Valve Exec: Pirates Are Just Underserved Customers

from the and-then-you-see-the-opportunities dept

We’ve had a ton of people submitting this, so figured a quick writeup is in order. Jason Holtman, the director of business development and legal affairs for Valve, was speaking a video game conference, when he noted: “Pirates are underserved customers.” This is a point that plenty of folks have been making for a while, but having an exec at a company like Valve make it is important. But, even more important was his next sentence:

“When you think about it that way, you think, ‘Oh my gosh, I can do some interesting things and make some interesting money off of it.'”

This past weekend at the MidemNet conference (on which I’ll be writing much more), I heard a few music industry folks say something at least somewhat similar to the first part of the comment: talking about how they had to learn to bring “pirates” back into being legitimate customers. But, then they missed that second part. As one attendee said, the music industry execs kept freaking out about how much money they will lose, while ignoring how much money there is to be made.

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Comments on “Valve Exec: Pirates Are Just Underserved Customers”

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Anonymous Coward says:

Re: Re: Steam is the worst DRM, ever!

Steam might be DRM but it is by far the closest thing we have to a good DRM at this time.
Install any number of copies of the games.
Integrated friends / server browser / clan system.
Purchased games do not expire.
You have to select offline mode while online.
It is DRM.

I am sure there are many more for either side but still I think it is a decent attempt at working with gamers. Much better then EA’s recent crap anyways.

nasch says:

Re: Re: Re: Steam is the worst DRM, ever!

It’s interesting that on the pro side are one feature that has nothing to do with DRM, and two “features” that are really the absence of anti-features that you often get with DRM. So the good things about this DRM is it doesn’t restrict the user and devalue the purchase as much as it might.

It just reinforces the point that there’s no such thing as friendly DRM, and DRM never benefits the user in any way.

Bradley Stewart (profile) says:

When a Company is as Non-Responsive as Valve

it is no supprise if someone is good enough to figure out how to priate their stuff it happens. These are not just under served customers. These are customers who are just fed up trying to communicate with these people or collecting a refund. You can e-mail this company all day and never get a response.

Eli Boyet says:

I think most of these anti-Steam people are ones from the early days of steam where everyone razzed on the fledgling game client. It’s certainly made leaps and bounds since those days and I never have any real problems with it (and I’m always fooling around in the directories being on the mod scene)

I never really thought of it as DRM in a holistic manner. It seemed Valve saw an opportunity early on that this client could reduce piracy easily. And as for Valve being responsive, they’ve been pretty communicative to people I know. Maybe it’s just the channels they use to get in touch, not sure.

Valve always seems to be on the right track before anyone else is.

Michael Long (user link) says:

Pirates are underserved customers.

Perhaps, though one wonders if a “pirate” (visualize a smelly, scurvy-ridden individual with bad teeth) would ever be a customer… at ANY price.

People complained about album prices, and Apple introduced the buck-a-track system. Then people complained that a buck was too high. Nearly everyone you talk to has a different idea as to what constitutes a “fair” price, and every price point you mention is too high for someone else.

People complain about game quality, but just how much better could it be if Valve cut prices in half? Or if they cut it down to $20? Would revenues still support the multi-million dollar price tag needed to create a major game title?

Say Valve listened to it’s underserved “customers” and cut the price of a $50 game in half. Would they sell twice as many games, which is still less than the number needed to get back to the same spot? Or would the pirates now say $25 is still too high, that the game companies are still greedy bastards, that there’s still DRM, that they still never listen, (insert favorite rationalization here)… and STILL swipe the game?

The idea that pirates are underserved customers is an interesting idea, but assuming that a significant number of pirates will suddenly become paying customers, at any price, or for anything other than a game, is just that, an assumption.

And you know what happens when you assume…

PaulT (profile) says:

Re: Pirates are underserved customers.

Well, you do kind of miss the point. First, RTFA:

“”We take all of our games day-and-date to Russia,” Holtman says of Valve. “The reason people pirated things in Russia,” he explains, “is because Russians are reading magazines and watching television — they say ‘Man, I want to play that game so bad,’ but the publishers respond ‘you can play that game in six months…maybe.’ “

“We found that our piracy rates dropped off significantly,” Holtman says, explaining that Valve makes sure their games are on the shelves in Moscow and St. Petersberg, in Russian, when they release it to North America and Western Europe.”

In other words, people were pirating the games because they were forced to wait 6 months, during which time they were refused the real thing. Offer the real thing, and piracy drops. Not rocket science, is it?

There are currently 4 major kinds of “pirates” when dealing with games:

– People who want to “try before they buy”
– People who want the game but can’t afford the $60 full retail, so download a copy to use until the price comes down.
– People who want to download a product not currently available in their region, a language not supplied on their region’s disc, want a cracked version to not have to jump through DRM hoops, etc.
– People who download with no intention of ever paying for the product even if it was available for $1.

Now, a lot people who are anti-piracy assume that the latter group is the largest. Many others believe that the first 3 groups are the largest.

The problem here is that there’s no way of really knowing. However, what we DO know is that the anti-consumer tactics used by the industry such as regionalisation, DRM and repeated activation actually makes less people willing to pay for the final product. Make the “real” version more attractive to paying customers than the pirated one, and they’ll pay. The big problem right now is that a non-region-restricted, DRM-free pirate copy of a game is actually *more valuable* than the real thing!

Also, your example of iTunes is a bit of a red herring. Yes, 99c/track is too high, especially for older tunes, and prices for full albums can be nearly as high as a CD. The DRM stopped any competition from taking place for a number of years, meaning that iPod owners could only but from one monopolised outlet. Now that this monopoly has been removed by removing DRM, we are starting to see market forces take place and prices reduced. Everyone can now sell songs that can play on an iPod, and iTunes are being forced to rethink their pricing. If they could just stop the idiotic regional restrictions, then we’ll be seeing real progress.

Once the idiocy is removed from PC games, we should see some real progress there as well. Valve is showing that by serving an under-served section of the market, they reduce piracy and increase sales. What’s the problem with that?

Chris says:

Re: Pirates are underserved customers.

I have not once on any of my many steam games had any problems.

On the games I’ve bought physical copies of-> problems with finding my CD-Key after a year of owning it, starforce making my CD-Drive almost burn out, Driver issues with securom…

Steam makes things easy, and I trust that the threat of a massive lawsuit will encourage valve to release no-steam patches for all of my games if they ever give up on steam.

The last game CD I purchased for my PC – The orange box.(Steam Version)

PopeHilarius (profile) says:

Re: Pirates are underserved customers.

@Michael Long

I think a lot of these arguments get muddled by using morality-laden words like ‘fair’. There’s nothing right or wrong about any price. But .99 cents for a song -is- too high (economically, not ethically), because the marginal cost of delivering me that song is $0*.

So no one needs justifications/rationalizations you put forward (though people do, of course). The simple fact is downloading a digital product incurs no cost to the producer. Any prize above zero is artificial, and economics tells us it’ll have to come down. There’s no morality here, it’s just the way the market’ll go. You can’t charge money for something that’s actually free, in the long run.

* Actually infinitesimally above zero, factoring in electricity, bandwidth and other frictional elements.

Rick says:

Not Just Games....

It’s obvious there are underserved customers.

Look at exclusive deals (which make no sense to me). There are certain artists who release their albums at Walmart, Target or Best Buy ONLY. the closest Best Buy and Target to me are over 60 miles away – why would I want to spend an extra $10-$20 in gas to go buy them? I’d torrent it for free instead.

My local video store doesn’t carry all new releases, neither does Walmart – I’ll torrent it.

Xbox Live does not carry all the new releases to rent/download either – I’ll torrent what I want then.

Not every artist. movie, TV show is available on iTunes either. They all want to argue and bicker about pricing – fine, I’ll torrent it for free and nobody gets my money.

If they can provide me with the content where I want to get it (downloads preferred) I’ll buy it.

If I have to wait – screw them – I won’t. It is all about being conveniently available to me – the customer. Don’t serve me, then I’ll serve myself.

RD says:

Rick - not just games

Bravo! Nail-on-the-head. People are ALREADY telling the industry what they want and how. Their job: find a way to EXPLOIT that. Someone cant get that new exclusive because there is no local target/walmart/best buy? The internet is just a click away. Dont like that fact? Tough sh*t, its reality, and its not going away. Deal or lose. Adapt or die.

Crimson says:

This is a convenient stance for Valve to take since they have the arguably most effective DRM in the game(Steam).

Yes, Valve uses DRM, so don’t think for a second they are in the “pirates are OK!” camp. They are trying to quash piracy like everyone else. It’s just they’ve created one of the better means to accomplish it and it gives them a chance to shake their fingers at everyone else who does DRM badly (rootkits, etc).

Crimson says:

“I thought if I bought a “Steam/Valve” game, Like Portal or Half-Life, I could play it and install it all I wanted without any DRM issues.

Thought DRM issues were only during Online playability, and “re-downloaded” versions.

What am I missing?”

You can’t play “offline” Valve games without being online. Why? So that their servers can confirm if you’re “legit”, even if you want to play offline.

Valve saw the light a long time ago and has started moving most of their content to servers that they control. It’s a different way of creating “artificial scarcity” as Mike might put it.

Anonymous Coward says:

Pirates are underserved customers.

I admit that I do “try before I buy” quite a bit.
I have, however, purchased almost all the games at a later date if I deemed them good enough.

Fully functional demos have also sucked me in (Quake, WoW, etc.)

Regional boundaries are the worst thing a media company can now do. With anything digital, if I can’t get it legitimately because of where I live, I will find a way to get it via torrent. (BBC, I’m talking to you!)

Doodad says:

Steam is crapolla.

I bought several steam games and paid top dollar.
Eventually, all of my serials were stolen and I never got to play any of the games I bought.
I am not even a multiplayer, just an old disabled dude who likes to play sometimes.
Problem solved!
Since I own the games, I just downloaded non-steam versions of each one I own.
If any game companies want any more of my pc gaming dollars, and they use steam, they better tell Steam to quit making the end user pay to have stolen serials reset.
That is like being penalized for owning the game.

Boris Mann (user link) says:

I'm a fan, and just selling bits means they can experiment

Say Valve listened to it’s underserved “customers” and cut the price of a $50 game in half. Would they sell twice as many games, which is still less than the number needed to get back to the same spot?

Actually, they’ve been experimenting with pricing models (which they can do, since it’s all digital). Here’s a great article on how sales went up 18,000% — they actually made MORE money at 75% off than at full price.

I don’t find that the DRM gets in my way … much like iTunes: it’s easy and convenient and has converted me into a more frequent buyer of games, especially indie games that are ~$20 – or less.

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