Valve Exec Explains How To Compete With Piracy
from the service,-value,-pricing dept
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
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.