Deep Dive: PC Distribution Platforms
This week, we wanted to take a closer look at the top PC gaming distribution platforms in the market, how they got here, and how their scaling strategies compare to each other:
The History of Steam (Valve) - The First Mover and Biggest Player
The beginning: Steam initially started as a way for Valve to push patches for their game portfolio, address cheating, and improve accessibility to first-party content. In 2004, the platform made its first big push to get users on the platform by requiring players to sign up for Steam in order to play Half-Life 2 (Gamespot).
Introducing third-party content: In 2005, Steam introduced its first titles that were not developed by Valve, Ragdoll Kung Fu and Darwinia (Game Developer). This kicked off Steam’s delve into digital sales and distribution. They added almost 100 games to the platform and offered free demos and HD videos (PC Gamer).
Building out the initial feature set: From 2007 through 2010, Steam focused on refining the purchase and community experience by adding features such as proper search functionality with filters like Top Sellers, New Releases, and Browse by Genre, Metacritic ratings, and community forums (stat-tracking, friends lists, community groups, and voice chat). In 2008, the rollout of Steam Cloud made it significantly easier to play the same game across multiple computers by providing automatic synchronization of game saves, key bindings, and configuration settings (PC Gamer). By 2009, Steam had 25m MAUs (Game Developer).
Establishing Steam as the go-to platform to build, discover, play, and launch games: Starting in 2011, Valve began to further expand its feature set, initially releasing Steam Guard (two-step authentication) and Steam Workshop which allowed for UGC to be distributed directly on Steam. In 2012, Valve made three big moves in game publishing and access through the Steam Greenlight program, where users could vote on which indie games would be published on the platform, its mobile app (chat, purchases, remote game installation), and Steam Marketplace (Steam). In 2013, Steam was estimated to have 75% market share of all digital game distribution sales (BBC).
Steam as we see it today - streaming, hardware, and VR: In 2014, Steam underwent the Discovery Update, which resulted in the UI that we see today (PC Gamer). From 2015-2016, Steam added a hardware (Steam Controller, Steam Link, Steam Machines) and a VR category (engadget). In 2017, Steam replaced Greenlight with Steam Direct, allowing any developer to publish on their platform given they submit an application and pay a nominal fee (Polygon). They also reached $4.3b in sales that year which accounted for 18% of global PC game sales (PCGames). Steam attempted to take on Twitch in 2018 by launching Steam.tv (which still technically exists today with very little usage) and introduced streams to game pages (Eurogamer).
Pros: Massive game library, easy for developers to publish games, community size, controller integration, security, support, offline mode, Steamworks tools and services for developers
Cons: Revenue share (70/30), discoverability, poor marketing, aggressive deal terms for developers (i.e. can’t sell your game for less on other platforms)
The History of GOG (CD Projekt) - Putting Player Ownership First
The start of CD Projekt: Parent company CD Projekt was initially established in 1994 with the goal of introducing legitimate sales of international game titles to Poland (a country where pirated and bootlegged replicas were easily accessible due to the lack of digital rights management (DRM) across all electronic media). Their first hit was Baldur’s Gate in 1998, which sold 18,000 copies.
Establishing “Good Old Games”: As digital distribution grew in the 2000s, CD Projekt founded Good Old Games with the same ethos that led to the company’s founding 14 years prior. Their first larger customer was Interplay, the publisher of Baldur’s Gate. They were eventually approached by Ubisoft to sell their older game library, their first big break.
Rebirth: In September 2010, the GOG.com website was disabled and Twitter publicized that the site had been closed “due to business and technical reasons” (Kotaku). There was some speculation that this was due to their issues around digital distribution rights (Gamasutra), however, this was nothing but a marketing hoax to generate hype around GOG coming out of beta. The site returned 4 days later, with an improved storefront and additional features (PC Gamer).
Sticking to the basics: The platform has not changed much beyond the introduction of additional OS support (OS X was introduced in 2012 and Linux in 2014) and the expansion to DRM video in 2014.
Pros: Large game library (~6k titles), DRM, very good refund policy (30 day money back, regardless if the game was downloaded, launched, and played), gamer-first ethos
Cons: Revenue share (70/30), limited AAA game library, basic feature set, limited community
The History of The Epic Games Store (Epic) - Buying Players with Content
The beginning: In August 2017, Epic’s CEO Tim Sweeney publicly denounced Steam’s publishing revenue take, sharing that the Steam store could be profitable even if it took an 8% cut (PCGamesN). The Epic Games Store (EGS) launched over a year later in December 2018, with a small set of “hand-curated” games on macOS and Windows.
Growth, at a cost: Ubisoft was the first AAA “exclusive” (it was also available on UPlay, Ubisoft's previous distribution platform for their games which is now called Ubisoft Connect) that came to the platform, announcing in January 2019 that the upcoming Tom Clancy’s The Division 2 would appear on the Epic Games Store instead of Steam. This was the beginning of a slew of exclusive deals that were not well received by the gaming community (Polygon). However, Epic proceeded with this strategy, spending $444m on minimum guarantees for these exclusives in 2020 alone (PC Gamer).
Since the Epic Games Store is much simpler in terms of feature set, exclusives and free releases are the reason that the Epic Games Store became so popular within such a short period of time. In their 2020 review, Epic reported that the store had 56m monthly active users (Epic Games), a bit less than half of what Steam had that year at 120m MAUs (Steam). Based on the materials published during the Epic vs Apple court case, Epic believes that if they continue this type of aggressive content acquisition strategy, the Epic Games Store could achieve 35-50% market share of the PC gaming market. The store does not anticipate being profitable until 2024 (GamesIndustry.biz).
Pros: More curated than Steam, 88/12 revenue share, support-a-creator program, weekly free games, access to exclusive releases, no DRM restrictions
Cons: Epic is pickier about what indie games can be published on the platform, smaller game library for gamers, smaller feature set (marketplace, library, social)
Publisher-Specific Launchers - Direct to Customer
Examples: Battle.net (Activision Blizzard), Ubisoft Connect, and EA Origins
Pros: Publishers can push their first-party content without revenue shares while controlling the sale of in-game and physical assets tied to their IP, publishers can own their customer data and journey, gamers don’t have to interact with massive storefronts or libraries, gamers can access publisher exclusive content
Cons: Very limited game libraries (no access to any third-party content), weak long term value proposition for end users
Takeaways: In looking at the top PC game distribution platforms, we see 4 main approaches:
1) building an all-in-one solution for as many gamers & devs as possible (Steam)
2) specifically addressing game ownership and access (GOG)
3) curating a library of high quality game offerings (Epic Games Store)
4) building a door for just in-house content (publisher-specific)
The variance in ethos directly affects the size of the library, amount of exclusive content, discovery and curation, revenue share, and level of customer support.
Epic’s rapid rise in the market shows that there is currently no one solution that solves all consumer and developer needs. However, as Epic builds out their feature set and captures a larger % of the market, it could very soon be an intense race between Epic and Steam. We believe this will come down to content accessibility (not price), not unlike the competition that we’re seeing in the streaming market between Disney (ESPN, Hulu), Netflix, HBO Max (Warner Media), and Amazon Prime.
As the evolution of PC game distribution continues to unfold, we are keen to see the developer retain more of the economics as the competition in the market intensifies. This will end up being net-positive for end consumers. In the modern state of gaming, the distribution model for PC gaming needs to evolve from the 10-year antiquated pricing of 70/30 towards almost completely free (see Halo’s latest release on Steam, for free, as a brilliant example of this).
Games-as-a-service (GaaS) has already enabled new monetization methods in-game through items, subscriptions, and battle passes, however, this is limited to only a subset of transactions (e.g. Steam only takes a cut of microtransactions that use the Steam wallet) and does not capitalize from engaged, long term users that do not engage in microtransactions. If anything, distribution platforms should try to get a royalty on every user who downloads the game from their platform (this would likely be quite lucrative).