Some interesting industry news for you here. Epic Games have announced a change to the revenue model of the Epic Games Store, as they try to pull in more developers and more gamers to actually purchase things.
Valve actively increase their cut for small developers and their entire business model is to keep staff to a minimum and costs aggressively low.
They are absolutely just pocketing 30%.
What they are doing with the 30% is anybody’s guess, because they are a private company, so I don’t know how much of it becomes new boats and knifes for Gabe and how much goes to VR HMDs and handhelds, but they are a VERY lean company that sure seems to like being cash-rich.
They apparently transfer approximately 50 exabytes a year.
Some napkin maths has that as costing around $5bn to do from a provider like AWS. Which is half their annual turnover not profit.
Now sure, they will not be spending that much on just data transfer, everyone in the industry knows you get bespoke deals with the cloud providers before the bill gets close to that—but they’ll not get anything close to half price.
Then they need to pay for the actual storage costs
And the compute needed for running all of steam’s API and web servers
And staff, which if they only have 80 of them, will be paid some of the best salaries in the industry.
If you think they’re taking even half of that 30% as profit, I think you need to give this another look.
They don’t need to take that 30% as profit for it to be high. They cost less to run than any other first party. We know this from their recent lawsuits. And no, they do not pay 5 billion for their traffic, but whatever they pay isn’t higher than Sony or Nintendo, or at least not so much higher that it entirely drains their revenue.
And even if they paid your back of the napkin figure, best guess is they pulled ten billion in revenue last year. They don’t tell anybody that, though, so it’s all estimates, and considering the have the biggest distribution platform, the biggest game on that platform and a separate hardware business I’m going to say Valve is not about to buckle under the pressure of bandwidth costs anytime soon, even if they spread the cash around a bit.
Meanwhile, the developers using Valve’s platform do have to pay salaries with a fraction of that revenue, sometimes to staff larger than Valve’s. And for a number of them they also have to deal with server costs and general running costs on the back end.
I don’t know Valve’s operating costs. Nobody does. I know Gabe Newell is very rich. I know the few people working at Valve are very well paid. I know they run that ship as quiet and cheap as possible. And I know they take in just as much (or more) than other platforms with the same or higher costs and a similar or lower take.
they do not pay 5 billion for their traffic, but whatever they pay isn’t higher than Sony or Nintendo, or at least not so much higher that it entirely drains their revenue.
No I know, I addressed that they don’t actually pay that, but it will 100% be a figure in that magnitude. Remember Sony and Nintendo both charge subscription fees for their online services to offset these costs. Valve doesn’t—they have to pay for it all out of that cut.
I’m also at no point insinuating they’re struggling at all, I’m just trying to point out that their operational costs are definitely going to be a big chunk of that 30%, there’s absolutely no way they’re not.
Meanwhile, the developers using Valve’s platform do have to pay salaries with a fraction of that revenue, sometimes to staff larger than Valve’s. And for a number of them they also have to deal with server costs and general running costs on the back end.
I’m not saying the third party devs have it lucky or anything like that. Of course it would be great if they got a bigger cut, at the end of the day it’s the product, but to pretend steam is adding zero value for the 30% taken is absurd.
Also remember regarding third party server costs, Valve provides a lot of the backend services as part of Steamworks for many games on the platform—it’s another big draw for developers to the platform because they don’t need to come up with a friend system, achievements or matchmaking if they don’t want to.
I’m not pretending they’re adding zero value, but they are taking zero risk and tying down everybody else to their ecosystem. If they are adding 30% of value, and I’m not saying they aren’t, it is due to controlling 80% of the market. That’s anticompetitive any way you slice it.
Steamworks is actually a great example of that MO. Is it good value to have it available as a dev? Sure! It is a console-style series of back-end services, which goes far more in-depth than any competitor and makes PC development more standardized and accessible, with a lower barrier to entry to platform-level functionality.
Is it also a way to make it more costly to be elsewhere? Yup. And with no hardware tie-in reason for that, it is crunching down the PC ecosystem to Steam plus friends, as opposed to a competitive, open landscape.
That, on my book, is not good on the aggregate. It would be just as bad if Xbox’s much inferior attempt at the same thing Windows-wide was in that same position of power (like the Apple ecosystem is on Macs), but at least there you could argue that it’s at the OS level and not tied in to your payment services and distribution platform.
I see what you’re saying and there’s definitely some merit to it, I’d be foolish to pretend they don’t have a near-monopoly and that it doesn’t afford them a position of power compared to their competitors.
But I think the key thing is that devs aren’t forced to use Steam or Steamworks. There’s nothing stopping someone like Epic from providing the exact same kind of services. The only thing they partly lack is the existing network effect, but Epic also has fortnight which provides the basis of that network for them. GoG is arguably in the worst position of the three in this regard, but many would put them in their personal 1st or 2nd place.
If Steam was truly stiflingly dominant to an anti-competitive degree, no one would have downloaded the Epic store to play fortnight in the first place—instead it’s been one of the most successful games on the platform of that past decade.
Epic wants to hedge their potential dominance by paying to keep games off Steam and removing the choice from the consumer. The fact that given there’s basically no barrier to entry and the average PC gamer still chooses to wait for a steam release is more indicative of inadequate competition rather than anti-competitive behaviour IMO.
(Cheers for the replies btw, this has been an interesting discussion)
Hey, you could say the same thing about Reddit or Twitter, and yet…
Not being forced to use a thing isn’t nearly enough to bypass an anticompetitive environment, as Apple just learned the hard way this month again in a separate fight with Epic as well.
Paying for exclusives is absolutely not anticompetitive, by the way. Just the opposite. The idea of competition is you have different offerings in different places. I think the only reason people get so mad about it these days is Valve stepped so far away from making games as a matter of course that nobody thinks about their first party stuff as exclusive anymore (which, again, is another show of their mastery at PR-by-default).
I keep reminding people how mad the fanboys were when Final Fantasy or Metal Gear went multiplatform. Getting old in games and seeing opinions shift based on brand loyalty is wild.
I do appreciate the civil conversation as well, for the record. People get extremely emotional about this one, especially around here, in ways I find outright childish and very annoying. It’s good to have somebody at least disagree politely and put some thought into it.
Apple is a different case I’d argue because until that lawsuit there was no legitimate way to install applications without using Apple’s storefront—that’s a much less defensible position IMO.
FWIW, my understanding is that many economists side on exclusivity contacts being by definition anti-competitive & anti-consumer in spirit if not strictly by law. The whole point of them is to remove the agency of the consumer and attempt to force their hand, after all. The whole Blizzard Activision acquisition by Microsoft was complicated predominantly by concerns of the exclusivity opportunities (mostly around CoD) following acquisition being anti-competitive.
You’ve got a good point about their first party games, but then no one is really giving epic grief about fortnite being a platform exclusive for them. People get annoyed about it more when they’ve paid third parties such as Square-Enix to not release on any other platform. It’s not just on the PC either, I’m pretty sure Sony got a lot of flak for paid third party exclusives to keep them off Xbox a little while ago.
People were mad that exclusives were going multiplatform at the time. Metal Gear on Xbox sent some PS fans into fits of rage. Final Fantasy going from Nintendo to Sony and then going multiplatform pissed people off on every step of that process.
Inconsistency aside, there is a difference between paying a third party to make an exclusive title and buying the third party. The Xbox deal wasn’t an exclusivity deal, it was an acquisition.
Let me put it this way, nobody in their right mind would claim that Netflix buying a show and putting it exclusively on Netflix is anticompetitive. The entire point of the platform is competing on content. If that still sounds implausible, roll it back a medium and think of TV stations. Again, nobody would get mad that a particular show airs specifically on a channel, even if most shows are made by production companies contracted, not owned, by the distribution channel.
Now, when the nerds were raging about exclusives I was on the camp that platform agnostic content is ideal, and I still agree with that sentiment. But it also seems pretty obvious that the notion that contracting out an exclusive from a third party studio is anticompetitive in a way that a first party release is not seems absurd. Why would it make more sense for The Last of Us or CounterStrike (especially CounterStrike, which was originally an indie mod acquired for a full release) to be exclusive than for Alan Wake II to be exclusive? Was it weirder that Ratchet & Clank Up You Arsenal was exclusive than for A Rift Apart to be exclusive just because Sony didn’t own Insomniac for the first one but they did for the second?
Paying for exclusives is 110% anti-competitive and anti-consumer.
Steam is dominant because of the service it provides, if Epic (or anyone else) actually made a compelling service, it could eat into Steam’s market share. Instead they are throwing money at stopping games being sold on other platforms (which is anti-competitive) and giving the user no choice (which is anti-consumer).
You should tell Max they’re being anticompetitive about The Last of Us and Netflix about Castlevania. Sony about Bloodborne, Jak & Daxter and Ratchet & Clank, Nintendo about Final Fantasy 1-6 and again Sony about 7-12.
I’m confused about whether you think Valve outright buying all the modding properties counts as paying for exclusives or not, but you may have to look into that one, too.
I have to say, the most cognitive dissonance about this argument was to see people flip out about Alan Wake II being an Epic exclusive, seemingly having entirely memory holed that Alan Wake 1 launched as an Xbox 360 exclusive and nobody even thought to complain.
Valve actively increase their cut for small developers and their entire business model is to keep staff to a minimum and costs aggressively low.
They are absolutely just pocketing 30%.
What they are doing with the 30% is anybody’s guess, because they are a private company, so I don’t know how much of it becomes new boats and knifes for Gabe and how much goes to VR HMDs and handhelds, but they are a VERY lean company that sure seems to like being cash-rich.
It would be impossible for them to pocket 30%
They apparently transfer approximately 50 exabytes a year.
Some napkin maths has that as costing around $5bn to do from a provider like AWS. Which is half their annual turnover not profit.
Now sure, they will not be spending that much on just data transfer, everyone in the industry knows you get bespoke deals with the cloud providers before the bill gets close to that—but they’ll not get anything close to half price.
Then they need to pay for the actual storage costs
And the compute needed for running all of steam’s API and web servers
And staff, which if they only have 80 of them, will be paid some of the best salaries in the industry.
If you think they’re taking even half of that 30% as profit, I think you need to give this another look.
They don’t need to take that 30% as profit for it to be high. They cost less to run than any other first party. We know this from their recent lawsuits. And no, they do not pay 5 billion for their traffic, but whatever they pay isn’t higher than Sony or Nintendo, or at least not so much higher that it entirely drains their revenue.
And even if they paid your back of the napkin figure, best guess is they pulled ten billion in revenue last year. They don’t tell anybody that, though, so it’s all estimates, and considering the have the biggest distribution platform, the biggest game on that platform and a separate hardware business I’m going to say Valve is not about to buckle under the pressure of bandwidth costs anytime soon, even if they spread the cash around a bit.
Meanwhile, the developers using Valve’s platform do have to pay salaries with a fraction of that revenue, sometimes to staff larger than Valve’s. And for a number of them they also have to deal with server costs and general running costs on the back end.
I don’t know Valve’s operating costs. Nobody does. I know Gabe Newell is very rich. I know the few people working at Valve are very well paid. I know they run that ship as quiet and cheap as possible. And I know they take in just as much (or more) than other platforms with the same or higher costs and a similar or lower take.
So none of that flies.
No I know, I addressed that they don’t actually pay that, but it will 100% be a figure in that magnitude. Remember Sony and Nintendo both charge subscription fees for their online services to offset these costs. Valve doesn’t—they have to pay for it all out of that cut.
I’m also at no point insinuating they’re struggling at all, I’m just trying to point out that their operational costs are definitely going to be a big chunk of that 30%, there’s absolutely no way they’re not.
I’m not saying the third party devs have it lucky or anything like that. Of course it would be great if they got a bigger cut, at the end of the day it’s the product, but to pretend steam is adding zero value for the 30% taken is absurd.
Also remember regarding third party server costs, Valve provides a lot of the backend services as part of Steamworks for many games on the platform—it’s another big draw for developers to the platform because they don’t need to come up with a friend system, achievements or matchmaking if they don’t want to.
I’m not pretending they’re adding zero value, but they are taking zero risk and tying down everybody else to their ecosystem. If they are adding 30% of value, and I’m not saying they aren’t, it is due to controlling 80% of the market. That’s anticompetitive any way you slice it.
Steamworks is actually a great example of that MO. Is it good value to have it available as a dev? Sure! It is a console-style series of back-end services, which goes far more in-depth than any competitor and makes PC development more standardized and accessible, with a lower barrier to entry to platform-level functionality.
Is it also a way to make it more costly to be elsewhere? Yup. And with no hardware tie-in reason for that, it is crunching down the PC ecosystem to Steam plus friends, as opposed to a competitive, open landscape.
That, on my book, is not good on the aggregate. It would be just as bad if Xbox’s much inferior attempt at the same thing Windows-wide was in that same position of power (like the Apple ecosystem is on Macs), but at least there you could argue that it’s at the OS level and not tied in to your payment services and distribution platform.
I see what you’re saying and there’s definitely some merit to it, I’d be foolish to pretend they don’t have a near-monopoly and that it doesn’t afford them a position of power compared to their competitors.
But I think the key thing is that devs aren’t forced to use Steam or Steamworks. There’s nothing stopping someone like Epic from providing the exact same kind of services. The only thing they partly lack is the existing network effect, but Epic also has fortnight which provides the basis of that network for them. GoG is arguably in the worst position of the three in this regard, but many would put them in their personal 1st or 2nd place.
If Steam was truly stiflingly dominant to an anti-competitive degree, no one would have downloaded the Epic store to play fortnight in the first place—instead it’s been one of the most successful games on the platform of that past decade.
Epic wants to hedge their potential dominance by paying to keep games off Steam and removing the choice from the consumer. The fact that given there’s basically no barrier to entry and the average PC gamer still chooses to wait for a steam release is more indicative of inadequate competition rather than anti-competitive behaviour IMO.
(Cheers for the replies btw, this has been an interesting discussion)
Hey, you could say the same thing about Reddit or Twitter, and yet…
Not being forced to use a thing isn’t nearly enough to bypass an anticompetitive environment, as Apple just learned the hard way this month again in a separate fight with Epic as well.
Paying for exclusives is absolutely not anticompetitive, by the way. Just the opposite. The idea of competition is you have different offerings in different places. I think the only reason people get so mad about it these days is Valve stepped so far away from making games as a matter of course that nobody thinks about their first party stuff as exclusive anymore (which, again, is another show of their mastery at PR-by-default).
I keep reminding people how mad the fanboys were when Final Fantasy or Metal Gear went multiplatform. Getting old in games and seeing opinions shift based on brand loyalty is wild.
I do appreciate the civil conversation as well, for the record. People get extremely emotional about this one, especially around here, in ways I find outright childish and very annoying. It’s good to have somebody at least disagree politely and put some thought into it.
Apple is a different case I’d argue because until that lawsuit there was no legitimate way to install applications without using Apple’s storefront—that’s a much less defensible position IMO.
FWIW, my understanding is that many economists side on exclusivity contacts being by definition anti-competitive & anti-consumer in spirit if not strictly by law. The whole point of them is to remove the agency of the consumer and attempt to force their hand, after all. The whole Blizzard Activision acquisition by Microsoft was complicated predominantly by concerns of the exclusivity opportunities (mostly around CoD) following acquisition being anti-competitive.
You’ve got a good point about their first party games, but then no one is really giving epic grief about fortnite being a platform exclusive for them. People get annoyed about it more when they’ve paid third parties such as Square-Enix to not release on any other platform. It’s not just on the PC either, I’m pretty sure Sony got a lot of flak for paid third party exclusives to keep them off Xbox a little while ago.
No, that’s what I’m saying.
People were mad that exclusives were going multiplatform at the time. Metal Gear on Xbox sent some PS fans into fits of rage. Final Fantasy going from Nintendo to Sony and then going multiplatform pissed people off on every step of that process.
Inconsistency aside, there is a difference between paying a third party to make an exclusive title and buying the third party. The Xbox deal wasn’t an exclusivity deal, it was an acquisition.
Let me put it this way, nobody in their right mind would claim that Netflix buying a show and putting it exclusively on Netflix is anticompetitive. The entire point of the platform is competing on content. If that still sounds implausible, roll it back a medium and think of TV stations. Again, nobody would get mad that a particular show airs specifically on a channel, even if most shows are made by production companies contracted, not owned, by the distribution channel.
Now, when the nerds were raging about exclusives I was on the camp that platform agnostic content is ideal, and I still agree with that sentiment. But it also seems pretty obvious that the notion that contracting out an exclusive from a third party studio is anticompetitive in a way that a first party release is not seems absurd. Why would it make more sense for The Last of Us or CounterStrike (especially CounterStrike, which was originally an indie mod acquired for a full release) to be exclusive than for Alan Wake II to be exclusive? Was it weirder that Ratchet & Clank Up You Arsenal was exclusive than for A Rift Apart to be exclusive just because Sony didn’t own Insomniac for the first one but they did for the second?
Paying for exclusives is 110% anti-competitive and anti-consumer.
Steam is dominant because of the service it provides, if Epic (or anyone else) actually made a compelling service, it could eat into Steam’s market share. Instead they are throwing money at stopping games being sold on other platforms (which is anti-competitive) and giving the user no choice (which is anti-consumer).
You should tell Max they’re being anticompetitive about The Last of Us and Netflix about Castlevania. Sony about Bloodborne, Jak & Daxter and Ratchet & Clank, Nintendo about Final Fantasy 1-6 and again Sony about 7-12.
I’m confused about whether you think Valve outright buying all the modding properties counts as paying for exclusives or not, but you may have to look into that one, too.
I have to say, the most cognitive dissonance about this argument was to see people flip out about Alan Wake II being an Epic exclusive, seemingly having entirely memory holed that Alan Wake 1 launched as an Xbox 360 exclusive and nobody even thought to complain.