The Rise of Valve – Capitalizing on Digital Distribution Domination

Recently, we had some big news from one of the largest, and well respected, companies in the gaming industry: Valve announced that they were officially entering the console market with “Steam Machines,” gaming consoles that aim to bring the PC gaming experience to the living room. I’m pretty excited to see Valve enter a hardware industry that is currently dominated by only three competitors. They’re bringing a lot of new ideas to the table, such as a haptic-based controller, which may shape the future of the console landscape. Yet, what fascinates me the most is looking back and realizing that Valve has been leaving bread crumb trails all along, even during the inception of Steam.

Steam Client: Digital Domination

When Valve debuted Steam in 2003, it was an absolute pain. The amount of time it took me to patch and boot up Half Life 2 was tedious, and if it weren’t for the fact Valve’s flagship title was absolutely one of the best games of all time, I think it would’ve been dead on arrival. Still, Steam eventually became a pioneer for digital distribution. Many third-party publishers including Eidos, iD Software, Take Two and many others joined in to reap the profit margins from selling their titles online. The acceptance of digital distribution paved the way for consoles to develop a similar model on their platforms; if it wasn’t for Valve playing the role of the innovator in the gaming industry, I doubt the Xbox Marketplace or PlayStation Store would be what they are today.

Digital distribution is the foundation of Valve’s Steam Machines, and without proper dominance on that front, there was no way they could move onto building hardware.

Are You Starting to see the Big Picture?

It was made clear that Valve wanted to move in this direction at Sony’s 2010 E3 Press Conference. Valve’s Co-founder and PC enthusiasts’ most beloved figurehead, Gabe Newell, came onto the stage and stated, “As an industry we’re going through a transition. As an entertainment as a product to an entertainment as a service… it’s about giving gamers a complete connected social experience.”

This foreshadowed Valve’s motives. They wanted to grow their platform into something bigger, encapsulating not only the PC Market, but also console gamers. But the PC developer/distributor needed to create something that would make it easier for console gamers to embrace their platform… and that’s where Big Picture comes in – a new way to experience Steam.

Everything about Big Picture was designed to take advantage of the living room experience and bring console gamers one step closer to the PC world. It was a digital platform with an online user interface any console gamer could jump in and understand. Best of all, with over 2500+ store titles already available at launch, Valve was already one step ahead.

The Final Stretch into New Familiar Territory 

But they faced one final problem — most console gamers couldn’t afford a powerful PC rig to take Valve’s offering.

Valve needed to find a way to bring down the cost, and that’s where Steam Machines make their entrance. With multiple models, Valve’s approach to the Steam Machines hardware allows anyone to pick up a console at their own personal price point. Best of all, it’s customizable, making the idea of owning a Steam Machine much cheaper in the long run since you won’t need to buy a brand new console every year. It’s a win-win situation for Valve, its partners, developers, and gamers everywhere.

What makes it even better is Valve isn’t directly competing with the big three (yet). Their focus has been to dominate the digital distribution space; they already have the upper hand due to how much they’ve invested in the market.

Steam Machines are going to be Big

What we do know is this: Valve’s offering and entrance to the hardware industry is giving momentum to PC gamers and console gamers alike. There is something here for any type of gamer here, and the amount of flexibility will be a key strategy they will capitalize on. We’re one step closer in bridging the gap between both console and PC gamers, and I for one, cannot wait.

 

 

Can Console Gamers Ever Embrace an All-Digital Future? Not Without Help From the Big Three

When Xbox One was revealed in May, it was touted as a living room centerpiece and the quintessential go-to for sports and set box interactivity on a scale of integration not yet seen before. In reaction to the inaugural reveal, the gaming masses all cried out in a cynicism that shook the world. “Where are the games?!” the gamers cried. “We don’t care about enhanced TV!” they lamented. One particular provision for the next-gen console was most loathed though—the requirement for the Xbox One to be connected to the internet once a day.

While consoles have seen their own versions of DRM before, such as online pass requirements for used games, Xbox One’s (now deceased) requisite to connect to the internet would have been the first true form of DRM to ever grace consoleboxes and their users. The outcry rocked Microsoft so heavily that the Redmond-based behemoth did a complete one-eighty after E3 and reversed many of its previously announced policies, including that scorned daily online check-in. With Microsoft’s concession, it was a triumphant moment for the everyday consumer, but it also proved something else substantial: console gamers are not ready for a future where digital distribution is the de facto method for purchasing and playing games.

While the notion of not being able to lend out games, or to not even have a lovely retail box adorn your shelf, seems absolutely preposterous to console fanatics, this same concept of digital distribution is one that is cherished—and even preferred—by PC gamers around the globe. How is it that two groups of consumers can be so headstrong and passionate about gaming and yet have two radically different opinions on the subject of how they purchase their games?

Years ago, PC gaming was much like the console: you went to a store, you purchased a box with a disc in it, and you put it into your computer to install and play. One caveat was that often a serial code would have to be entered, something that console users didn’t see until this current generation, but other than that the two platforms were near identical. Same humble beginnings yet two starkly different audiences, so what gave?

You could posit that Valve, and its own platform Steam, have played a large part in swaying consumers to embrace digital distribution, but it wasn’t always this friendly between Steam and its users. Anyone who remembers the launch of Half-Life 2 in 2004, with its then novel idea of connecting to the internet to activate the product as a requirement, will recall just how bad Valve botched the launch with servers not working and how furious consumers were because they couldn’t play the game they purchased. Since that time, Steam has proven to be a viable platform because Valve has consistently shown consumers that they have the infrastructure and bandwidth to make this work and, in exchange for an all-digital storefront, Steam is able to discount its titles significantly when warranted. These two factors are key to understanding why a PC gamer has no problem with not owning a disc.

But whereas PC gamers have Steam, GOG.com and countless other digital distribution platforms, which invites competition, console gamers only have three: PlayStation Network, Xbox Live, and Nintendo’s digital storefronts across its platforms. Unless one of the big three goes full throttle into digital, it will be a long time before the console gamer can be convinced that their hard-earned cashola is worth spending on zeroes & ones instead of a multi-layered plastic circle purchased at GameStop.

You see Microsoft’s Games on Demand sale going on right now and think, “that looks a lot like what Steam does” so clearly Microsoft knows the power of digital distribution. Sony has been known to have sales of its own on PlayStation Network. However, Microsoft, Sony, and Nintendo also have strong ties to retail, and as such may be reluctant to move forward with a larger digital presence. Microsoft almost took the plunge with its DRM policy, but withdrew it, and without the support of the big three it will be much harder to change the culture and attitude of the current console gamer.

An all-digital future could flourish on console, and PC gaming has proven that it’s an existence consumers have come to love, but it’s a long way off. Console gamers are reluctant to give up their physical copies, but it may not be because of the prestige of holding onto something (though for a smaller percentage, that could be the case) but rather because no company on the console side has proven to them that there is a significant benefit to utilizing digital distribution.

Valve took a chance on digital distribution and it paid off in spades, the first one of the big three to follow suit will be the winner of the next generation.

Slow Sales and a Larger Audience Spells Change for the Games Industry

Used Games

June NPD data showed the game industry’s sharpest decline since 2000, with overall sales dropping 31% from this same time in 2008. The sales decline contrasts sharply with the fact that 4 million new gamers have entered the industry in the past year. The rise in audience size alongside a sharp drop in sales signals an emerging trend that players are increasingly turning to affordable digital content, free-to-play online game portals and casual games for interactive entertainment.

With Gamestop openly stating that their margins are being buffered by used game sales, protecting them from the sharp decline, one has to wonder if the sales slump is a temporary trend, or a permanent change. GameStop’s stranglehold on the used game market has caused many publishers and developers to explore alternative distribution outlets via online distribution platforms and console based marketplaces, and thus the quality of digital content has increased monumentally over the past year. Continue reading Slow Sales and a Larger Audience Spells Change for the Games Industry

GameSpot Debuts East India Company Video Developer Diary

east_india_company_logo_lowresThe first video developer diary for the upcoming PC title East India Company debuted on GameSpot today. The ongoing series be released bi-weekly on GameSpot leading up to the game’s launch. Lead designer Kim Soares of Nitro Games will give viewers a glimpse of East India Company‘s extensive features and share insights from the development process.

Check out the first video developer diary for East India Company on GameSpot at:
http://www.gamespot.com/pc/action/eastindiacompany/video/6209550/

Kim Soares of Nitro Games introduces East India Company

East India Company is a naval war strategy game based on the 18th century East India Companies. East India Company is scheduled for release in Q3 2009 and will be published worldwide by Paradox Interactive.