If you don’t watch out, you’re liable to get stomped.
So far we’ve had a look at what the future holds for digital distribution and how data mining’s going to change the way we interact with our vendors of choice. But, that doesn’t answer the question: Where do we currently stand?
The State of the Market
Steam’s a juggernaut – at the end of last month, Valve reported that it just surpassed 25 million active accounts, with 10 million of those being committed enough to maintain an online Steam profile. Unit sales increased by roughly 200 percent, suggesting that guess what – it’s the catalogue, stupid! (over 1,000 games and counting)
According to estimates provided by Stardock, Steam (Valve) retains approximately 70 percent of today’s PC digital distribution market. Impulse (Stardock) is the next largest player with approximately 10 percent of the market, and the remaining 20 percent is comprised of a variety of smaller players including Good Old Games, Direct2Drive, vendor-based shopfronts like EA and UbiSoft, and a host of niche vendors like Bigpond Games. They also estimate that in 2009, roughly 25 percent of all PC game sales were digitally distributed.
Stardock’s recent 2009 Customer Report makes for good reading, especially given its status as a private company – it’s rare that we get such a level of insight into the inner workings of a private company. For whatever reason, the report is no longer available on the Stardock site; given half its press-release links no longer seem to be working, it looks like the company may be having link migration problems. Luckily, Google took a snapshot prior to it disappearing.
It’s interesting to note what Stardock sees as important, even if it is Marketing 101 stuff. In order of discussion:
- Pricing. They’ve learned that publishers need to be able to offer discriminatory pricing based on regional and marketing imperatives. Whether or not tiered regional pricing is economically efficient or equitable is an entirely different argument; what’s important is that publishers aren’t backing down on this, and any system that can’t offer it will be marginalised.
- Protection. DRM’s a critical piece in the puzzle; publishers need to be able to control distribution and resale. Whether or not it’s perfect at preventing piracy or the second-hand market is an argument for people who quite simply, don’t get it – what’s important is that the system’s good enough to discourage pirates.
- Product. Content is king. Significant customer value and differentiation lies in the catalog; if you don’t have it, you’re not a player.
- Promotion. Discounting drives sales. However, discounting also creates an expectation in consumers of future discounts, delaying purchases and, in aggregate, reducing overall revenue.
As with everything though, the devil’s in the detail – it’s also interesting to note what they don’t realise:
- Value-added services like in-game chat, game overlays, server infrastructure, and so on are are me-too responses that don’t differentiate their service from everyone else. They’re necessary, but not sufficient conditions for customer acceptance – the PC edition of Modern Warfare 2, despite only offering peer-to-peer server connectivity, still outsold the original Modern Warfare. If you’ve got limited budget and you’re trying to work out where you should be investing, which one’s going to give you a better chance of survival – copying your larger competitors and (probably) doing it worse or doing things differently?
- Discounting is a naive approach to driving revenue – there are far more advanced mechanisms. As of today, everyone is still using a “one-size-fits-all” approach to discounting. It’s not surprising that they’re seeing average margin decrease even as their volumes decrease; no-one’s being smart about their marketing and offer mechanisms. Yet.
- DRM means more than simply stopping people copying your software – it means making people want to stop pirating. More on this shortly, but Ubisoft gets it. Maybe.
- In as much as they’re willing to reveal publicly, they’re possibly unwittingly focusing too much on the tech and too little on the business. Focusing on technology is easy – it’s (relatively) tangible, you can build a project plan around it, and more importantly, the outputs are something you can point to. Unfortunately, in a market dominated by a veritable Goliath with revenues much larger than you, you’re going to lose. It’s not a question of if, it’s just a matter of when – eventually, they’ll bleed you dry. What Stardock should be doing is looking to the best customer engagement models available in banking, retail, loyalty, and telecommunications and trying to replicate them. They may be doing this, but it sure isn’t coming through in what they’ve written.
Recent Movements
Whadda’ya’know – within less than a week of my previous post, Ubisoft announced that from henceforth, its PC games are going to require an internet connection. That’s not the interesting bit though – what’s even more interesting is that savegames will be stored on Ubisoft servers. Told ya so.
For those who can’t see why this is such a major move, here’s why – it’s not about the DRM. Pirates will hack that within a week, disabling the internet connectivity component of it (or establishing a false verification proxy); it’s about control over the IP you’re creating through playing the game. If they own and control your savegames, all Ubisoft need to do is cross-reference your online validation against the existence of your savegames. If you have savegames and no validation, guess what – you’re playing a pirated copy.
In the end, I doubt Ubisoft cares about prosecuting individuals: it just wants to make it sufficiently inconvenient for pirates that buying a legitimate copy of the game becomes the more attractive option. And, for those who were foolish enough to pirate, to give them a legitimate option to “buy back” their progress. It’s almost 10 years old now, but Dodd’s report on “Keeping the Pirates at Bay” still makes one of the most insightful reads about the lengths developers and publishers will go to to delay that zero-day crack.
Of course, maybe they don’t get it. Maybe they’ll use it as a bludgeon to beat those pirates. Anything’s possible.
Next up: games as a service and other wacky ideas.
