The Steam business model is designed as a platform for video game distribution where users can view, purchase, play, and even discuss video games. The gaming industry is categorized into: PC, Console, and Mobile gaming. While Console and Mobile gaming are dominated by other big game corporations — such as PlayStation (Sony) and Xbox (Microsoft) —, PC gaming is dominated by Steam. Since its launch, Steam serves a variety of game categories, including sports, strategy, racing, etc., and has raked in billions of dollars in sales revenue. Steam has gone on to become the most popular PC gaming platform in the world.
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Steam, owned by Valve Corporation, was launched in September 2003. The platform was developed in 2002 as a solution to Valve’s need for a platform to update their multiplayer games.
Valve was founded in 1996, by Gabe Newell and Mike Harrington. Gabe Newell dropped out of Harvard University in 1983 to work for Microsoft. He was a significant member of the Microsoft Development team and had stakes in the company. While in Microsoft, he met Mike Harrington and they both left Microsoft in 1996. Newell sold his stake for $500 million. The money was used to establish their game start-up, which they named Valve LLC. They started their operations in Kirkland, Washington, and started working on their first game: Half-Life.
The company released Half-Life in 1998, which became an iconic brand later. At that period, games were usually distributed and published through physical stores (in the form of CDs). This presented Valve with challenges in finding a publisher for its game. Eventually, a Washington-based publisher, Sierra On-Line, took a chance with them and started distributing Half-Life. Within a few months, it had sold over a million copies worldwide.
In 2000, Harrington departed the company, leaving Newell as the sole head of the company. At about this same time, Valve renegotiated its contract with Sierra and got the rights to digitally distribute its games. Migrating to a digital distribution format was important due to the many challenges it faced with the first version of Half-Life. There were challenges on piracy, breaking of multiplayer games due to patched versions, and cheating. In 2002, Valve released its beta version of Steam to the public, and it amassed over 300,000 users. The official version of Steam was eventually unveiled on September 12th, 2003.
Steam is owned by Valve Corporation, which is headquartered in Bellevue, Washington, USA. Valve also owns the franchises Half-Life, Counter-Strike, Portal, Day of Defeat, Team Fortress, Left 4 Dead, and Dota.
Steam turns any PC or Mac into a gaming powerhouse by providing instant access to a huge library of titles, and by automatically keeping a user’s games completely up to date.
Steam currently has one billion registered accounts, with about 120 million monthly active players. With such a humongous number of users and monthly active players, there is no doubt that Steam would be reaping a fortune from their users. Let us take a look at some of the ways they make money from their business model.
Steam makes its most revenue from commission charged on every game sold on its platform. Steam charges a commission of 30% only from the first $10 million in sales. For all sales between $10 million and $50 million, the commission is 25%. For every sale after the initial $50 million, Steam charges a 20% cut.
Valve released its own gaming hardware to strengthen the position of Steam. It rivals other big players in the industry. The handheld device comes in three different versions that cost $399 (64 GB), $529 (256 GB), and $649 (512 GB), respectively.
In order to help developers build and distribute their games on the Steam platform, Steam offers them a bundle of tools and services. These tools and services include: Feature broadcasts, early access to players, enabling developers to sell bundles and downloadable contents, announcements of events, updates, etc. A so-called “greenlight fee” is charged before users can access them.
A licensing fee is charged for the establishment of a Steam PC Café. A Steam PC Café offers visitors the same Steam experience available to them at home. Visitors to the Café can access their entire game libraries, chat with friends, and do lots more. Steam charges a one-time installation fee of $29.99 and a monthly subscription fee of $9.99 per license.
Let’s take a look at the Steam Business Model Canvas below:
The Steam customer segments consist of:
The Steam value propositions consist of:
The Steam channels include:
The Steam customer relationships consist of:
The Steam revenue streams include:
The Steam key resources include:
The Steam key activities include:
The Steam key partners include:
The Steam cost structure includes:
A detailed SWOT analysis of Steam is below:
Steam provided an innovative solution to a pressing problem at its time of launch. It helped solve the problems of game piracy, connection between gamers and tracking of sales. Though Steam continues to face increasing competition from existing and new gaming platforms, its enormous user base and continuous innovation still keep it ahead of others in the industry. Some industry experts believe that the PC game niche is becoming matured, hence there have been calls for Steam to grow beyond its core demographic of male gamers who download full PC games.
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