CHAPTER I INTRODUCTION 1.1 Research Objective Review 1.1.1 Steam Steam is a digital distribution platform developed by Valve Corporation. 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 Steam Spy 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) 1 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 Capcom, id Software 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, Linux, 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 2 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, Washington, United States of America Subsidiary: Luxembourg, 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 3 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 (source: Valve’s New Employee Handbook) 1.2 Research Background 4 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 video game industry. 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 indie game 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.