Valve cofounder explains Steam's ongoing price experiments

By on October 24, 2011, 7:00 PM

Valve boss Gabe Newell has offered an interesting glimpse at the inner workings of Steam's promotional and economic strategies during a powwow with other industry leaders at a recent Seattle conference. Along with those topics, Newell commented on the oft-debated threats of piracy, noting that strict DRM isn't the easiest method to prevent illegal downloads. Instead, he believes pirates can be coaxed into a legitimate platform by offering superior service than they'd receive by downloading freebies on torrent sites.

In fact, Steam has accomplished this. Newell noted that many dismiss Russia as a viable market because of its high piracy rates, but the country is now Steam's second largest continental European market in terms of dollars. "The people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russia. …So that as far as we're concerned is asked and answered. It doesn't take much in terms of providing a better service to make pirates a non-issue," he added.

Newell went on to explain the various experiments Valve has conducted on Steam's pricing. To test price elasticity, the company quietly lowered the price of Counter-Strike and discovered that its revenue remained constant regardless (the lower price per unit was perfectly offset by increased sales volume, we assume). However, that trend changes during the high profile sales we all know and love. The company monitored figures during a highly promoted event and Steam's gross revenue rose by a mind-blowing 4,000%.

The same research revealed that discounts on digital platforms tend to boost retail sales and that momentum continues after the promotion -- a phenomenon previously explained by Russian developer and publisher 1C. Basically, the surge in new players has an ongoing impact on sales because it leads to new forum posts about the game, discussions between friends and so on. Or as Newell explained it, "your audience, the people who bought the game, [are] more effective than traditional promotional tools."

The Valve cofounder also touched on his company's recent free-to-play experiments. Valve stopped charging players for Team Fortress 2 in June, but it has seen a five-fold sales increase. "That doesn't make sense if you're trying to think of it purely as a pricing phenomenon," Newell said, but it pays off in vanity sales (hats and other items sold for real money through the Mann Co. Store). Approximately 20 to 30% of Team Fortress 2 players buy such extras -- a figure that dwarfs the 2 to 3% other free-to-play games enjoy.

That percentage could increase with the recent Team Fortress 2 update that makes it easier for players to create and submit digital items with an in-game workshop. For all its tinkering, Newell admits that Valve still has a lot to learn. "All we know is we're going to keep running these experiments to try and understand better what it is that our customers are telling us. And there are clearly things that we don’t understand because a simple analysis of these statistics implies very contradictory yet reproducible results."




User Comments: 27

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TomSEA TomSEA, TechSpot Chancellor, said:

Smart folks they are. Gotta give them all the credit in the world for turning PC retail game sales upside down from the "old" brick and mortar days.

Cueto_99 said:

EA... you gotta learn something from this... really...

fimbles fimbles said:

Forward thinking, Got to give them credit.

Guest said:

Got to give them credit. x3

Cota Cota said:

Am i the only one that finds literally logic the fact that lower prices beats piracy?

This sounds like something Captain Hindsight would say =D

Guest said:

I went from 99% piracy (I paid for TellTale Games because I felt they deserved it and the price was fair, but only after I downloaded and played the pirate version first) to 1% piracy since joining steam. Usually I wait until the game's on sale and after all the DLC has been released before buying, unless it's an indie game, in which case I'll pay full price to support the developer. The only times I can be bothered to pirate a game now is if the publishers are being assholes and trying to rip people off with overpriced DLC that was clearly ready to go on release day but cut so they could charge for it later or stupid DRM schemes.

ramonsterns said:

Cueto_99 said:

EA... you gotta learn something from this... really...

It's called Origin.

Guest said:

yea, i would buy from steam. pc games plays better, their cheaper, easy updates and your pc is multi-more-purpose. however, zsnes emulator and the classic old games are good enough for me; not is the fancy stuff.

nickblame said:

Yes steam always does expirements on prices. my favorite was the one that skipped currency rates and established that 1dollar=1euro. GTAIV price suddenly rose by a quarter percent over a night back then. This was and is really inconsiderate.

gwailo247, TechSpot Chancellor, said:

NICKBLAME said:

Yes steam always does expirements on prices. my favorite was the one that skipped currency rates and established that 1dollar=1euro. GTAIV price suddenly rose by a quarter percent over a night back then. This was and is really inconsiderate.

Yeah, I'm not paying $1 = 1euro while I'm in Europe. Screw that. Same game, same content, not worth it.

Burty117 Burty117, TechSpot Chancellor, said:

ramonsterns said:

Cueto_99 said:

EA... you gotta learn something from this... really...

It's called Origin.

No, I mean, your right in the fact that it is competition, but EA needs to learn that selling there games for more on Origin is not the way your going to get people to use your service.

Guest said:

BTW: Does TechSpot still play TF2 on Friday nights?

nazartp said:

I remember I was really pissed when my son and I bought HalfLife 2 and it required to install Steam to play. Buy, have the times changed. I now don't buy games unless they are on Steam. Painless updates, play from any computer - just great.

TitoBXNY TitoBXNY said:

I remember the naysayers back when Newell was first pushing steam. Valve is so far ahead of the rest it's embarrassing. I was one those that loved going to get a hard copy at Software Etc or EB but caved to the simplicity that Steam provides. I will still get a Diablo 3 and SWTOR Special Editions, but just about everything else will come from Steam.

Kibaruk Kibaruk, TechSpot Paladin, said:

Guest said:

I went from 99% piracy (I paid for TellTale Games because I felt they deserved it and the price was fair, but only after I downloaded and played the pirate version first) to 1% piracy since joining steam. Usually I wait until the game's on sale and after all the DLC has been released before buying, unless it's an indie game, in which case I'll pay full price to support the developer. The only times I can be bothered to pirate a game now is if the publishers are being assholes and trying to rip people off with overpriced DLC that was clearly ready to go on release day but cut so they could charge for it later or stupid DRM schemes.

This was me, I still won't pay for singleplayer games, since I get them and play for a couple of days until they bored the crap out of me, the only game I will buy is New Vegas once it is on sale =) the Fallout series are the exception to this rule.

Burty117 Burty117, TechSpot Chancellor, said:

Kibaruk said:

Guest said:

I went from 99% piracy (I paid for TellTale Games because I felt they deserved it and the price was fair, but only after I downloaded and played the pirate version first) to 1% piracy since joining steam. Usually I wait until the game's on sale and after all the DLC has been released before buying, unless it's an indie game, in which case I'll pay full price to support the developer. The only times I can be bothered to pirate a game now is if the publishers are being assholes and trying to rip people off with overpriced DLC that was clearly ready to go on release day but cut so they could charge for it later or stupid DRM schemes.

This was me, I still won't pay for singleplayer games, since I get them and play for a couple of days until they bored the crap out of me, the only game I will buy is New Vegas once it is on sale =) the Fallout series are the exception to this rule.

What about the Elder Scrolls series? they all are awesome and you can spends 100's if not 1000's of hours on those beasts! I think I racked up over 300+ hours on Oblivion on one character! :S

9Nails, TechSpot Paladin, said:

It's a brave company to try these sales risks, but it provided insight so valuable that Steam is in a better position for having attempted it. I have to give them credit for this.

greatman05 said:

I used to hate Steam...until I found out that the download size was just how big the full install would be. Then I calmed down and became happy

It's just more convenient now especially when you consider that the physical media requires all of this verification whereas I believe Steam doesn't require as much? Correct me if I'm wrong here.

They also have great prices too; I'm still waiting to get enough money and a new computer for Psychonauts. I've always wanted to play that game; it sounds fun.

LNCPapa LNCPapa said:

You shouldn't need a new computer for Psychonauts - you should be able to run it just fine with your current rig. It's a pretty old game and you're right, it is pretty good.

greatman05 said:

My 1st system is down currently; trying to see if it's actually gonna get repaired by the OEM or not. The 2nd one is my gma's and I'm at college and on campus currently so of course that's inconvenient

Zecias said:

They make more money, we save. Win-Win situation. Why aren't all companies like this?

spydercanopus spydercanopus said:

This must explain duke nukem's drop from $50 to a $10 special after just a month.

Guest said:

'Origin'? Thats not called learning. Thats called saying "Look, we can do better than Steam, nyeeeeeh" and falling flat on your face.

Guest said:

"I remember I was really pissed when my son and I bought HalfLife 2 and it required to install Steam to play."

Are you the angry dad complaining about Steam locking HL2 to one PC only? I remember that being the reason why I laid off Steam in the first years. Of course, they fixed that and now it is the best platform for selling games. :)

Guest said:

Very interesting, Thank you.

Mindwraith said:

i think a game's price should be affected by its metacritic score. its annoying to see a 40 game costing the same as a 90 game.

if a game sucks but i want to try it, i dont want to be paying full price for it.

Guest said:

Then don't buy it. Steam doesn't make the prices, the publishers of the game do.

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