking up shelves in your home, these things now occupy files on a hard drive. This is especially true of video games — particularly PC games.
According to a 2017 Entertainment Software Association report, 65 percent of American households have at least one member who regularly plays video games. And of the most frequent gamers, according to the 2016 report, 56 percent play those games on their PC. Once upon a time, gamers had to buy games on physical discs, load them into their computers, and limit their playing to whichever game was currently in their disc drive.
Today, 74 percent of games are downloaded digitally through e-commerce platforms.
Games Powered by Steam
In 2003, Steam was created by Valve (get it?), a Seattle-area-based game developer, as a way to control patches (free updates that fix in-game bugs that were discovered after production) for its game “Counter Strike.” By 2005, Steam was selling games from other developers and was well on its way to becoming the massive e-commerce platform it is today.
And when I say massive, I’m talking approximately $3.5 billion in video game sales in 2016. I’m talking over 125 million users total as of April 2016. I’m talking 27 million new users since January 2016. I’m talking between 50 percent and 70 percent of all PC game downloads.
Steam is not only dominating, but growing.
So it’s interesting that a company that is said to take 30 percent of each sale on its wildly successful e-commerce platform is even still making games. Valve recently announced that it was making a new game — its first since the follow up to “Defense of the Ancients,” 2013’s (free-to-play, I might add) “Dota 2.” Few details have been announced, but given that the game is an online card game based on “Dota 2,” it will likely also be free to play. It will probably mimic the model of Blizzard’s wildly successful Hearthstone, a free-to-play online card game based on “World of Warcraft.”
It’s a smart move, considering that the game with the most players at any given time on Steam is “Dota 2.” At its peak, 1.2 million players were in-game simultaneously. Recently, Valve held an international “Dota 2” tournament in Seattle that hosted 18 teams from all over the world. The winning team took home almost $11 million out of a prize pool of more than $24 million.
I reiterate, this game is free to play. Any and all money spent in the game is for cosmetic items that are in no way a requirement to play or win the game. One blogger recently confessed to spending more than $700 in “Dota 2” since its release in 2013. Again, this game is free!
Harder, Better, Faster, Stronger
Despite its cushy position in the marketplace, Valve is not content to rest on the laurels of its marketshare mountain. Not only is Valve creating software but also hardware. A large portion of gamers are still using consoles, like the PlayStation 4 or Xbox One, so Valve is clearly trying to tap into that market with their Steam Machines, Steam Link and Steam Controller, which all promise to bring PC gaming to your living room TV.
This sounds great on paper, but the reception has been tepid at best, to the tune of fewer than 500,000 machines being sold as of June 2016.
The next frontier, however, is virtual reality (VR). Valve has paired with HTC to create the Vive, a PC-based VR platform that runs games purchased from Steam. As of March of this year, it’s estimated that 420,000 Vives were sold in 2016 — nearly twice that of its biggest competitor, the Oculus Rift — out of a total of 6.3 million VR devices (many of which are specifically for mobile devices).
While these are not staggering numbers by any means, they are indicators of a viable VR market. There are currently more than 1,400 games on Steam tagged with VR (meaning they’re either exclusively for VR or are VR-compatible), so developers are clearly on board.
I know I’m making it sound like Valve is a company that is doing everything right. But there are consequences to one company wielding that much control of a market. For instance, Steam only just added a refund feature in 2015.
That doesn’t exactly create an ideal experience as a consumer.
Recently, controversy has cropped up over the replacement of Steam Greenlight with Steam Direct. Steam Greenlight was a platform that allowed Steam developers to propose games to the user base, and the users would vote on whether they wanted the game to be sold on Steam. Games that received enough votes would be made available for sale. Steam Direct, however, is a platform that lets developers simply post games to be sold with little to no oversight from Steam.
Eventually so many games were being posted on Steam Greenlight that the company could not keep up, so the requirements to be featured eventually became loose enough that the store was glutted with poor-quality and unfinished games. This is what made the announcement of Steam Direct, which has no oversight, concerning. Both users and high-quality developers fear that customers who have come to expect a curated experience from Steam will suddenly be confronted with a free-for-all. If that happens, then it will become much more difficult to sort high-quality games from low-quality ones.
Valve is not a publicly traded company, so it’s impossible to say exactly how much they are making from both tangibles and intangibles. As a result, it’s also impossible to say exactly what their market share is.
What we can infer is that e-commerce and innovation are key factors in Valve’s success. Presumably, the success of Steam and “Dota 2” have allowed them to do things such as release its Source 2 engine for free for developers to use to create their own games, which is arguably good for everyone. If a high-quality engine is free, developers can spend less time and money buying or developing an engine and more time creating a high-quality game — which will eventually be sold on Steam.
The market may currently be powered by Steam but, if history is any indication, that can only last so long.
The Steam team uses Source 2 as its in-house game engine, but what are some of the software tools Valve and Steam use in their day-to-day business? We pulled required skills from job listings to get a better understanding.