One of the things that push me over the
edge was their amazing sales. Amazing games for just a few dollars.
As someone who was unemployed at the time, or even just price
conscious, it was too good to pass up. The basic idea is loss
leading. Valve, or the publisher, takes a hit on the sale of a game
hoping you’ll come back and buy more games from Steam or from that
franchise. In the end, gaining a returning customer at the cost of a
game that they may have never bought anyway.
David DeMartini Origin’s, EA’s
competing DD service, boss was asked in an interview
about these sales to which he responded, “We won't be doing that.
Obviously they think it's the right thing to do after a certain
amount of time. I just think it cheapens your intellectual property.”
Take from that what you will considering partiality of the speaker.
Valve’s business development chief,
Jason Holtman, responded to the criticism,
“If all that were true, nobody would ever pre-purchase a game ever
on Steam, ever again. You just wouldn't. You would in the back of
your mind be like, okay, in six months to a year, maybe it'll be 50
per cent off on a day or a weekend or during one of our seasonal
promotions. Probably true. But our pre-orders are bigger than they
used to be. Tonnes of people, right? And our day one sales are bigger
than they used to be. Our first week, second week, third week, all
those are bigger.”
What’s underestimated in Holtman’s
response is the importance of the social side of gaming. If all your
friends are playing a game now, you’re more likely to buy it now to
be able to discuss it with them or play it with them. Not to mention,
if you happen to pick up a multiplayer game several months after
launch, your libel to be greeted by many an empty server.
I’ve recently started dabbling in
another Digital Distribution service, Amazon MP3. They too have been
a major user of the loss leading tactic. It’s not odd to see a $10
album drop to $3 or songs drop from 99 cents to 25 cents. And boy do
they give away free credit like there’s no tomorrow.
They too faced scrutiny for their
tactics. One unnamed retailer is quoted in a report
as saying, “I love it when they have a successful loss leader
pricing deal. I can't stop laughing every time I think about how much
money they must be losing”.
The problem is that music doesn’t
have the same social aspect as gaming. Outside of people who are
really into the technical aspects of music, most really don’t
discuss it beyond “like” or “dislike”. There’s no real
analog to multiplayer in music. So, there’s no pressure to buy
music quickly beyond a few special circumstances like social
gatherings. At the same time, this means the price of music will
generally stay constant over time. What is a 99 cent song now will
remain so for the remained of its life, barring sales.
While Amazon certainly has the money to
keep their MP3 Digital Distribution service afloat for quite some
time, I question how effective their loss leading strategy will be in
the long term.
