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Digital Distribution

Steam vs. Games for Windows Live

Harry Hinch

on 17 May 2010

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Transcript of Digital Distribution

Digital Distribution [noun] The act of distributing media electronically to the public using the internet. Valve vs. Microsoft Founded as a game development company
Created the source engine
Half Life
Branched to digital content delivery Dominated the home computer market
Branched out into many different sectors
Dominate the world Released in 2003

In 2004 Half Life 2 goes on sale

In 2005 Valve partners with Strategy First

In 2007 Valve creates new partnerships with
much larger developer-publishers such as Capcom

To date there are over 1,000 titles available
Released in 2007 alongside two games

Came under heavy critisism after it's release

Made free to use in 2008

In 2009 it was relaunched with a marketplace, similar to that on the xbox360

Why is Steam heroic? Steam was built from the ground up as a service tailored to the need of it's consumers

Every update to steam brings new features to enhance the experience of it's consumers

Valve release DLC to it's games for free through Steam, Team Fortress 2 has received
around dozen updates

Incredible sales! Social Networking Gifting Steam Cloud Steam Overlay Why is GFWL villainous? It's launch titles devestated excited consumers

Compatibility issues have caused consumers issues since it's release

It cost $50 a year to use, despite having no USP

After a relaunch with a Grand Theft Auto 4, compatibilty issues were still a huge problem

'...many PC gamers [would] rather sand
their own face than use Microsoft's service' 'Microsoft has now shattered those hopes and
has left us wondering whether its choice to make
Halo 2 a Vista-only game is purely marketing based.' Is Microsoft capable of this? Microsoft has had numerous lawsuits filed against it for unlawful monopolistic practices

Microsoft introduced a scheme which encouraged original equipment manufacturers to sell their pre-built
PCs with windows already installed

In 2004 Microsoft released an advert claiming Linux was 10 times more expensive to run than Windows
Server 2003. The Advertising Standards Agency in the UK pulled the advert because it was misleading. This
happened whilst Microsoft was loosing it's market share for server OSs to Linux 250 unique quote referrals = 1000 unique quote referrals = 500 unique quote referrals = + + + http://www.theregister.co.uk/2001/04/30/microsoft_issues_bounty_for_osless/










http://downhillbattle.org/?p=208 Yes. Digital Distribution and the Industry Retail A decline in sales


'90% of console game sales are from retail'
'79% of games purchased for PC/Mac and portables'
- NPD, Q3 2009 What does this mean? Physical retail companys are succumbing to digital distribution Sam the Record man

A retail music chain, 1937-2001

“Couldn’t overcome fickle consumers, fierce competition, increasingly
narrow margins, and the availability of free music downloads from the Internet.”
- CBC News, October 2001 Tower Records

Retail Music Chain, 1960-2004

"The person who is buying CDs, the predominant person is teenagers who shopped
in the past at stores such as Tower, and they are no longer shopping at Tower. They are
taking the music online without having to pay for it.”
- Jerry Reisman, 2004 Digital Industry is rapidly growing

Many retail companies now have online stores

Cheaper to release online, so cheaper for customers to purchase

Slowly overtaking the retail market? What does this mean? Digital distributers are reaping the benefits of the platform to overtake physical retail outlets Apple

iTunes Music Store

Released in 28th April 2003

On 24th February 2010 had 10 billionth download

iTunes Store

Accounts for over 70% of music downloads

Digital Distributors account for over 35% of all music sales “With the GFWL client acting more like a simple
storefront and less like a social network, they're still
missing the key part of what makes Steam work so well.”

- Jeff Gertsmann, GiantBomb.com blogger December 2009 “Valve can realize a gross profit of $30 on a $50 title by releasing
a game using Steam, compared with a gross profit of $7.50 by releasing
a title through the retail channel with a game publisher.”

- Gabe Newell The CEO of Valve, 2002 The Future 'I expect even the hard disk to disappear eventually'

- Ken Kutaragi, Founder of Playstation, June 2006 '2015, online distribution on PC and console systems is expected
to grow worldwide by over $10 billion from its 2009 level.
This increase should offset the decline in retail sales.'

- DFC Intelligence report, December 2004 'There's no question digital [distribution] will overtake physical.'

- David Gose, XBOX Europe Vice President, 2008 'Overall, I believe that digital distribution won’t cannibalize retail
sales of console games in the short-term. This isn’t the music industry
all over again.'

'While an ever-growing segment of our fans are comfortable with
acquiring content digitally, the retail channel will continue to play a
valuable role in reaching the majority of our fans'

- Ben Feder, Take-Two CEO, April 2010 Other Distributors There are other heroic digital distributors who follow the same principals
as Valve, giving careful consideration to the needs of their audiences The major factors which decide if they are a hero or not, are the payment model used,
DRM and compatibility. Services which follow Steams platform are often the ones which are most succesful. iTunes Apple's iTunes is the market leader in digital music downloads

Although the market is very competitive with many different company's including Napster, eMusic, Rhapsody competing for customers

When the Digital Distribution of music was starting several factors lead to iTunes dominating the digital music landscape Why did it succeed? It’s payment model is ideal for the Digital Distribution
Pay as you go, allows users to pay for the tracks they want without subscribtion.
Other services during the infancy of digital music distribution charged weekly subsciptions
This has proved the most succesfull payment model in the Digital Distribution Landscape Another Big factor is the use of DRM.
Itunes did use DRM but it was flexible enough to allow users to do what they wanted with there music.
Other services had much harsher DRM schemes often requiring the user to connect to the internet to authenticate themselves before music could be listened to.
If they customer stopped using the service more often than not they would lose there music. Payment DRM iTunes vs. Steam? Itunes compares to steam well, in that they both follow similar business models with their respective digital content.
They both allow users to buy single items, without charging a subscription or requiring money access features. This is the single biggest factor in their success, something other stores have now switched over to.
They both also have flexible DRM systems that do not impede there customers ability to enjoy the content they have bought.

iTunes works across more than just one OS, something that Steam is going to offer very soon. Microsoft ignored this with GFWL and alienated not only mac users, but it's own customers who used XP. Bibliography Conclusion Since it was created Steam has been a platform for Valve to connect with its consumers.

Their actions have earned them a loyal userbase of over 25 million.

Microsoft have not conducted themselves like this, they seem to have acted in their own interests in their pursuit of the computer game industry.

Microsoft have continuously changed GFWL, every update brought it closer to Steam. jghj
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