Valve corporation

E-Business
Steam Platform

chotardpaul@gmail.com
16/12/2014

Paul Chotard BS5 1A E-Business

Table of contents

Introduction ........................................................................................ 2

Company background ......................................................................... 3

Business process ................................................................................. 4

Business model ................................................................................... 6

Innovative strategy.............................................................................. 8

Conclusion ......................................................................................... 10

Paul Chotard BS5 1A E-Business

Introduction
On-line games and their implications from business and technology perspectives

There was clearly no hesitation regarding my choice upon this topic. Because Ive always played
video games and now I see an opportunity to join a passion and my professional choices. The video
games sector and its whole environment is surfing on a tremendous wave of success and I consider
this as a major part of our future.
More precisely what retained my attention upon this topic is the online gaming platform Steam,
developed by Valve Corporation.
It is one of the most successful game companies on the planet and the precursor of digital
distribution via their Steam platform.
A large number of games available on the platform and exchange of data between players and users
made them the first online video retailer.
They also developed games such as Half-Life and Counter-Strike, which are, with no doubt two of the
best and most popular games ever created on PC.

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.

Steam had 13 million users in 2007 with about 150 games available on their platform:
Over 13m users have signed up to Steam, an online distribution platform for videogame content, owned by
Valve, which enables over 150 PC games to be downloaded.

Source EBSCO: http://web.b.ebscohost.com/ehost/detail/detail?sid=607882d3-6b81-4f04-a0a1

And today, the new figures are:
Steam reaches 100 Million users and 3,700 Games, Valve's online platform has added 25 million new accounts
since January; more than 1,300 titles added to Steam so far in 2014.

Source Gamespot: http://www.gamespot.com/articles/steam-reaches-100-million-users-and-3-700games/1100-6422489/

This perfectly shows the evolution and tremendous success of Steam platform nowadays.
In this assignment I will introduce the companys background, then I will talk about their business
model and process, and demonstrate how they succeed in this sector. I will continue with what is
really innovative in their strategy and as a conclusion, I will talk about some future trends on their
market.

Paul Chotard BS5 1A E-Business

Company background
Valve Corporation a computer game development company was founded in 1996 by Gabe Newell
and Mike Harrington. 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.

Its 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 3500 games to over 9 million active users worldwide (CA-GamersFirstAPB,2014).

This allows Valve to dominate the digital sales channel since 2003. Nowadays, because of the lack of
competition, Steam reaches the 80% of market share. This is huge.

Other companies are starting to realize that digital sales are becoming important. As we can see for
the video on demand development. 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. However they are still far away from what Steam is today, its not even a threat yet.

They are only present on windows and Mac OSX whereas Steam as a major advantage is already
available on several platforms, as Microsoft Windows, Mac, Sony PlayStation 3, Apple IOS and
Android which allows them to reach more prospects. Moreover, with only 21 publisher partnership
compared to the 50 that Valve has created they still are far away from Steam. Another huge gap,
regarding their games panel. Steam has a catalogue of more than 3700 games for only 100 for
Electronic Arts.
Moreover, they try to differentiate by other means, for example providing non-gaming software
since 2012. They are the only platform doing this right now.
Seattle-based software and video game developer Valve is opening up its digital content platform Steam to
non-gaming products, the company announced Wednesday. The move is part of its effort to introduce a wider
range of software products to the platform, explaining in the statement that new features will "range from
creativity to productivity."
Source
EBSCO:
http://web.b.ebscohost.com/ehost/detail/detail?sid=80eeb310-2e3e-4084-afbe918ca04f9d7c%40sessionmgr115&vid=0&hid=106&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db

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.
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Paul Chotard BS5 1A E-Business

Business process
Steam success is mostly due to the brand image of Valve. When they launched Steam, any gamer
knew the existence of Valve through many games quoted above which were a huge success. Because
of their achievement and their position now into the marketplace, they enjoy immense bargaining
power with other publishers who want to have their games sold on Steam. Valves own games are,
with no doubt, one of the main source of Steam success.

This allowed Steam to create rapidly a real community around 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 are choosing this way of
purchasing. Unlike the textile industry for example, you dont need to try before buy. By that I
mean theres no size or any other problem you could face when you receive your good. Theres only
one and unique model and you perfectly know what you buy. Internet is full of test about it, so
theres no way of being disappointed.

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 Valves games were sold through Steam.
Today, 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 HalfLife, Portal, and Counter-strike On another hand we have the Social Entertainment Platform Steam
which allows consumers to have access of a lot of games and a huge community.
And finally there is the technological part, which is Source. This is their game engine which allows
them to create those famous games. Currently, Source is considered as the most powerful,
comprehensive and flexible game development environment.

But Valve is also acting in B 2 B sector.

Indeed, Valve, through Steam is able to sell other games companies, who will be available on Steam
platform.

Paul Chotard BS5 1A E-Business

Valve is divided in 4 sections.

SteamWorks: It is dedicated to companies that want to sell their games on retail but wants to be a
part of the community Steam. This is totally free for the company who wants to add their game, but
it will be sold through physical stores. The add on is that the users must download and create an
account on Steam to run the game.

Steam Distribution: On this part, companies are contacting Steam in order to put their own games for
sale on Steam platform, however this has a cost for this company. You pay the presence on the
Steam platform.

Steam Source: This is a 3D video game engine which is used to support Valves games. The engine is
available for other developers. In a few words, they sell their knowledge to other companies. This
is mainly done for small companies, small producers, which have a lack of resources or knowledge in
this sector. And with the law prices of the Steams Platform, Steam is a really good thing to develop,
produce and sell its own product. However, by doing this Valve still has a control on the game,
because they are at the beginning (the creation and production of the game) and at the end also
(with the Steams platform on which the product is sold).

Valve cybercafe program: The Valve Cyber Caf Program is a commercial licensing program designed
to allow game centers to present Valve and select third-party games to their customers. They provide
complimentary promotional materials and marketing support for your cafs, and support for in-caf
tournaments and special events.

I would mention a fifth part which is being developed and has been launched in 2014, new
equipment for PC gaming.

2014 is the year of who knows, but things could get interesting in a hurry when the first Valve Steam Machines
roll out

Source EBSCO: http://web.b.ebscohost.com/ehost/detail/detail?vid=16&sid=644ecdd4-1d64-4b65aaa561fa20555bec%40sessionmgr112&hid=106&bdata

Paul Chotard BS5 1A E-Business

Business model

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 dont have
to produce all the CDs and all the supports they need to sale their products in physical stores. In
addition, they dont pay any transportation costs, because there is no physical product to deliver,
everything runs through cloud computing.

Another major point for game producers is that they dont need to make a lot of advertising, because
they developed a platform which is compulsory to use and run if you want to play games. In other
words, Steam is always running and present everywhere. Moreover, they can use the brand image of
Valve & Steam, which have a worldwide recognition, even if, according to me the most efficient and
powerful advertising for those companies is the word of mouth, made by users of the game.
People can share with their friends all their games informations, 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
cheaper than the physical retailers In other words, it means that they can sells games cheaper than
the physical retailers do. By suppressing the intermediaries and all unnecessary costs through this
system, Valve can benefit from a margin more than twice superior to the physical retailers. The
outstanding percentage is about 70% (Toms Hardware, 2010).

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.

One major point not to be forgotten is that by using that model, customer will never face the
disappointment of out of stock. Indeed because everything is virtually available, it is also available
endlessly (without considering any technical problem the platform may encounter). But because you
buy it from home, you dont have the feeling to go to a shop for nothing.

However, 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.

Paul Chotard BS5 1A E-Business

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 dont have this game, you will think of buying this game, or if you have
good comments on a forum concerning a game that you dont 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).

Another important point regarding their strengths, once upon you have bought the game, it is linked
to your account for ever. As long as you are able to connect to this account, no matter where you are
and on which computer you are, your games are still available. You just need to reinstall them from
the platform to your computer and you can have an infinite access. This is a major point which
consumers love about it. Because every game like to play old games, but sometimes they dont find
the CD or DVD for it. This time is resolved. Everything is stored on Steam cloud.

Paul Chotard BS5 1A E-Business

Innovative strategy
Lets have a deeper vision of what makes Steam so innovative.

What you need to do to be a member of this community is simple as that:

You download the software Steam, then create an account, thats it. You now have access to
hundreds of games just by clicking on it. (And obviously paying for it).
You can follow the news on the main page, and have instant access to many offers that are available
for a short time. Because they can save huge amount of money thanks to dematerialization of games,
they often offer tremendous discounts for their subscribers. That kind of strategy push people
towards compulsive buying process, they sometimes buy games not because they wanted it, but
because this one was really cheap. And Valve Corporation is making a huge amount of money by
selling older games with that strategy (games which doesnt even have a storage cost).
Another important point regarding their strengths, once upon you have bought the game, it is linked
to your account for ever. As long as you are able to connect to this account, no matter where you are
and on which computer you are, your games are still available. You just need to reinstall them from
the platform to your computer and you can have an infinite access. This is a major point which
consumers love about it. Because every game like to play old games, but sometimes they dont find
the CD or DVD for it. This time is resolved. Everything is stored on Steam cloud.
Now I want to highlight another major point about Steam. What is it, before everything else? A
community. You play with your friends. You can create teams, discuss and interact with them. If any
friend of yours is playing a game right now, you see which one and you can join him any time by just
clicking on his name in your friends list.
Steam is about ease of use, rapidity, efficiency.
They went even further regarding communication, they have a partnership with Skype, the famous
free software to talk with anyone in the world, in order to connect people while they are playing. Its
called the Skypes SILK Codec. Thanks to that, teammates can easily communicate while they are
playing in order to settle strategy or whatever they need to do.
They added a specific section to enhance even more the community system, by giving the possibility
to offer gifts to your friends. You can buy a game to a friend through the platform, and he will have
the game available on his own computer a few minutes later. They even offer discounts if you buy
one game for many people.

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.

Paul Chotard BS5 1A E-Business

And finally one of the latest characteristic of Steam, as we slightly introduced at the beginning, is the
availability 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 follow the trend. The latest news shows us that
they are now trying to invest the Linux market, to make sure that any possible prospect is targeted.

At last but not least, the newest and maybe the smartest things that Steam have done recently is
creating the Steam Greenlight.
Steam gaming application is bringing the power of game selection to the players. Valve's Steam Greenlight will
enable users to vote on the game they had most like to see. According to the Steam community website,
developers can post information, screenshots, as well as videos for their own games so they can find a critical
mass of community support to get selected for distribution. The company has not yet determined how much
support or votes a game must in order to be distributed on Steam.

Source EBSCO: http://web.b.ebscohost.com/ehost/detail/detail?sid=878c7152-a3e4-445f-964d4cd5e3876e87%40sessionmgr113&vid=0&hid=106&bdata

In a few words, it looks like the crowdfunding but without money involved. 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 crowdfunding. Its a kind of beta version of the
game launched but at a step way before in the game development process. Its a way for Valve team
developers to anticipate needs and more importantly to avoid flop regarding their next game. They
will be more likely able to know if their future game will have a success or not. They can save huge
amount of time and money by doing this. And gamers will be happier because this process tend to
bring better games with better content, more appropriate to what they really love.

Once again, what is important here is communication. Everyone is exchanging information, for the
good of the community.

Paul Chotard BS5 1A E-Business

Conclusion
As a conclusion, what is the most important to remember:
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, such as cloud computing,
(Steam platform), how to take a maximum advantage of their previous success (Half-life and
Counter-Strike), their business model with steamworks, steam distribution, steam source, or their
new trend Steam greenlight.
They knew how to perfectly create a community with common ideas and interests, and they knew
how to smartly use that resource (Steam greenlight) for the benefit of everyone.

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.

However, this might be just the beginning for them as many of competitors wants to take the same
way and meet the same success. They used to be the only one on this market, but now they showed
to the entire world how to succeed. Now they have to show that they are capable of still being
innovative and creative to keep competitors that far, but one thing is to be sure, thing will get harder
with time.

(3377 words)

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