Ah Gabe Newell. Smart man. I'm not a 100% fan of Valve, I never really liked Half Life all that much and didn't really care that much for Half Life 2 either. I do like Steam, though. It's a great service, definitely the best Digital Distribution Service (DDS) out there, and it's wonderful feature list just keeps expanding. (a web browser while playing games? oh hell yeah!) I also highly applaud Valve's long-term patching and free DLC support for their games like Team Fortress 2.
Back to the topic on hand, Gabe Newell was scheduled to give a keynote address at this year's Design Innovate Communicate Entertain (DICE) conference in Las Vegas. The address was entitled, "Entertainment as a Service" and dealt with a lot of great elements regarding piracy, which has been a very big issue with the widespread availability of high-speed internet access.
Keep in mind this was done by G4 as a moment-by-moment posting, so that's why it may seem kind of odd and unprofessional.Gabe beileves the old way of entertainment: Indirect customer relationships, product orientation. The new way of entertainment now: Direct customer relationships, service orientation. Valve aims to touch its customers in some way every three weeks, not every three years when a new game is shipped.
Through this perspective, Gabe and Valve have observed the following:
Gabe doesn't believe that pirates are really seeking to get things for free. They are people that spend thousands on their PC's and Internet service. He believes that pirates are beating companies on service. He cites TV shows not available in certain parts of the world. Pirates have TV shows up on the Web minutes after they have aired.
DRM decreases service value for customers. It also makes pirated copies of games look more appealing. Anecdotal evidence appears to suggest that DRM is increasing and not decreasing piracy.
As far as privacy goes, Gabe believes that people are willing to give up system and personal information if they feel it's being used to get a better service. Steam's hardware survey is an example of this. Rather than spying on users for nefarious reasons, Gabe believes things like its hardware survey helps with better sales of products and service. As long as companies are transparent, he feels that customers will accept this.
As far as the shrinking distance between Valve and its customers, Valve didn't find any service in existence so it made its own: Steam.
Steam stats time:
There are competitors, but they are all trying to do the same thing. These include services like Games for Windows Live, Direct2Drive, iPhone App Store, Stardock Impulse. Gabe was very modest , not mentioning that Steam is wildly more successful than any of the other services. But that's why he's giving the keynote. No need to brag.
From a customer's perspective, they want things like portability of content and files, anti-cheating, auto-updating & version control, new games, old games, indie games, 24/7 availability, and community tools. Yep, Steam has all of those. I still think the groups need an upgrade, but they are definitely functional enough to get the job done.
From a business perspective, developers and publishers want piracy protection, keeping customers current with the latest version, direct communication to customers for marketing and promotion, instant sales and promotional performance data, and being able to take advantage of new business models like DLC, subscriptions, and micro-transactions.
With Team Fortress 2, Valve shipped the game as a service and not a product. Valve uses "updates" to create more value for its customers. Updates can be bug fixes, new achievements, maps, and unlocks. There have been 63 updates to Team Fortress 2 since its release. This is also why the PC version is so much better than the Xbox 360 version.
Gabe now speaks about how important Web content creators and blog writers are for the future of games. It brings a tear to my eye! They'll be able to help market products with authority and knowledge.
Gabe brings up an excellent point that successful entertainment companies will realize that fans of properties like the property, not the specific product. They are Harry Potter fans, not just fans of the books. The team that's making the TF2 character videos (which are awesome!) are going to be working on comics.
He's now going showing the Sniper short film. Yay, I get to laugh all over again!
"It works because the people that built that [video] are the same people that built the game."
Valve has been using its existing customers to gain new customers. "There's no way to go into Circuit City to pick on the dead" and get a free weekend. Ouch, Gabe. Ouch.
Valve has seen a great turnaround rate on guest passes. Friends invite their friends to play a game they already own. Game invites that also walk a gamer through a purchase process are also effective.
Time to look at the sales of Team Fortress 2 to see the impact of the updates on revenue. Holy s#!%. The sales spike by huge amounts everytime there's a sale or major update. Steam sales went up 106% after a free update. Player minutes went up by 105%. Gifting has thrown a 71% sales increase. Surprisingly, sales from retail stores also went up by 28%. Finally, it saw 75% increase in new users. Knock knock. Who's there? Steam. Steam who? Steam is so successful it hurts.
Price changes in the retail world don't allow for much freedom. Steam and other services offer flexability. In fact, users apparently respond to pricing discounts within five minutes.
Valve was afraid that too many price changes would "confuse and anger" customers. It isn't the case.
Last weekend, Valve decided to do an experiment with Left 4 Dead. Last weekend's sale resulted in a 3000% increase over relatively flat numbers. It sold more last weekend than when it launched the game. WOW. That is unheard of in this industry. Valve beat its launch sales. Also, it snagged a 1600% increase in new customers to Steam over the baseline.
Worried retailers, fear not. The weekend sale didn't canabalize sales from retail. In fact, they remained constant. Well, constant isn't a 3000% increase, but it's still pretty good, right?
Looking at a third-party game, it saw increases of 36,000% with a weekend sale. Oh. Em. Gee. Okay, Gabe is starting to convince me that PC at retail is going to die very soon.
Oh, more data. I'm such a data nerd. Here's some data!
During the Holiday sales:
At 75% off, they are making 15% more money than they were at full price.
- Source
Saturday, February 21, 2009
Gabe Newell's DICE keynote address.
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