What is Steam?
Steam is a video game digital distribution service, well-known worldwide as a gaming marketplace. This service operates under Valve Corporation, its parent company. Primarily, it is a marketplace for game developers to sell their games. The platform includes an online web-based and mobile digital storefront. Steam also offers digital rights management, server hosting, video streaming and social networking services.
Steam started operations under Valve in September 2003. The company, Valve LLC, began operating under Gabe Newell and Mike Harrington in 1996. At the time, its founders were working for Microsoft. Newell was a Harvard dropout and part of the Windows operating system team. He also contributed to the FPS game Doom, released on Windows 95.
Newell was a significant part of the Microsoft development team and had gathered stakes in the company. In 1996, he walked out of the company and sold his stake for $500 million. This capital allows him to invest in Valve LLC with Harrington, whom he had met through Microsoft. The company released its first game, Half Life, in 1998, which became an iconic brand later.
However, Valve faced significant challenges in finding a publisher for its game. At the time, distributing and publishing games required access to physical stores. The company required dedicated publishers who would market their game to store operators. After many challenges, the company found a distributor and started selling its game, Half Life. Within a few months, it had sold over a million copies worldwide.
At the time, Valve focused on maintaining and improving the game. The company released various expansion packs and a software development kit for its title. However, things weren’t going as smooth for the company as they would have liked. In 2000, Harrington left the company, leaving Newell as the only head of the company. At the time, Valve also renegotiated its contract with Sierra, its publisher for Half Life.
Through this contract, Steam obtained the right to distribute its games digitally. This contract came with the stipulation that the company must start working on Half Life 2. However, the company faced various challenges, specifically due to multiplayer platforms. Consequently, Valve came up with its digital distribution platform. This platform came under the Steam brand in 2002, which has become a household name since then.
How does Steam work?
Steam has a desktop application that works on various well-known operating systems. Currently, it is only available to PC users through Windows, macOS and Linux. The app includes a storefront where users can buy games. It also hosts the Steam community, online gaming features, social networking features and much more. Apart from that, users can also access most of those features through the platform’s web app.
Steam is straightforward to use. Users can join the platform through its website or by downloading its app. However, they require an account first, which is free. This process requires users to go to the Steam website through a web browser. From there, they can click on the “Login” key in the top-right corner. Even if they don’t have an account, this is where they can get started.
Once users click on Login, they can select “Join Steam” to create a new account. The website will redirect them to a new screen, where they must enter verification details. Users must first enter their email address and select their country of residence. Once they do so, they must also solve a captcha, which the website users to filter out bots. They must also review and agree to the Steam Subscriber Agreement and Valve Privacy Policy.
Once users continue, they will get redirected to a new page. Here, they will get a “Verify Your Email” dialogue box. Eventually, users will receive a confirmation mail from Steam to verify their email addresses. Using this email, they can follow the link for the verification process. However, that does not end the signup process on the platform.
Users must choose their Steam Account Name. This username is unique to an account and must not be taken. Once users create their account name, they can select a password to finish the signup process. Steam also encourages users to complete their profiles to provide more information. Once users do so, they can access the marketplace and buy games. These games get added to their account, which users can play later.
What is the Steam business model?
Steam works as a marketplace for developers and gamers. Primarily, it operates a C2C business model where it connects consumers and customers. Here, the consumers include gamers who use the platform to buy and play games. On the other hand, the customers are the game developers who use this platform to offer their games. Steam acts as a marketplace to connect both parties.
However, the C2C business model does not explain how Steam makes money. Primarily, Steam generates revenues through a commission-based business model. The company provides a significant portion of a game’s revenues to developers. However, Steam keeps a percentage of those revenues, which constitutes commissions for the platform. For every game sold, game developers must share their revenues with Steam.
Apart from the commission-based model, Steam also makes money from other operations. Steam also operates a freemium business model. Under this model, the platform provides its games and services free. Users can play trial or demo versions of those games and buy them. At the time, these games are for free. Once users decide to buy it, the platform makes money.
Apart from these, Steam also makes money from other ventures. Commissions are the primary income source for the company. However, those sources also provide a substantial income. Steam makes money from selling hardware products, licensing fees, developer fees, etc. These sources provide an alternative income for Steam, although they may be insignificant.
How does Steam make money?
As mentioned above, Steam makes money from various ventures. While the primary income source is commission-based revenues, the company also earns from other sources. An explanation of each of these sources is below.
Commissions
Steam makes money from every game sold through its platform. The company charges a 30% cut for every transaction. While the user pays for the game, the developer bears the amount paid to Steam. However, Steam also provides better rates for other developers. For example, it charges only 25% if they sell games worth $10 million to $50 million. For developers making above that amount, the commissions are 20%.
Hardware sales
Steam also ventured into the hardware industry through its products. Initially, the company believed in digital supremacy. However, it also realized the need for other products. Steam developed and marketed Steam Link and a gaming controller. These tools allowed the company to make money from its hardware sales. The company also launched Steam Deck in 2022, providing more income from these products.
Developer fees
Steam offers developers various tools and services. These tools fall under the Steamworks brand. Using them, developers can build and distribute games through the Steam platform. These allow publishers to sell bundles and DLCs as well. In exchange, Steam charges them a developer fee. However, these tools are available for free for existing developers.
Licensing fees
Steam also earns money through its licensing fees. However, this fee is for developers or owners who want to set up a Steam PC Café. This feature allows operators to offer visitors a similar experience as Steam at their homes. For this feature, the company charges a $29.99 installation fee. On top of that, it also comes with a monthly $9.99 subscription fee for each license.
Conclusion
Steam has become a household name in the gaming industry for its online marketplace. The platform connects game developers and gamers and acts as a storefront for games. Overall, using and registering Steam is straightforward. The company uses various business models to generate revenues. Steam makes money from several sources, as stated above.
