Analysis: GameStop's OnLive Box-Out Hints At Greater Digital War

[Gamasutra editor-in-chief Kris Graft examines how GameStop's decision to remove streaming game vouchers from packaged games indicates how the old guard fears "fast-movers who have the technology, business savvy and agility to flip the boat."] Game 'Stop' indeed. Publisher Square Enix and streaming online game company OnLive tried an interesting new strategy this week, bundling the physical retail PC version of the critical hit Deus Ex: Human Revolution with a voucher for full access to the OnLive version of the game. It seems like a win-win strategy: Square Enix adds value to its high-profile release at virtually no cost, and OnLive gets to sneak into gamers' homes to introduce this newfangled streaming technology that works across multiple online-enabled platforms. But GameStop quickly put the kibosh on that idea, starting a voucher removal program: an internal initiative ("Operation: Voucher Freedom" is less offensive, so we'll use that) to have GameStop associates rip open those copies of DEHR, snatch out the OnLive offers along with the new game smell, and sell them, streaming-free. [Since first publishing this piece, GameStop has reportedly decided to pull the PC version of the game from shelves completely. -- Ed.] The move, now made public by a leaked memo, sends a clear message to not only OnLive, but also GameStop's publishing partners: Tread on our fledgling digital business, and we will leverage our brick-and-mortar muscle to marginalize any competitive digital aspirations. The conflict of interest, of course, is that GameStop is doing everything it can to break into the digital business itself. A popular myth is that GameStop fears digital business models, but the fact is that it loves them. What GameStop really fears is that it's not going to get its cut. For instance, GameStop is OK with DLC these days, because it found a clever way to get in on the action through in-store DLC purchases and sales of points cards used to buy digital content. The giant is appeased. Let's face it, GameStop is and always has been looking out for number one, whether you consider the fact that nearly 50 percent of its gross profit come from used product sales (reminder: publishers see no direct profits from these sales), or the fact that it wants to use its size and influence to sideline digital competitors. GameStop's acquisition of Stardock's Impulse digital distribution platform means that it is competing head-to-head with services including Valve's 30 million-strong Steam, and its PC and console game streaming strategy (via the Spawn Labs acquisition), is competing -- or rather, will be competing -- with OnLive, and is currently under testing. This week's Operation: Voucher Freedom will affect GameStop negatively, albeit just for the short term, creating resentment among people who keep up on gaming news (and who already pretty much hate GameStop). It'll blow over rather quickly. It's probably not much more than an annoyance to Square Enix, which will ride the wave of high Metacritic scores for DEHR as much as it can. As GameStop intended, OnLive is getting the worst of it here, as OnLive is no longer getting into GameStop's 4,000 North American retail locations. OnLive had to have seen this coming, the way that it announced the voucher the day of DEHR's launch, and the fact that GameStop told Gamasutra, "Unfortunately, the coupon was packed without our prior knowledge." While the negative psychological implication for consumers appears to be along the lines of "I was going to receive something of value, then big corporate monster ripped it away," the reality is, as GameStop correctly notes, OnLive is a competitor now. It's not the classiest thing that GameStop could do, and I don't agree how it all went down (opening a product and selling it as new is annoying -- but GameStop's been doing this for years). But just think how hilarious it would've seemed to entrepreneur and OnLive CEO Steve Perlman to have injected his service into the bloodstream of what is destined to become one of his company's biggest opponents in the streaming game space. GameStop would've looked like chumps. It's only going to get stickier from here. Electronic Arts is ramping up its digital distribution business with Origin, and has a streaming demo partnership with Gaikai that could blossom into a full-fledged streaming game partnership. Activision's Battle.net has a rather narrow scope currently, serving as a platform for Blizzard games, but that platform, or at least its tech, will inevitably be leveraged into digitally-distributed Activision Blizzard games. GameStop told Gamasutra, "We pulled the coupons because, like all retailers, we prefer not to promote our competitors and their competing offerings and services in our stores." GameStop is absolutely right -- but the issue is that its publishing partners who are essential to its largely physical business are slowly but surely becoming its digital competitors. And it's not just GameStop that will closely guard its digital business -- everyone that's making the transition is on unsure footing, and wary of fast-movers who have the technology, business savvy and agility to flip the boat. The transition is going to be a rocky one: publishers, retailers, and their respective online businesses will be butting heads. As much furor that was raised this week over Operation: Voucher Freedom, it's only a hint at the the upcoming battle between online and physical retail, so time to suit up. And as a final thought, what are those associates doing with all of those OnLive vouchers? Maybe they'll just recycle them into more Game Informer magazines.