Steam's Marketplace - A Humble Competitor

Over the last decade plus, Valve has created a platform that has been the envy of the gaming world.  With over 65 million users and an estimated 75% of all digital PC purchases now going through Steam, it’s safe to say Valve is dominating the PC gaming market.  But while Steam is firing on many cylinders, a serious competitor has emerged for the first time to threaten its position as the unquestioned PC marketplace leader.

Previously on…

To see how this came about let’s first revisit recent history and remind ourselves why Steam is so popular. In short, two things have made it so: Steam as a marketplace and Steam as a platform.  Gamers today find it incredibly convenient that they are able to shop for both AAA titles, often at a discounted price compared to their console equivalents, and indies alike in Steam, which is the same place all their games are listed, easily accessed, updated and played through.  You want to buy Rayman Legends?  Great because Steam’s got it and has it for $20 less than the console versions (or $40 less if you got it last weekend while it was on sale!).  Once you buy the game, it will be nicely added to your Steam client along with all your other games purchased through the service.  The games are also maintained and updated by Steam, all equating to a rather pleasurable gaming experience.

One other related note here is the affinity many gamers have towards Valve.  Now Steam wasn’t always the darling it is today and Valve had to work its tail off to get to this point, but gamers give Valve and Steam a lot of leeway that isn’t gifted to other companies and products.

Partially due to but mainly to add to its popularity, Valve added the ability for gamers to add games purchased outside of Steam’s marketplace into their Steam client, either through shortcuts or, much more importantly, through Steam Keys.  With a Steam Key, the game behaves in the client as if it was originally purchased through Steam’s marketplace, meaning it is easily accessible, stored in the rest of your Steam files and maintained and updated by Steam.  Now that may seem a bit odd.  Wouldn’t Valve want to incentivize purchasing on its marketplace over others, therefore only allowing games purchased on Steam to be added to its client?  Of course Valve would love for you to do all your shopping on Steam, but that fact is trumped by the critical importance of having Steam as your gaming platform, where all your games live.  Valve needs Steam to be the platform gamers go to start their gaming day.  So if you happen to purchase The Swapper on the newly minted Humble Store, Valve will be “happy” to act like you bought the game through Steam and allow the folks at Humble to supply you a Steam Key for that game.  The strategy here of forgoing sales in favor of getting games on the platform was confusing to some awhile back, but Valve’s recent news of its play for the living room (Steam OS & Steam Machines) seems to have cleared up any confusion for those folks.  One could also make a case that, even though over the last few years the number has likely increased significantly, the potential revenue lost in giving out Steam Keys is still likely a very low percentage of overall Steam sales. 

Cracks emerged

Even if you discount the importance of its living room strategy, Valve perhaps doesn’t have to worry much about that potential money correlated with a loose Steam Key policy.  The company knows that Steam’s marketplace remains, unquestionably, the most desired place for developers to launch a PC title.  But that is starting to slowly change.  If you’re an indie developer, getting on Steam’s marketplace means a lot.  Hell, professionally it can mean everything and be the difference between success and failure in today’s market.  If an indie could choose an ideal route for its new game, it would be to launch on Steam first, followed by the less popular marketplaces followed by inclusion in a bundle offering.  The reason is, theoretically, the indie will get a good deal of attention and non-discounted sales when initially launched on Steam.  Then as sales start to wane on Steam, the indie will look to broaden its disruption by launching on other marketplaces, usually at a discounted price, which will allow for other pops in revenue, albeit smaller ones.  Finally, after those avenues are exhausted, the indie will look to bundle products where the game will receive a good amount of attention, sell more copies than any other marketplace, but gain less revenue.

So, wait.  If this is the preferred, ideal route for an indie to go and it has Steam as the launching point, then why should Valve be concerned?  Simply because it so difficult for an indie to get onto Steam.  Steam became so popular that it couldn’t handle all inbound interest, so Valve created Greenlight, a program where the Steam community would vet games and Valve would, theoretically, take the most deserving ones and launch them on Steam.  What sounded good in theory didn’t materialize and Greenlight was, and still is, rot with problems (a couple good reads on the subject are here and here).  Valve recognizes it’s a work in progress and has attempted, and recently slightly succeeded, to address some of the criticisms.  But the most glaring issue persists: Greenlight is viewed as a black hole. Indies don’t know how they are doing, what the number of votes actually mean or where they really are in the queue.  It’s gotten to the point where more and more indies are choosing to forgo Greenlight in the hopes of doing well enough outside of Steam that they get noticed by Valve and receive an offer to bypass the Greenlight process (this “offer,” Greenlight and working with a publisher who has an established relationship with Valve are the only three ways of shipping on Steam.  But even you successfully go down one of those three routes, it can still lead to inane issues, as the devs behind Paranautical Activity unfortunately learned).  The indies avoiding Greenlight at launch are still a very small minority.  Also, note in this scenario that while these indies may not be trying to launch first on Steam, they are still hoping to get on the service.  They just want to bypass Greenlight.  So indies are still doing anything they can to get onto Steam but for how long can a broken system facilitate such demand and interest?

Valve should be lauded for origin of Greenlight.  The company recognized a problem and instead of just completely opening up the marketplace, inviting immediate oversaturation (ie Apple’s App Store), they attempted to create a system in which quality trumped while quantity remained manageable.  But while Steam’s marketplace has been able to avoid oversaturation, Greenlight very much has that problem and, like other insanely crowded marketplaces, has become susceptible to market rigging.  Where Valve has failed with Greenlight is that it’s iterating and changing the program like you often see the incumbent do: very slowly.  You could bet that if Valve has some serious competition, Greenlight would be moving much faster.

A Fire Rises

Since many indies are failing on Greenlight and a growing number are avoiding or hesitant to enter the process, an opportunity has emerged.  There are a handful of alternative PC marketplaces that are seeing success, like Greenman Gaming, Amazon Indie Deals, Desura and Gamersgate.  Although those are mostly doing the same thing with smaller audiences.  GOG has a loyal fan base and many consider it to be Steam’s biggest competitor at the moment, but again it really isn’t doing more than just being a storefront. 

Then there is Humble, an indie developer favorite.  With its Bundle, Widget and now Store, Humble is offering both a decentralized and centralized marketplace with daily, weekly and bundled sales.  The strategy is of intelligent design.  The Humble Widget, which allows a developer to set up a sales channel on its own site with a very favorable split (95% to developer, 5% to Humble), has been incredibility popular and seen widespread adoption among indies.  This means Humble has a vast, decentralized footprint.  No other marketplace, including Steam, has anything comparable.  Additionally with the release of the Store, Humble has created a centralized marketplace, allowing potential buyers a storefront where many developers’ games (that utilize the Widget) are offered.  The split isn’t as good (75% to the developer, 15% to Humble, 10% to charities) but Humble has a lot of users and eyeballs so developers will certainly be game.  Now those eyeballs won’t compete with the amount that Steam can currently tout, but it’s early days and the growth of Humble in the last few years has been significant.  Humble also has its Bundles and Weekly sales, both pay-what-you-want models that get a ton of sales and press attention.  Lastly, Humble has an established reputation in the indie development community for being a pleasure to work with and accessible.  This point can’t be overstated.  One only has to look to the beating MSFT has taken in the press the last few years around “turning its back” on indies and the amount of work the company is now putting toward turning that around as one example demonstrating the importance of developer relations to a platform.  Valve had hoped Greenlight would automate some of its job allowing it to only work with a smaller, pre-vetted group but that hasn’t come to fruition and frustration among the masses grows.  Luckily for Valve, it’s nearly impossible to see how it could ever lose as much favor among indies as Microsoft (or Nintendo, or Sony) have in the past, but it may have already lost enough to allow Humble to expand its already present foothold.

So Humble has been a player for some time and with the launch of its Store, it has become a serious competitor to Steam in the indie market.  But while indie games have seen their popularity and importance to the industry rise in the recent years, the revenue generated from these titles is still a minority of the overall sales in a marketplace like Steam’s.  AAA titles own the lion’s share of revenue and Steam is well ahead of Humble with AAA titles and relationships.  But that’s today and Humble has been able to make substantial inroads here as of late. Over the last year Humble has been able to court Ubisoft, EA, WB Games, Deep Silver, Telltale and Double Fine to name some.  It’s no doubt a priority and focus for the company so while it will take time and a whole lot of effort (working and getting a partnership solidified with a company the size of Activision is much different and lengthier than working with a two person indie shop), Humble is seeing success down this path.

An interesting note is that Humble and Valve find themselves in a bit of an awkward situation regarding Steam Keys.  Whether you buy from the Store or a Bundle or a Weekly Sale (the Widget is the exception here), the vast majority of the games purchased via Humble will generate a Steam Key.  Humble has to be causing the generation of more Steam Keys than every other company out there combined and the company certainly owes a portion of its popularity to this ability.  You may think would be a massive risk for the company.  That if Steam began to see Humble as a serious threat, they would cut off the Steam Key access.  But that’s unlikely, again pointing to the importance Valve has put into Steam as the one platform a gamer plays all of their games on.  So today Valve is generating Steam Key after Steam Key for purchases made across Humble’s various offerings.

So with Steam Key generation unlikely to stop, Humble, with its unique strategy of having both centralized and decentralized models coupled with industry leading developer relations, has been able to capitalize on the opportunities of a market hungry for indie games and a lackluster program in Greenlight.  Humble has a ways to go to seriously compete with Steam, especially in the AAA arena, but it’s now in the conversation and has moved up to the middleweight class.  Perhaps more of the existing PC marketplace competition can take advantage of today’s environment but if not, Valve and its utter dominance as the PC game marketplace is still seriously threatened, with Humble solely positioned in the challenger’s corner.