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Give Me Steam!

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A glimpse into the quiet success story of broadband-based game distribution

If you haven’t heard much about Steam, maybe it’s because of a lot folks on the business side of the game industry would rather it just went away. The brainchild of Valve Software, the game studio behind the mammothly popular Half-Life and Counterstrike action games, the Steam network is many things: a piracy prevention system, a patch and update network, a multiplayer hosting service, and above all, a game distribution platform for Valve and non-Valve games alike.

According to Valve Marketing Director Doug Lombardi, Steam was conceived out of necessity, after the company’s vain search for a 3rd party solution to support their games online. “[A]s online gaming grew,” Lombardi tells me, “it was obvious that things such as auto-updating and more sophisticated anti-cheat measures were going to be requirements.”

Failing to find that, they went out and built it themselves. After a notably shaky launch in 2002 (gamer message boards are rife with grumbling over that troubled beginning– but then, gamers are an easily outraged audience), Stream now boasts 8 million users, 5 million of whom, according to Lombardi, have logged in at least once in the last 30 days. (An impressive retention number, for gamers are also a fickle audience.)

Unsurprisingly, the pipes and servers needed to support this subscriber base are staggering, and Valve has partnered with a number of ISPs to do that, while supplying a garrison of servers around the globe. “All told, Steam gamers are generating more Internet traffic than all PC users in Italy combined,” says Lombardi. In the beginning the legal challenges were about as intense, with Valve locked in a lawsuit with its publisher Vivendi Universal Games over control of game distribution in Internet cafes. (A huge prize, since Valve’s Counterstrike titles remain, seven years after debut, the most popular online multiplayer game out there, with significant play in the Internet cafes of Europe and Asia.) Valve prevailed in 2004, and Steam now has an integrated “Cyber Cafe” service.

Last month, Valve released Half-Life 2: Episode One, the further adventures of taciturn hero Gordon Freeman and his lithe and spunky sidekick Alyx; it’s the most prominent example of “episodic content”, an industry buzzword a few years ago that’s largely fell off the radar since then– until Valve picked it up again with this. The inaugural episode is still a retail bestseller, and while Lombardi declines to give numbers sold via Steam, it’s worth noting that for the original Half-Life 2, which sold four million total units, an estimated 1 in 4 were bought and distributed over Steam. It’s safe to assume a similar ratio will obtain for the episodic version.

There’s been other successes, too– for example, the independently-produced Darwinia and Red Orchestra were languishing on retail shelves, say Lombardi, but made the studios behind both games profitable, when they came available on Steam. A weekend-long free download of another Steam-hosted game, Day of Defeat, even subsequently increased sales of the game at retail. “[I]t was interesting to find that an online promotion through an online service can drive sales across all channels,” Lobmardi notes.

In doing this, Valve has created a viable alternative to the aging department store, off-the-shelf distribution model, where profits to studios are paltry, after publishers and retailers have taken their cut. (If the studio can even secure a decent distribution deal at all, which they often can’t.) By contrast, consider the million downloads of Half-Life 2, sold through Steam at some $49.95 each, most of which (after expenses) went directly to Valve. It’s a mystery why other PC game developers haven’t tried this channel.

To be sure, it’s partly a matter of branding, with Valve beloved by gamers, and the Half-Life/Counterstrike franchises among the most popular of all time. But perhaps it’s also an unwillingness by the big publishers to invest for the long haul in broadband as a distribution channel. “[W]e’re starting to see some publishers experiement in this space,” Doug Lombardi observes, “but they’re approaching it without the experience of running online systems, and most publishers are not interested in committing resources to long-term engineering projects that carry a certain amount of risk.”

The Steam Numbers
Total Steam Users 8 million total, 5 million active (last 30 days)
Sales Unknown for Half-Life Two: Episode One
Half-Life 2 sales via Steam 750,000 -1 million @ approx. $49.95 each

20 Responses to “Give Me Steam!”

  1. Dale Beshears

    I may not OWN any of the games I have, but I have purchased the RIGHTS to PLAY THEM! Steam, which began as a promising means of software distribution and protection, is now a major problem. A person shouldn’t have to “check in” to the “Company” whenever they want to play a game! I have valid copies of my games, and their respective cd keys. That should be ALL that is necessary to play a game. But not with Steam. The program (Steam) conflicts with so many different software packages that are common on user computers that it’s not funny. I used to be able to play my games when Steam was first implimented because it wasn’t so finicky. Now, with the newer Steam “upgrades”, I can’t start ANY of my games! They have also changed major file structures in the game itself… I can see the differences between a CD install and a Steam install. I’ll tell you what… if Valve insists on taking away my ability to play their games… games in which I have a LEGAL license to play… then I should be able to send their game CDs back to them for a FULL refund! I own SEVERAL Valve games, so the amount of money I would receive would be substantial. Then I would buy a competitors games out of spite using the refund money! Did you notice the “Steam Numbers” above… “Total Steam Users: 8 million total, 5 million active”. I would be willing to bet that LARGE number of the 3 MILLION non-active “users” are folks like me which have been burned by Valve! That’s a LOT of lost business! Well, if they don’t change things PRONTO I will be joining the “non-active” list! What am I saying? I am ALREADY part of this list since I CAN’T PLAY MY GAMES!!!!

  2. Are you retarded?

    You’re forgetting that you are only obtaining limited rights to play the game. Yes, this boils down to renting, because Valve refuses to transfer the rights to the software it created for your enjoyment.

    Please keep in mind that, although you’ve paid for the game, it doesn’t mean you OWN the game. If this pisses you off at Valve, then you must not play ANY video games. Every manufacturer has the same TOA in their license pre-install. Go ahead. We’ll give you 48 hrs to read the legal-ese.

    Sorry, no pictures.

    You read right. Nearly every popular game made in the last 15 years has a statement in its agreement that states that THE COMPANY and NOT the USER retains all legal rights to the software, regardless of how much you paid to purchase the rights to use it.

  3. Steam is not for everyone. Valve has forgotten that many PC users don’t have DSL or Cable internet; many people do not like having a third party app on their machine simply to be able to play a game, and I don’t think it’s cool to feel like you’ve rented a game and not purchased it. It’s very frustrating to not be able to play a game you bought from the store for over two hours because Valve forces an update.

    They should take a cue from their former employers (Mircosoft) and consider making the validation process easier (Win XP has a fast validation process) so people can get to playing quicker. I know many gamers who no longer purchase Valve products because of this. Their sales would be even higher if they fixed this system and made it quicker and less invasive.

    Until then, I won’t purchase any more Valve products and I will tell fellow gamers not to as well. I’m not against online verification or the downloading of games, but the process should be easier, faster and less of a pain in the neck.

  4. Steam’s, subscription model has hit a bull’s eye as a piracy prevention system. In Asia, they have priced very well & it has received good response. Cyber cafes can’t afford to buy the packages – pay as go wroks fine and adds a significant breakthrough into an untapped market.

    But there is one catch, collecting subscription form vastly dispersed cyber cafes is a tough task.

  5. Reluctance to even explore an online distribution channel is probably because it would pose a lose-lose scenario for the game publishers – basically the record labels of the gaming industry – and the game developers (the recording artists).

    Few developers can enjoy the luxury of deploying a way to cut out the middleman – Valve, on the other hand, is flush with cash thanks to several blockbuster titles.

    Nevertheless, there have been baby steps. Another online distribution system called Triton was recently used for 3DRealm’s FPS “Prey”. Even EA, the uberpublisher that rakes in the cash by lording over its developer houses and the one with the most to lose, has experimented with selling expansion packs to “Battlefield 2” online.

  6. Is there a media conflict of interest in reporting on this with News Corp FIM owning the IGN network of game news properties and the GameSpy network – popular purveyor of networked gaming middleware – which has its own plans for digital distribution of gaming content?

    Do you have comparisons of Steam vs GameSpy?

  7. Steam is wonderful, but I have one big complaint. I can’t transfer games between accounts. That means I can’t sell my games to someone else, I can’t get a new email address and switch my account to use that, etc, etc. It’s really annoying. Oh, and I can’t figure out how to get demos for games I don’t care about out of the “My Games” list.

    Don’t get me wrong, Steam is brilliant, and I love it to death — their strategy for CyberCafes was inspired — but they seem to have stopped implementing features and improvements some time ago and I’m really not keen on this account lockin.

  8. Yeah, everyone knows it loads at startup, if you don’t want it to – disable it, simple as that.
    Personally this is one service that I don’t mind automatically starting up because I then get all of the latest news from Valve instantly, I can see if my buddies are online and make a decision if I’m going to get some real work done, or kill some damn terrorists!
    The choice is yours.
    I have always stuck behind Valve with this distribution mechanism and the figures above show that it is indeed paying off for them.
    How many of you actually pre-loaded Half Life 2 and had that nail-biting moment of unlocking it on release day? That was fun!

    Overall, I say “Congrats Valve!” and keep up the fantastic work!


  9. The figures for the number of users who’ve logged into Steam in the last 30 days is probably related to the fact that it installs itself in the Startup folder so when you turn on your PC you automatically log in.

  10. If this type of distribution takes off, Microsoft will do whatever it takes to dominate it. They will do to Steam and whatever else what they did to Netscape.

  11. Nice post. I was unaware that this industry nearly entirely lacks using the Internet as a sales channel. A bit surprising too since I would have expected that industry to be very PC and Internet savvy. As you can tell I am not playing PC games at all – yet…
    I can only assume that the huge traffic requirements might have so far killed this idea during the brainstorming phase already.

  12. Jacob Varghese

    Great post! As a non-gamer, I wasn’t even aware of Valve’s distribution system.
    What is the breakdown between game system (xbox, ps2, nintendo) versus online gameplay?

    It seems like online gameplay is more popular than ever, do you see this dominating once everyone has large enough pipes to the home? With the 25-50mb service that is now available for the home, it seems like PC gaming will be able to grab some serious marketshare.

    off-topic… you guys have had a ton of great posts lately, it would be great to see a recent post list on the sidebar, so we don’t miss anything.