245: Steam: A Monopoly In the Making

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Steam: A Monopoly In the Making

Valve's Steam service has made it easier than ever to buy and sell PC games. But behind the ridiculous sales and Streamlined developer tools lurk some potentially anti-competitive practices. M.S. Smith examines how Valve could become the Microsoft of digital distribution if it's not careful.

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I believe Brad Wardell has also stated while He likes steam and frequently uses it, he doesn't want it to be the only digital distribution service out there, as monopolies are bad. Perhaps that is the reaosn his company created impulse and their version of steamworks, GOO which is not tied to any platform

Well, the way I see it, Valve don't really price people out of the market, they just offer a better service. Hell, Steam is pretty expensive most of the time, but it offers a better interface, and unlike EA, actually keeps your games once you've bought them, rather than requiring insurance for something you've already paid for.

That said, it's not infallible. I can certainly see the situation you're hypothesizing happen, but I think it would be a definite worst case scenario.

However, given Steams record so far, we can afford to give them the benefit of the doubt. I'll keep a close eye on this though.

The article raises a good point, but I still think the main problem is that competitors don't seem to be really be offering anything better.

I mean, the sales on Direct2Drive and Impulse Driven are normally no where near as good, so I don't tend to check them very often.

The indie scene is what mainly keeps me on Steam though, as its a good distributor of them, and if the other companies tried harder in that area, they could definately deter my interest.

EDIT: I also like Good Old Games as well, as their prices are quite reasonable for the content they distribute.
(PC classics on the cheap, sometimes modified to work on vista straight away, including nice little extras like OSTs, manuals, art files, avatars, maps ect...)

Why not create a committee to derive a standard, with accompanying API, for digital distribution management that can provide the ability for multiple back-end digital distribution channels to provide content. In this way software teams need only interface to one standard compliant plug-in but can easily include multiple distribution channels such as Steam and others for their content. Everybody wins especially the consumers in this case. The daunting task would be to get all the big players (Valve, Sony, Microsoft, Google, Apple ...) on board which is easier said than done but as M. S. Smith said Valve is in a position that can possible lead this. In any case I'm realistic and the chances of this are slim (if next to none IMO)

I think these systems as they become increasingly intrusive will continue to provide reasons to avoid PC gaming at all costs. Console games are not a whole lot better, but at least if your console gets bricked you don't lose all of your personal data, essays, work info etc.

I whole heartedly agree with Capacollo. However I can just see someone pitching the idea to a big, American executive now: "That sounds like Socialism!" he would say. Bah.

Personally I have faith in people as a whole. In the end they're going to use what they think is is best. The only problem I have with steam is the app itself. I had a friend with NO internet that bought the orange box when it first came out but he didn't have internet. He lived out in the middle of nowhere and couldn't afford to pay for internet so he just didn't get to play. There are still bugs in steam today that I noticed when I first registered to play cs 1.6 when it came out. I remember then being irritated because it was the only way to get it, but I REALLY wanted my famas, galil and tactical shield. That, and, I was still playing in leagues then, so I pretty much had no choice.

Oh I have no doubt steam will be a monopoly. The moment it gets on the mac, nothing will be able to compete

Steam own something like 70% of the market, with impulse having something around 14% IIRC.. so yes, they basically have a working monopoly.

.. and this one of the reason why the more it goes, the more i use Impulse.

Funny you mention Microsoft. Valve IS fueled by MS money. Gabe Newell is a Microsoft millionaire.

And this is what happens when you are the only company with huge resources in one area of business. Stardock/GoG/D2D have their own stronghold but compared to Valve they missing Gabe Newell deep pockets of cash to lure publishers/developers into his house. SEGA is already a 100% Steam based publisher in the PC. Pretty much every major release comes with Steamworks.

the best model to compete is the GoG model

I disagree about Intel having a totally squeaky clean image. There was a bit of an anti-competative case to do with the $100 laptop where they went and undercut what was effectively a non-profit organisation.

The thing with Steam is, its just works so much better. When someone makes a better digital distriubtion system then I'll have a proper look at it. Its not like games on steam are that cheap anyway, often they're more expencive then real world shops in the UK, or the mail order companies lie Amazon and Play.

Though I have actived products on Steam before (where you don't have to, but you can put the key in to link it to your account and have it auto-update, etc) and it works great, patching is one of the more annoying things in PC gaming and Steam removes this issue.

This is one of those topics that annoys the begeezes out of me.

There are two sides of the coin here, people need to think of Steam as a platform, not simply a digital distribution model, because that's what it is, a platform.

No one complains about the Xbox 360 being a closed platform, where Microsoft has absolute control. Should I be allowed to run software on my 360 to allow me to play PS3 games on it? Of course not, that's absurd. But we're quick to condemn anything that's even remotely similar on the PC. No one ever complains about Microsoft having a monopoly over Xbox 360 or Sony having one over Playstation.

Here is the simple reality of it. If you have problems with Steam, don't use it. But keep in mind that Steam is no different than any console, they're all tightly controlled closed platforms.

Also, I cannot allow arguments that suggest people don't have the internet, or can't afford the internet. If you can't afford internet, then you can't afford a gaming PC nor the games on it. We live in 2010, if you don't have the internet that's your problem and not the publisher's.

Developers and publishers have the right to want to protect their investments and in this case it's the games the produce. They spend millions of dollars to produce these games and they should want to be able to make a return on that investment so that they can keep making games. I cannot understand why a product like Steam could be looked at so negatively. It has yet to do anything to truly wrong its customers. Where else can you get quality games on sale at ridiculously low prices? You can't, not even Impluse can match Steam's weekend sale prices.

Steam provides publishers with a acceptable method of DRM while also providing services akin to Xbox Live, so IMO it's a win/win.

I see there's nothing to discuss really. Valve practically already has a monopoly, and we certainly don't want that to stick until the point where digital distribution becomes a real mass market.
Then again, if I remember my economics classes correctly, a monopoly is in itself not a bad thing, what matters is what kind of market the monopolist dominates. And one of the very important distinctions to me made here is that digital distribution is still an emerging market, in the sense that it's a technology in-development that still needs to get a foothold of the consumer base. And it seems that for that to happen, you usually need a monopolist doing their thing. What happens after the market is established - well, that's an entirely different story. But we better be on the lookout. Because...

Furburt:
Well, the way I see it, Valve don't really price people out of the market, they just offer a better service.

.. well, in a way they do. I think it's called cross-subsidization: They're offering the Steamworks API, which has all kind of benefits for publishers and developers, for free - which they can, because their digital distribution business drives in the cash. Naturally, publishers jump on to it, bringing their customers with them - and now you all these customers have an account with Steam. So, the next time they want to buy a game online, which platform might they turn to? Heck, I guess it's the one that's already on their system and which they have an account for.

Monopoly does not mean a Big company.
Monopoly means the only company servicing a field.

It seems that the author just has a chip on his shoulder against steam as the article is basically just a rant against them.

There is tons of competition nibbling at the heels of Steam. And they know it. That's why they're having awesome sales and coming out with a new client and pushing their Cloud. Just check out GamersGate and their Massive Atari sale this week. As for the whole "on noes steam offers developers tools so we can't sell their games because they're tied to a meta service" argument, well Stardock has their Impulse::Reactor which binds games to their service, Microsoft has Games For Windows Live, UBIsoft has their own community stuff (now with DRM!), so does Blizzard with battle.net and EA (check out the sims).

If M$ decides to open their own marketplace (see Xbox marketplace.. now imagine that on your pc when you buy it) THEN we'll all have bigger things to worry about someone becoming a monopoly.

Competition for digital distribution is alive and very healthy on the PC. We're just starting to see games get tied down to a meta provider and the old school distributors who are behind are starting to be vocal (sorry d2d is DoA). At this point it's practically impossible to deny that every PC game will require a hook into a DLC/Community/Matchmaker Meta service within the next 5 years, and the handful of providers for these will be hugely successful. And Steam is the first one that isn't owned directly by a MegaPublisher. Which is good for smaller dev teams who don't have $1mil to toss at infrastructure.

Compare to the way that console sales can monopolize an IP or attempt to be anti-competitive. Obviously all consoles have their exclusive titles, but third party game exclusivity is less common. In general Nintendo, Sony and Microsoft cannot force a third party developer to make a title exclusive to their console. We all saw the kick in the pants Sony received when Square Enix announce that FF XIII was to be released on the Xbox 360 as well.
So by comparison, Steam's current setup is far more competitive than what the console war seems to be (and the console wars are EXTREMELY competitive). This does seem like a bad portent, but until other digital distributors can come up with a system that is legitimately competitive I doubt we will see any anti-trust suits.

I despise steam, it is everything a digital delivery service should be and should NOT be.
It delivers, it integrates into your games like a virus onto your PC and it keeps bugging you like one. start your game and steam activates and connects to the net, but when you quit your game, steam stays active and thinks it's fun to throw some adverts in your face while your at it. I dont know about you, but i usually buy stuff to get rid of advertising. Not get some extra. Not to mention, what happens when your internet connection goes down or resets itself? So much for playing your games off-line. And what if the steam-servers go down?
People complained about Ubisoft with their protection scheme for AC2, but steam basically does the same. Steam just throws in a lot of extra 'fan-sevice' to hide that fact.
I even feel confident enough to say that steam makes developers lazy: the fact that patches can easily be distributed will lead to games being marketed even before they are fleshed out enough. Just look at AvP, the MP part of the game. Dedicated servers are still not working properly for that one.
I wont deny Steam can be a lot of fun, it's easy to use after all. but it takes away my control of the games i like to play and it fills in the things i am used to providing myself. Setting an extra load of firewall rules on my homenetwork, just because games/steam wont run properly the second a friend will plug himself into my network.
As for cheap games, well i also found it the other way around: Empire total war for instance: steam asks 50€ for it, while shops in my country sell it for half. Not to mention, it comes without steam, in a nice cakebox and the necessary internet connection.
Steam and steamlike services have the future, but instead of giving users more control over their games i feel that they are taking it away from us, more and more and all for $$.

I guess this article is mostly relevant in the US.
Here in EU, or at least Sweden, Steam rarely have affordable prices compared to what you get in stores, except for on occasional sales. Very often they set the same number at the price tag for US and EU, even though US$ and € are not equal in worth 20€ is more expensive than $20. Steam has gotten better at this recently, but it still seems to happen, and very rarely do they lower prices of older products.
I have bought stuff on steam occasionally, but it's very rare I see something a lot cheaper than if I had bought a physical copy at a store.
A couple of examples, I bought Borderlands in store for 40€ a week after it was released. 5 months later, and it's still priced 49.99€ on Steam.
Section 8 is priced between 10-20€ in stores, and 39.99€ on Steam, Red Alert 3 cost well below 10€ in most stores, but is priced 24.99€ on Steam.

OK, those were 3rd party titles, so maybe Valve/Steam has no saying on what is reasonable pricing for those, let's look at some Valve titles instead, once you buy the physical copies you still get all the steam benefits from those, since they are activated on steam:
The Orange Box is priced 29.99€ on Steam, and cost about 20-25€ in stores,
Half-Life 1 is priced 9.99€ on Steam, that's what the entire Half-Life Anthology cost in stores (14.99€ on Steam), and then they still charge separately for Team Fortress Classic that came free with the physical half-life copy 10 years ago.
Left 4 Dead (1) is still priced at 29.99€, while it's usually priced 15-20€ even in more expensive stores.

Am I really wrong in thinking that it should be cheaper to buy a digital copy of a game than a physical copy?

edit: I must say I love GOG.com though, there I get to pay the same amount as americans, and don't have to be connected to the internet when playing the games I've bought - but their library isn't very big at the moment.

Nice article, but this only goes for north america. In EU most of the games on impulse can't be bought. So there is only steam and direct2drive.

Steam has monopoly in EU, but it can't be sued because there is no other company for digital games selling (except direct2drive witch can't give antitrust filling and win).

One big problem: If a company can offer something that is better than all of it's competitors, and thus takes a huge chunk of the market - Is it actually fair to draw a line saying that the competitors must be entitled to a certain %?

That sounds awfully similar to the accusations of racism/sexism where divides should be driven down between demographics and not on quality of service, in other words, some of you will have to use the shitty systems because it's not fair that shitty systems can't get customers.

I'd agree that Steam needs a watchdog in case it starts bullying rivals or proselytizing to customers, but if it's the best service available, it seems tragic to hold it back because it's "too good".

fisk0:

Am I really wrong in thinking that it should be cheaper to buy a digital copy of a game than a physical copy?

It depends. If all digital games were cheaper, then there'd be no reason to produce physical ones. Monopoly again.

Brrr thats a chilling thought alright. A valid argument, but the fact that they have done nothing wrong means nothing much can be done about it right now. The goal of most companies is to become a monopoly I would imagine, I mean why wouldn't they want that.

It becomes a problem when they start to inflate prices simply because they can. Steam is expensive enough as it is, they charge the exact same amount as most of the game stores, or a lot less when they have offers up. I use em because I just dont really want to get the game from ebay.

Just a question do Steam users in the states pay the same amount for their games that others are paying relative to exchange rates? Living in Ireland I had to for out 50 euro for the latest avp game(well 49.99) which would be $68.68.

I don't think it can be a monopoly when it will always have to compete with games retailers.

I've also spoken to industry analysts on a major GAMEs company here in the UK which I CAN'T name, some of the most trusted ones too, and they informed me that most people do not want to download a game over the internet, but prefer to dip in just before or after work, or on their lunch break. If you have a shop placed in a hub or nearby workplaces, it becomes less of a hassle to pick a game up then to download one.

The problem comes with where you lay your definition of market... Cadburys have a "monopoly" on selling the product "cadburys creme egg" but that isn't, by many peoples definitions a "monopoly" as there are still many alternatives.

I tried to use the direct2drive and the gametap, direct2drive couldn't sell the games I wanted here in Brazil and gametap didn't work well with my windowx 64

The_root_of_all_evil:

It depends. If all digital games were cheaper, then there'd be no reason to produce physical ones. Monopoly again.

That depends on what they ship in the physical box. Once upon a time you used to get printed manuals and stuff in the boxes. Some games still do that, occasionally with other bonuses, like how you got a CD single with Mirror's Edge (and it only cost 10€ in stores too). Persona 4 and Titan Quest also shipped with soundtrack CD's. That's added value that I think it's worth paying a little more for (but not much, not like those limited collector's editions which cost double the price of the regular game, but a few dollars more than a digital copy).

I love Steam. I can buy a game in a brick&mortar store (Modern Warfare 2 as my most recent example), enter the serial key into Steam and now I can play that game anywhere I want and on any computer I want as long as I have an internet connection.

Blizzard has gone a similar route with the new Battle.net, I can download all my Blizzard games anytime and anywhere.

carpathic:
I think these systems as they become increasingly intrusive will continue to provide reasons to avoid PC gaming at all costs. Console games are not a whole lot better, but at least if your console gets bricked you don't lose all of your personal data, essays, work info etc.

Huh?

fisk0:

That depends on what they ship in the physical box. Once upon a time you used to get printed manuals and stuff in the boxes.

Agreed, and it's a shame that most of these have seen to drop to PDFs; but unless you're selling a reasonable quantity of physical games, then there's not much of a call for them. Look what's happened with the numerous game shops around the country where the PC section of the shops has dropped to one shelf. Physical PC games are being lost because they aren't keeping up with digital selling. Console physicals are still around because there ISN'T a system equal to Steam. (PSN, XBL don't allow for free DLC etc.)

carpathic:
I think these systems as they become increasingly intrusive will continue to provide reasons to avoid PC gaming at all costs. Console games are not a whole lot better, but at least if your console gets bricked you don't lose all of your personal data, essays, work info etc.

I'd have to echo the "huh?" on that one. If your console goes down, you lose everything on it. If my HD overheats, I can at least save some stuff, or back it out to GoogleDocs.

I think it's worth it.

Steam may form a monopoly in digital distribution, but at least it provides good service along with it. It keeps strange drm schemes at bay and provides many other benefits, which may help digital distribution gain a bigger share of the market.

Thanks to my rather shitty and unreliable ADSL internet connection, Steam and other DD systems have never been a real option for me. No broadband provider wants to shell out the resources for this area, citing low pop density and poor returns. I'm a minority, I know, but I'm certainly fighting the move to DD and net-dependent systems. And I'm getting tired of having to locate hacks to bypass such measures on software I have legitimately paid for. (But oh yeah, I'm a pirate, keep calling me that you asshats.)

Digital Distro can burn in Hell. Internet connectivity for Single-Player games can burn with it.

I forgot my point. Ah well.

Earthmonger:
Thanks to my rather shitty and unreliable ADSL internet connection, Steam and other DD systems have never been a real option for me. No broadband provider wants to shell out the resources for this area, citing low pop density and poor returns. I'm a minority, I know, but I'm certainly fighting the move to DD and net-dependent systems. And I'm getting tired of having to locate hacks to bypass such measures on software I have legitimately paid for. (But oh yeah, I'm a pirate, keep calling me that you asshats.)

Digital Distro can burn in Hell. Internet connectivity for Single-Player games can burn with it.

I forgot my point. Ah well.

Yeah, I can understand that viewpoint. My ISP is fairly unreliable, so I occasionally end up not being able to play _single player games_ because the connection is down.
I'm very interested to see what happens with many of my more recent game purchases in the future, given how seemingly unreliable Electronic Arts are, with giving up online support for games that are barely 2 years old, it will be interesting to see if there will be any legal way for me to install some of my EA games in 5 years, because they've taken down their authentication servers or something.
At least Steam has 'promised' that in the event their service goes down, they'll make sure that games you've bought through the service (at least have downloaded and installed) will get their Steam dependency patched out. EA has - to my knowledge - not made any such comments.

I find myself constantly questioning anti-competitive law in this area, I understand that competition is good and brings benefits to the customers. But I can see an imaginary point where the company offering the best possible service to customers is then accused of being anti-competitive. Anybody who has ever played Sid Meiers Alpha Centuri may rememeber a quote that appeared when you advanced a certain economic tech. It was

"Of course we'll bundle our MorganNet software with the new network nodes! Our customers expect no less of us. We have never sought to become a monopoly. Our products are simply so good that no one feels the need to compete with us."

This to me seems to descibe the Steam situation, while I dont largely partake of digital distribution because I disagree with it fundamenatly from what I read Steam offer hands down the best service. So long as they are kept in check by law, but not punished by it then maybe its companies like Direct2Drive who are wrong. If i set up a lemonade stand but couldnt turn a profit I wouldnt be suing Club lemon now would I? If you chose to provide a service you must have a competitive advantage of some description, but dont bitch and moan because somebody can do it better than you.

I never really understood the whole "Microsoft evil empire" thing. Isn't it the desire of every business to dominate its respective market?

Sjakie:
It delivers, it integrates into your games like a virus onto your PC and it keeps bugging you like one. start your game and steam activates and connects to the net, but when you quit your game, steam stays active and thinks it's fun to throw some adverts in your face while your at it. I dont know about you, but i usually buy stuff to get rid of advertising. Not get some extra. Not to mention, what happens when your internet connection goes down or resets itself? So much for playing your games off-line. And what if the steam-servers go down?

The advertisements you are seeing happen when you launch Steam, regardless of how it launches. If you just start the Steam client, it logs in and if there are any sales or new products being offered they pop up a window about it. You just click close if you don't want to see them. You're making that sound like a much bigger deal then it is. There are websites that have pop-up windows that show advertisements for their latest sales and offerings too. Just saying I think you are making a mountain out of an ant-hill.

As for what happens if your Internet connect is down or the Steam servers are down.. Well you launch the game and it runs... As long as the game has been previously authenticated, then it will launch. Now if you just installed a new game and your connection was down, it would not launch and I fully agree that would suck. Steam does have an offline mode. I use it on my laptop while on trips.

What exactly would you expect Valve to do? Undercut their business, which is already a far smaller portion of the overall market than any retail chain, in the idea of some vague future where digital distro is the norm? That's just stupid. If Valve limits themselves now just so Stardock and IGN can play catchup, that DD future may never come. Valve's in a position to try and draw purchases away from Gamestop. Direct2Drive isn't.

Response: This Article Reflects an Extremely Poor Understanding of Monopolies.

First off, you need to look at the competitors. Steam may be a large digital distributor of gaming content but it is in competition not only with digital distributors but with all distributors of content. Steam competes with Wal*Mart, Gamestop, etc. Steam is a tiny tiny tiny spec of nothingness compared to the game sales of Wal*Mart. Not only is it not a monopoly, it's really not even significant in the scheme of game distribution.

But the article posits a fear about the future. In this future Wal*Mart won't exist and most of the gamging content will be delivered through the web. Possibly. So let's look at this future.

For a monopoly to exist it has to be sustainable. Just growing big doesn't work. If a big company's competitor is small but satisfies customers better than he does, the customers will switch to the competitor and then the competitor will grow large. The reason Microsoft is a monopoly is because you can't switch, you have no options. If you want to run the hundreds of thousands of computer programs out there you have to pay the monopolist Microsoft. Why doesn't another company make a better Windows? Well, because there's a barrier to entry. The barrier to entry is that it is virtually impossible to create an OS that can run all the programs that currently run on Windows just as well as Windows. Therefore, no new competitor can emerge. The monopoly is sustainable.

Now let's turn to Steam. Where are the barriers to entry in the digital distribution market? Well, a digital product is pretty easy to create - it's not a terribly complicated program: no barrier there. It's also very easy to distribute, gaming companies are tacking on "extra" software such as DRM in their games already.

So, we see that Steam's position in the market isn't infinately sustainable at all. If Steam starts behaving in such a way that make customers want to leave it, any publisher can create a neo-Steam of their own for little capital, distribute it through their games to easily penetrate the market, and capture the value that Steam has lost.

The only reason Steam is the market leader is because there are very few companies in the market and Steam has satisfied the customer's needs the best so customers choose and stay with Steam.

Not only do I predict that Steam will in no way ever be a monopoly, but I bet we will see the opposite. I bet that the digital distribution market becomes very profitible that every publisher will force their own version of Steam onto consumers and demand they instal Ubisoft-Steam and EA-Steam and run it in the background to make the game play. All the publishers will try to create their own product and force customers to instal it and use it in the hopes of capturing a share of the money for themselves.

If only customers could be so lucky as for Steam to be a monopolist...

It's not a monopoly, there's nothing preventing Impulse or D2D from creating the same style of service which Steam offers they just choose not to, likely because while the DD market is still growing it's more cost effective to fill a niche.

There's nothing about Steam which inherently hobbles competition it just seems that the market isn't big enough for another service of the same nature to go head to head with Steam at the moment. It is possible that it might be in a grey area further down the line but there's really no way to tell if it's going to be a problem until the majority of PC purchases are DD.

More to the point I don't see how games being locked to Steam is VALVe's decision. It's the developers who decide what serial keys unlock which games where, what's preventing developers from allowing their serial keys to unlock games on any DD platform? Quite a few games already allow you to use your store bought serial to unlock your game over Steam, I suspect in the future you will be able to take any of your serials and unlock games on Steam, Impulse, D2D or whatever other services end up being popular.

To the people complaining about having to be online to use Steam: You do know about offline mode don't you? You do know that Steam stays in offline mode until you put it back to online mode even if you restart right? There's nothing stopping you from playing offline as long as you were online once to authenticate and decrypt your game. So, yeah...

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