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."
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