CHAPTER I

INTRODUCTION

1.1 Research Objective Review

1.1.1

Steam is a platform developed by . The service is accessed through their website store.steampowered.com. Within its service, it offers multiplayer gaming and social networking services for its users as well as digital rights managements. Steam provides instant access to a huge library of various game titles as it provides the user with installation and automatic update of games. Considered to be the largest digital distribution platform of PC gaming, it has over 125 million active users, meaning they have purchased a product or logged in the service during the last 90 days, and 12.5 million concurrent users as of November 2015 (Saed, Sherif, 2015). In early 2011, Forbes reported that Steam sales constituted 50-70% of the US$4 billion market for downloaded PC games. Unlike traditional retail, Steam offers game producers a gross margin of 70% compared to the 30% offered by traditional retails. It is recorded through the tracking website that in 2015 alone, purchase of content in the service totals around $3.5 billion which represent 15% of the whole global PC game sales for the year (Hall, Charlie, 2016)

It was initially released on September 12, 2003 after being developed since 2002. On the first event revealing it to the public on March 22 2002 at the Game Developers conference it was presented purely as a distribution network (Walker, Trey 2003). Steam was developed because Valve wanted to create a platform that enable users to update their games automatically with a stronger anti-piracy and anti-cheat measures implemented. The company is also confident that they could deliver game content much faster than retail channels as through the poll during their initial release at least 75% of their users had access to high speed internet connections (Case, Loyd, 2002)

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Steam started by releasing their own content starting with Valve’s Half- Life 2. Later on in 2005 third party games began to appear on Steam and later in 2007 large developers and publishers such as , and Eidos Interactive also begin to distribute their games on Steam.

In 2014 Valve Corporation released the Steam platform for Windows personal computer as a means to exclusively distributor Valve-developed video games. Steam’s specialty is that the customers do not buy the games but instead get the right to use games in their own platform, which may be revoked when a violation of the end user license agreement is seen by Valve or if the users do not accept the agreement (Walker, John 2012) Steam later began to release titles from independent developers and major distributors and has since become the largest PC digital distributor. In 2011 Steam had approximately 50% to 70% of the whole market for downloadable PC game. (Chiang, Oliver, 2011)

Its platforms run on Windows, OS X, , and SteamOS with limited clients of PlayStation 3, iOS, and Android. Steam is available in over 28 languages including English, Russian, German, Chinese, Danish, and many more.

Games bought through Steam are played by accessing the website because the games are hosted in their own servers. Users need constant internet connection to access the games. Games in Steam are wither pay to play or free to play, where you have to buy the whole content to access the full game or provide free access to the games but showcase in game purchases that may be needed to advance the game to further levels.

Figure 1.1: Steam logo

Note: retrieved from store.akamai.steamstatic.com/public/shared/images/header/globalheader_logo.png?t=962016

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Figure 1.2: Valve corp. Logo

Note: retrieved from http://www.valvesoftware.com/images/header_logo.png

1.1.2 Company Overview

Table 1.1: Company Overview Steam

Brief explanation of Steam

Company Name Valve Corporation Location Headquarter: Bellevue, , United States of America Subsidiary: , Europe Outlets Store.steampowered.com, Apple Store Number of User Over 160 million active users Total equity US$ 2.5 billion 2012 Number of Employees 330 people Number of games (as of 6,464 Windows games, 2,323 OS September 2015) X games, 1,500 Linux games Available in 28 languages

1.1.3 Vision and Mission

Vision Statement

We’re Always Creating

Mission Statement

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Give smart talented people the freedom to create without fear of failure. We’re always looking for creative risk-takers who can keep that streak alive

1.1.4 Organizational Structure

Valve adopts a flat organization structure without bosses and uses open allocation in which employees can move between teams at will. The company believes this structure would be the best to nurture talent and teamwork in line with the work the company does.

Figure 1.3: Valve Organizational Structure (: Valve’s New Employee Handbook)

1.2 Research Background

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Following the digital era, companies have always tried to keep up with the development and to integrate with the new technology in order to make best use of the existing technology for their benefits. Telecommunication breakthrough not only enhances experience and quality of service but also change user’s behavior, such as the tendency to prefer online distribution instead of traditional retail to reduce cost (Kain, Erik 2013)

Digital distribution is the process of delivering video game content as digital information, without the exchange or purchase of a new physical media. Digital distribution has indeed become one of the powerful trends that are changing the nature of the . The ability to deliver gaming content entirely online without any disk support is not only a supportive, additional feature but has grown to be an exclusive format. A number of big developers such as PlayStation 4 release games that are only available in digital format accessed either through PC or their own consoles. The volume of digital distribution of video games worldwide has reached $6.2 billion per month during February 2016.

As of 2014, newer game companies arose that vertically integrate live operations and publishing such as crowd funding and other direct-to-consumer efforts, rather than relying on a traditional publishers, and some of these have grown to substantial size (Radoff, Jon 2014) Developers are turning to alternative production and distribution methods, such as online distribution, to reduce costs and increase revenue (Kain, Erik 2014)

This shift has benefitted game developers, retail stores, and customers alike. By using digital distribution as their main channel developers can significantly reduce intermediation such as the production cost of packaging, CDs, and delivery. The heightened production cost in the early 2000s made many video game publishers avoid risks and led to the rejection of many smaller-scale game development projects (Prince, Roth 2004) The new possibility of the digital distribution then stimulated the creation of game titles of very small video game producers like independent game developer (Garr, Brian, 2011) This essentially motivates developers to create their content without worrying how to

5 reach their target customer. Aside from technical production matters, the flexibility of releasing their content also helps the developer team to create their content with less strict and dynamic work schedule which will help to create the content. Physical retail stores also benefit from the rise of digital distribution as they can focus to fill their limited shelf space with big titles that already have a big following in the masses where more niche, upcoming titles can focus on digital distribution release to find their market.

The website SteamSpy provides the following details on Steam users and access data. Within its database Steam is accessed by 254 countries with an average playtime in total of 315 hours per users. Each user has purchased an average of 10 games. More than half of the purchased games are Paid games with over 1,2 billions purchases whereas Free to Play games have been purchased for over 490 million copies. Steam’s biggest user base comes from the United States with 16.94% of the whole demography followed by Russia at 11,09% and Germany at 5.15%. In average, American users has an average of 38 games owned and 24 hours game play per week where as Russia and Germany respectively has an average of 18 games owned and 26 hours game play per week and an average of 29 games owned and 22 hours game play per week. Non- European countries such as China, Philippines, Malaysia, and Indonesia typically has much smaller number of average games owned per user of less than 10 games per user, although they display similar amount of game play time per week with over 20 hours per week.

Steam has a steadily growing yet fluctuative number of concurrent users. The number has doubled from around 6 million users in November 2012 to 12.74 millions in April 2016. The number consistently grows with no decrease from January to November 2015 with the highest increase of users happening from June to November 2015 from 10.05 million to 13.48 million; however the number dropped to 12.33 millions in January 2016 and slowly increases to 12.74 as of April (Statista, 2016)

Despite its fame and big user base, Steam faces extensive security issues. Better Business Bureau, a national US-based network of non-profit group aiming

6 to provide reviews of business practices as well as rating them for a better practice, gives Valve an F for poor customer service in Steam. Valve has 856 reported complaints filed against business with failure to respond to 759 complaints. BBB recognize a pattern of complaints towards Steam: users claim that the games that they purchased malfunction, do not work, or have an invalid CD key. Users get blocked from accessing games library, and Steam fails to respond at all. (BBB, 2016) In comparison to other gaming companies who also dwell in online distribution, majority receives A grades including Blizzard, Ubisoft, and 2K games.

Steam themselves has reported that over 77,000 accounts are hijacked and pillaged each month, which consist not only new inexperienced users but also professional CS:GO players, contributors, item traders, and more (Steam, 2015) This affect not only the comfort and experience of said users but also other users as these users are contributors towards the community.

Steam’s customer support is a slow fiddly process involving opening a web browser and creating an entire new account. There are multiple reports per day of people who have been waiting for weeks or months to hear back from Valve on their support ticket (Grayson, Nathan, 2015). Problems range from hacked account, accidental self lock, and locked credit card payment which disable the customers from accessing the website content and services. Users voice the problems on Steam forum, sub-, and emails.

Erik Johnson of Valve has stated that Steam does face problems in addressing customer complaints, claiming “the customers are right when they say our support is bad. We have a lot of work to do. We need to build customer support directly to Steam” (Savage, Phil, 2015) one of the problems they face is that any time a security step is implemented in between user actions and their desired results; it is making it more difficult to use the service.

Valve has tried cooperating more security and additional service measures to enhance customer’s satisfaction with the services by answering the problems. Valve has incorporate mobile app and phone configuration to their buying system by releasing Steam Guard Mobile Authenticator to confirm item trades through

7 phone. If this feature is not used then Steam will delay the trade process for 3 days (Steam, 2015)

Valve also implemented a refund system which was previously on a case by case basis into request able for almost any circumstances provided players have spend 2 hours or less with the game and owned the game for 2 weeks of less. (Steam, 2016) this is to enhance user’s experience in buying only games that they will be interested in playing much longer. Only a week after the feature is installed, developers claimed that their refund rate skyrocketed up to 30% to 70% which hurt their practices and state that this is a way for users to exploit the feature. Puppygames reported a 55% refund rate on one game alone after the refund feature is implemented versus 5% in 10 years of direct sale, Democracy and Gratuitous Space Battles refund rate went from 0,009% to 17%, and RPGTycoon claims 20 out of an average of 60 units sold per week were refunded (Grayson, Nathan, 2016). Matt Gambell, a game developer, claim that the refund system is troubling them as there is no way of knowing why users claimed refund (Purslow, Matt, 2015) 37% of Steam games have never been played, another 17% played for less than an hour, which means 54% of all Steam games ever sold would actually qualify for a refund if the program had been in place to purchase games. Half of all PC gamers wait for sales to purchase games. Both of these data points indicate a large amount of PC game purchases are low quality installs, which convert poorly (Pellerano, Andrew, 2015)

Steam may have a big number of sales however the playtime and player activity may not be as impressive. The average Steam user has not played 40% of the games purchased in the past 12 months. 60% of the purchases by the users are on sales and an average of 11-25 games are bought per user in the past 12 months (Levy, Ethan, 2014). This behavior may signal either dissatisfaction towards the service, shift to other platform, or lack of further desire to use the service after a number of playtimes.

Loyal customers is important to the service as they provide more repeat business and are less price sensitive (Bowen & Chen 2001), meaning post- purchase intention is an important sector to focus on especially in Steam’s service

8 where some of its most popular games such as 2 rely on in game purchases which increases as the players play more of the game. 2 behavioral consequences of loyalty were identified as word-of-mouth and willingness to pay more (Srinivasan, Anderson, & Ponnavolu, 2002). It has been discussed in many studies that website service quality is crucial to enhance customers’ perceived satisfaction with a website (Kim & Lee, 2004), and that both are also important factors to post-purchase intention.

A study conducted by the Boston Consulting Group indicates that 48% of respondents cite slow response time as the main reason for abandoned online transactions (Teeter, Schointuch; 2000). Jupiter Executive Survey also found that from the survey they conducted 57% of consumers express that the speed of a retailer’s response to customer service e-mail inquiries would affect their decision to make future purchases (Cox, 2002). Service recovery may be the important variable to help explain how a firm can improve customer satisfaction through providing solutions towards the failures and inconveniences in their service to turn dissatisfied customers into loyal customers (Wu, 2011) Service failures as Steam has experienced and struggled with should not be viewed as a problem but more as an opportunity to create satisfied customers (Berry, Parasuraman; 1992)

The primary objective of this study is to investigate the determinants of customer-perceived service quality of Steam and their impacts on customer perceived value, customer satisfaction, and post purchase intention towards Steam. For an online service to survive and thrive on the internet, it is important to know how customers evaluate online game services and which quality dimensions are valued most. Therefore the researcher propose the study titled “The Relationships among Service Quality, Perceived Value, Customer Satisfaction, and Post-Purchase Intention in Steam’s Online Gaming Service”

1.3 Problem Formulation

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1. How does service quality influence perceived value in Steam’s online gaming service?

2. How does service quality influence customer satisfaction in Steam’s online gaming service?

3. How does perceived value influence customer satisfaction in Steam’s online gaming service?

4. How does service quality influence post-purchase intention in Steam’s online gaming service?

5. How does perceived value influence post-purchase intention in Steam’s online gaming service?

6. How does customer satisfaction positively influences post-purchase intention in Steam’s online gaming service?

7. Which factor from service quality influences customer satisfaction?

1.4 Research Objective

1. To examine how service quality influence perceived value in Steam’s online gaming service

2. To examine how service quality influence customer satisfaction in Steam’s online gaming service

3. To examine how perceived value influence customer satisfaction in Steam’s online gaming service

4. To examine how service quality influence post-purchase intention in Steam’s online gaming service

5. To examine how perceived value influence post-purchase intention in Steam’s online gaming service

6. To examine how customer satisfaction positively influences post-purchase intention in Steam’s online gaming service

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1.5 Purpose of Study

The purpose of this study is to determine major dimensions of website quality that affect customer’s perception of service quality of Steam and to examine the relationships among the variables of said determinants.

a. Practical Aspect Hopefully this research can be adopted by firms to explore additional knowledge in the field to marketing management, especially in the digital distribution term. The author hopes that this research is beneficial to be used for the development of the industry by providing a better understanding of the strengths and weakness of their web pages. b. Theoretical Aspect Hopefully this research can be used to improve and expand the understanding of digital distribution, gaming industry, and Steam. Not only for business usage but also as a reference for research by scholars. The author hopes to contribute a new perspective.

1.6 Structure of Research Chapter one presents the Introduction and the second chapter will present existing literature and theoretical frameworks in service quality to service loyalty in Steam. The third chapter will present the methodology of the research where the research design and methods will be explained. The forth chapter will present empirical findings and analysis, finished with chapter five where conclusions, implications, and suggestions will be presented.

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