Valve Exec Explains How To Compete With Piracy

from the service,-value,-pricing dept

Last month, an exec at Valve Software noted that "Pirates are underserved customers" and said when someone realizes that, they also discover: "I can do some interesting things and make some interesting money off of it." It looks like the company is sharing some data to back that up now as well. A whole bunch of you have been sending in reports from Gabe Newell's keynote speech at DICE. Newell is the founder and managing director of Valve, and he provided plenty of reasons that show that "piracy" is not the issue at all: service, value and pricing can easily trump piracy.

He started out by pointing out something that we've discussed in the past: digital content is best viewed as a service, not a product. As a service, you focus on providing continual value -- and people are paying for that future value (which is a scarce good prior to delivery), rather than an infinite good already created. There's value in paying for that future (scarce) service, and it trumps paying for an abundantly available good.

From there, he noted that the reason "piracy" is doing so well is that the "pirates are ahead not just on price, but on service." In fact, he noted that since DRM decreases the service value for customers, it also tends to increase piracy, rather than decrease it.

Then, he showed how that combination of service and smarter pricing allowed the company to run experiments and make a lot more money -- competing quite successfully against piracy. The most stunning example: last weekend, the company ran an experiment with the game Left 4 Dead. It heavily discounted the price, and sales shot up 3,000%. And this wasn't just a case of building off a small base. The sales over the weekend were more than when the game launched.

In fact, it looks like a big part of the problem facing the industry is that they charge way too much for their products. Here are the numbers Newell shared from Valve's experiments with "sale" pricing:

• 10% off = 35% increase in sales (real dollars, not units shipped)
• 25% off = 245% increase in sales
• 50% off = 320% increase in sales
• 75% off = 1470% increase in sales

Newell then says when they decrease the price by 75%, they are making 15% more than when they were charging at full price -- though, I'm not sure how that math works out from what's stated above (I've been playing around with the numbers, and something is missing...).

Between all of this, it's pretty clear, yet again, that "piracy" is hardly the issue. If you provide a valuable ongoing service at a much more reasonable price, there's no problem at all. Once again proving that the issue is a business model issue, rather than a legal issue. It's too bad so few old school content providers are willing to recognize this, and quite troubling that some folks in our government are still missing this as well. It's going to lead to bad laws and even worse enforcement of the law.

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Stardock Apparently Didn't Get The Memo About Piracy Killing The PC Gaming Market

from the conventional-wisdom-is-wrong-again dept

For the past year or so, we've been hearing all this hand-wringing about how piracy was killing the PC gaming market. The only problem with that claim was that the data actually said the exact opposite. In fact, companies that bothered to embrace fans and treat them right, rather than whining about piracy and making life difficult for users, found that they could do quite well. For example, we talked about Stardock, a company that did everything "wrong" if you went by the conventional wisdom of the video gaming industry. It didn't use DRM. It sold PC games. It kept prices low. It focused on connecting with consumers and understanding what they wanted, rather than coming down off the mountaintop with the "perfect game." And it worked. Despite being easily "pirated" the company got its games into top retailers and became a top seller.

That was a few years ago, even before the more urgent warnings from the "big" video game companies about piracy killing the PC gaming industry. So what's Stardock doing? Thanks to reader Lucretious for sending in the news that Stardock is rapidly expanding and planning new PC games. Yes, some of this is due to a local stimulus package that it's taking advantage of, but if piracy were really killing off the PC gaming industry, the company wouldn't be investing so heavily in new PC games, would it? Once again, we're seeing that companies that treat consumers, fans and users as people, and not thieves, discover that there are plenty of business models that work great.

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Who Said DRM Is Necessary For Video Games? Not According To These Execs...

from the how-dare-they! dept

There have been a variety of highly questionable stories over the past few months claiming that piracy was somehow killing the PC gaming industry -- even as stats were showing that the industry is actually thriving. A lot of this came to a head over the last month, with the EA Spore fiasco -- with folks in the comments still insisting that EA had no choice and that video game companies somehow need to include DRM or they would go out of business. That's clearly not the case for a variety of reasons: (1) no DRM actually stops piracy so if piracy is costing game companies, the DRM isn't making much of a difference and (2) companies like Stardock have shown for a long time that you don't need DRM to be a success. Recently, we heard about execs from two more video game companies hitting back and explaining why DRM isn't needed.

The first, pointed out by a reader named Dave, is a guest post at Penny Arcade by the CEO of Three Rings, Daniel James, where he explains why DRM is pointless:

The business model of putting bits in a box and charging to experience said tasty bits is forever broken. Furthermore, to prevent the copying of bits is futile and ultimately destructive to the goal of any modern digital business, which is to conscript enthusiastic 'users', and from them, customers....

Money can't buy you love, but love can bring you money. In software the only sustainable way to earn money is by first creating love, and then hoping that some folks want to demonstrate that love with their dollars....

DRM takes a big poo on your best customers -- the ones who've given you money -- whilst doing nothing practical to prevent others from 'stealing' your precious content juices. Worse, it makes these renegades feel nice and righteous about sticking it to 'the man'. Stop trying to persuade people to love you more by hitting them a rusty pipe. Put down the pipe, and give up on DRM.

Then, reader Tyler Hipwell alerts us to an interview with the founders of Good Old Games, a video game company that sells old, out-of-print PC games for very low prices... and without DRM. Basically, the company recognizes the marketplace it's in and doesn't freak out about DRM or piracy (like so many others in the video game space):

"The games we offer are probably already easy to get on torrent sites, but we believe gamers would prefer to buy their products legitimately than pirate them. They just need a good reason to buy those games and we give them those reasons by selling games at low prices, optimized to run on modern operating systems and adding great bonus materials."

Not treating your customers as criminals? Giving them reasons to buy? Providing extra reasons to pay? Pricing the games reasonably? According to some video game companies, those are all impossible.

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PC Video Games Thriving... But In Different Ways Than You Might Expect

from the business-models-change dept

Recently, we had a story about a lawyer who was suing a bunch of folks for uploading a pinball video game, with some questionable statements about how piracy was destroying the PC gaming industry. Of course, that's not actually true. An excellent post by Cord Blomquist explains how the PC gaming business is actually growing, but in different ways than most people expect. Sure, it may be harder to find certain types of video games that you see on consoles these days, but other games are thriving. But they're doing so by adopting different business models that aren't so impacted by unauthorized distribution. For example, they involve online services (ongoing MMO type games, where the payment is for service, rather than the software) or they focus on making money through other means, such as advertising or upselling premium editions. So, once again, we find that so-called "piracy" is really just a business model problem, not a legal problem -- despite what some lawyers might say.

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