World Class Villains

Dear Valve,

How are you? I hope you are well. I am good.

“And lo, it was commanded that the people should use an operating system that is open like a door, not closed like a window.”

I saw Mr Newell’s comments the other day about Valve’s biggest concerns not being with the traditional console providers, but are instead with Apple. On the surface, there’s a superficial similarity between Valve and Apple – they’ve got a walled garden, you’ve got a walled garden, they were were run by an iconoclast who inspired fear and devotion, you’ve got Newell who’s working on the right facial hair for that cult-leader look – but there are of course a lot of differences. The traditional PC versus Mac divide. Valve is a software company that’s trying to get into hardware while Apple has been blending the two for a long time and very successfully in the last few years (although the cracks may be showing through). Apple is a tech company powerhouse that sits a league or two higher in scale to Valve right now.

Both of you seem focused on the same target though – the living room. You both want to control it, which means controlling the television set. And you’ve got to know that games alone aren’t going to control the TV.

Steam is all about PC games. You’ve done very well there, to the point that Valve’s main function isn’t games development any more, it’s online PC games retailing. Yes, it is – it’s the main source of your revenue. It’s the main reason that you can take as long as you like on Half-Life 3. But PC games are only going to go so far, and that is partly your doing. You’ve helped move PC gaming where there are broadly two types of games –

1. the Awesome Fantastic Ones Players Must Buy On Day 1 (Possibly Through Steam), and
2. the Wait For The Steam Sale Titles.

Waiting for titles until they go on sale is helping to squeeze the middle out of the market.

There are a lot more of Type 2 than Type 1. Which benefits you now, but means that you’re going to have issues later on as AAA development continues down this negative feedback loop – if a studio / publisher invests big in a game that the masses wait to buy on a discount, it means they won’t do it again, which means a lower potential of Awesome Day 1 titles in the future, which means fewer big title launches bringing player to Steam. I don’t see indie titles filling that gap. Yeah, yeah, Minecraft, but that’s the exception.

Which leaves the sales lever as the only real way to drive customer purchase (other than faking scarcity in digital distribution, and players hate that). That’s a matter of making up revenue by increasing the quality sold while dropping the per unit cost. It works – and it works very well while you’ve got a pseudo-exclusivity on a number of titles by virtue of Valve’s market power and size – but it also creates that situation where everyone waits for the sale before purchasing. No point buying a title you are kind of interested in today when if you wait a while you can get it at 75% off.

Comparatively the majority of Apple’s offers in games terms are going for the “everyday low prices” or even free-to-play (F2P). Which is why if you think the current console players get rolled by Apple, you should recognise that Valve is in an even more vulnerable state if the target is the living room. Because at least the current consoles are trying to diversity into other areas and licence content other than games. Valve, if all you offer is games and streaming from the home PC whenever the Steamboxes are actually finalised, you won’t be owning the living room of anyone but your most ardent, Linux-loving fans.

A lot of people talk about Apple’s innovation with the iPod (and later iPhone and iPads) as though it stops with the physical device itself. They’re wrong – it’s the device AND the range of content available on it that made Apple a powerhouse. iTunes is crucial to what Apple does. Steam is crucial to what you do Valve, but it’s not in the same league as iTunes. Steam has nowhere near the variety or versatility of iTunes. iTunes is games AND movies AND music AND a whole heap of other variants.

Which is why I think you’ll combat this angle by going into the movie business (and maybe the music business, but movies are more a living room thing) for more exclusive content. Now, you probably aren’t going to be financing blockbusters, or (like Netflix) putting up US$100m+ to develop high grade professional content. No, it’s more likely that you’ll open the doors to the movie equivalent of indie games and look to creator-developed content.

Okay, this may not be the best example of what’s possible, but it’s an example of video content that disappears through normal channels but could attract eyeballs on Steam.

Perhaps you’ll seed some projects to someone like Rooster Teeth, or get Felicia Day et al to create something to follow up The Guild, or even look to current YouTube personalities / groups to create special series only for you. Apparently there’s already at least one Valve documentary crew out there and you’ve released tools that would help the masses create their own video content. Your biggest attraction will be creators getting a direct cut of any revenue they earn through Steam (not just ad-based revenue) while having lower barriers to entry than Apple.

You’ll offer something like a YouTube channel that pays and works better. And has fewer lolcats videos.

If you open the doors to such creator-owned content, there will be problems, of course – IP and licensing issues, quality of content, appropriateness of content (because there is FILTH on the internet, don’t you know) – but you’ve already dealt with that a lot of those issues when dealing with video games. You have your own system for Greenlighting things. Going towards indie online video content sees you encroach on Apple’s turf without going head-to-head with them for the kind of content they have at their fingertips (e.g. Disney and the associated Pixar, Marvel Studios and LucasArts).

Disruption is the name of the game here.

Valve, if you go head-to-head with Apple, you’ll lose. If you go at them sideways, doing the kinds of things they don’t really care about (and semi-professional / low budget professional video content is something Apple wouldn’t give a damn about), that’s where you’ll find the advantage. If you have low cost, quirky video content that is attractive to the Steam customer base, you’ll own a lot more of the living room and give more people a reason to sign up to Steam.

Of course, if you start taking quality content from YouTube then Google won’t like you, but hey, welcome to the tech sector.

But I think you know all that. I didn’t know that you were in the movie biz Valve (and maybe you don’t either, or maybe aren’t counting the video content as ‘movies’ per se) but I don’t think it will be long before you surprise some people with an announcement in this area.

Yours sincerely,

– UnSubject