Since its 2003 launch, Valve Corporation’s digital distribution platform Steam has changed the landscape of video game publishing. The platform is free-to-download and provides its users the chance to instantly download one of approximately 781 million games. As of 2017, the platform boasted 67 monthly active users and nearly continuous growth of average daily players.  This success indicates the significant value creation taking place on the platform for its multiple stakeholders.
First, consumers clearly derive a great deal of benefit from the Steam platform. Beyond providing access to numerous games that would otherwise be inaccessible, the platform provides numerous value-add components. For example, a prospective buyer can rely on numerous reviews and curated profiles to evaluate and source their next game purchase. Similarly, by analyzing user purchase and playing behavior (e.g., number of hours spent playing specific games), Steam generates tailored recommendations for its users. Beyond helping users make the right purchase, Steam also provides easy access to ongoing updates and downloadable content for their games, thereby allowing their users to maximize the value of their purchase.
Second, the platform creates value for video game developers. The publishing industry, typically dominated by so-called AAA publishers, previously offered little-to-no opportunity for smaller scale video game developers to distribute their products. That all changed with the emergence of the Steam platform, which provided independent video game developers access to its 75 million active users. In addition to the installed user base, Steam provides developers with Steamworks, a free suite of tools for developers to employ in their games (e.g., anti-cheat technology, in-game microtransactions, etc.). Lastly, Steam has been touted as a major deterrent for the piracy that has plagued other digital media industries.
The most contentious issue with Steam’s offering is their approach to capturing value. Steam takes 30% of all purchases on the platform. This sizable fee has drawn much criticism from game developers, who question the worth of Steam’s value-added services. In fact, several of the best-selling and most popular games, such as Fortnite, FIFA 19 and Red Dead Redemption 2, have made their games unavailable on the Steam platform. Furthermore, competition has intensified in the digital distribution space: major video game publishers like Activision Blizzard, EA, and Epic Games have invested in their own digital distribution platforms. Under this pressure, Steam recently announced a change to its pricing strategy. As a game’s sales grow beyond $10M, Steam will take a lower percentage of revenues. While this change will only affect major developers, it demonstrates Steam’s fine-tuning of their platform model in the face of criticism.
As reflected in its near monopoly on digital distribution of video games, Steam creates an immense amount of value for its users and game developers. However, recent pressures on the platform’s approach to value capture have drawn into question the longer-term viability of Steam’s approach. With major games staying off the platform, could Steam jeopardize its position as the market leader?