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.
Didn’t Steam essentially create the “standard” for 30% price point for digital distribution in the first place? While a 30% margin makes sense for physical retail, it’s never made sense for digital distribution.
If they created the problem in the first place, then isn’t that actually an issue?
I’d argue it makes more sense for digital distribution, once the sale has been made in a physical store, there’s no ongoing cost for them.
A digital storefront has the ongoing cost of downloads and updates, as well as the distributed storage costs (Steam has many copies of games all over the world to mean downloads are quick)
Data transfer costs back in the mid 00s mean that every install of a game like HL2 cost them a dollar or so (A quick Google suggests they might have paid a couple of cents a gigabyte, but they may have had a better deal given the volume of data). If a user ever uninstalled and reinstalled more than a couple of times (a lot more common back then with the limited storage everyone had), and couple that with ongoing update transfer costs then most of the profit from a full price sale could easily be gone, let alone if the game was bought with a discount as is very common. If they never made any profit from the sales, Steam never makes it past its awkward years.
Data transfer is definitely cheaper these days, but then games are bigger and they probably spend a lot more on datacenter space than back in the day
A physical storefront has to deal with asset depreciation however. A product can sit on the shelf and reduce in value as it ages, there is no such thing with digital distribution.
Based on estimates, and various reports, leaks etc. since they aren’t a public company… Steam makde an estimated $10.8 Billion in 2024. They made $780,000 per employee as of 2018 based on an internal report, more than nearly every other company on the planet. They’re not spending anywhere near that on operations.
Surely the sales are an equivalent there? Both ultimately mean the total price goes down and the store’s cut goes down accordingly.
Don’t get me wrong, they’re definitely profiting these days. $11bn is a massive amount of revenue* for a company with the number of staff they do. But Steam are going to have disproportionately high datacenter costs compared to most other companies. As a rough comparison: Watching an hour of netflix at HD quality is about 1GB of transfer or so, Call of Duty is something like a quarter of a terabyte. Someone who downloads call of duty once would have to watch 250h of netflix to cost them the same—and Netflix is funded by subscription.
Then remember they’re likely paying their staff very well, I would not be surprised at all if well over half of their revenue just goes to operational costs before any reinvestment.
The sheer data transfer happening is insanely costly and is not something people think about. Valve could certainly tweak their cut for small developers in sone way, but they arent just pocketing 30%.
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)
Didn’t Steam essentially create the “standard” for 30% price point for digital distribution in the first place? While a 30% margin makes sense for physical retail, it’s never made sense for digital distribution.
If they created the problem in the first place, then isn’t that actually an issue?
I’d argue it makes more sense for digital distribution, once the sale has been made in a physical store, there’s no ongoing cost for them.
A digital storefront has the ongoing cost of downloads and updates, as well as the distributed storage costs (Steam has many copies of games all over the world to mean downloads are quick)
Data transfer costs back in the mid 00s mean that every install of a game like HL2 cost them a dollar or so (A quick Google suggests they might have paid a couple of cents a gigabyte, but they may have had a better deal given the volume of data). If a user ever uninstalled and reinstalled more than a couple of times (a lot more common back then with the limited storage everyone had), and couple that with ongoing update transfer costs then most of the profit from a full price sale could easily be gone, let alone if the game was bought with a discount as is very common. If they never made any profit from the sales, Steam never makes it past its awkward years.
Data transfer is definitely cheaper these days, but then games are bigger and they probably spend a lot more on datacenter space than back in the day
A physical storefront has to deal with asset depreciation however. A product can sit on the shelf and reduce in value as it ages, there is no such thing with digital distribution.
Based on estimates, and various reports, leaks etc. since they aren’t a public company… Steam makde an estimated $10.8 Billion in 2024. They made $780,000 per employee as of 2018 based on an internal report, more than nearly every other company on the planet. They’re not spending anywhere near that on operations.
Surely the sales are an equivalent there? Both ultimately mean the total price goes down and the store’s cut goes down accordingly.
Don’t get me wrong, they’re definitely profiting these days. $11bn is a massive amount of revenue* for a company with the number of staff they do. But Steam are going to have disproportionately high datacenter costs compared to most other companies. As a rough comparison: Watching an hour of netflix at HD quality is about 1GB of transfer or so, Call of Duty is something like a quarter of a terabyte. Someone who downloads call of duty once would have to watch 250h of netflix to cost them the same—and Netflix is funded by subscription.
Then remember they’re likely paying their staff very well, I would not be surprised at all if well over half of their revenue just goes to operational costs before any reinvestment.
*Checked the figure was revenue and not profit.
The sheer data transfer happening is insanely costly and is not something people think about. Valve could certainly tweak their cut for small developers in sone way, but they arent just pocketing 30%.
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)