Steam: A Monopoly In the Making

I love Steam. How could I not? Browsing Steam for games often feels like browsing a buffet full of my favorite dishes, all made especially for me and ready to eat at a moment’s notice. Almost anything I could ever want is right there, and all I need to do for another spoonful of gaming goodness is click a few buttons. Of course, that’s only the half of it. The most recent Steam Holiday Sale bordered on unreal. Just imagine if Steam’s pricing applied to everything else: You could buy an HDTV for $50 or a McDonald’s Double Cheeseburger for $0.25.

This absurd pricing, among other things, has made Steam hugely successful. When Steam was released in September of 2003 alongside Half-Life 2, no one was even sure if there was a market for digital distribution. Since then, Steam has come to dominate the rapidly growing digital distribution market, achieving an active user base of around 25 million. Steam is positioned to have considerable influence on the future of gaming, and at first glance the future seems bright.

Yet there is a niggle in the back of my mind, a suspicion growing too large to ignore: Is Steam becoming a monopoly?

Risky Business

I can hear some readers crying out, “Blasphemy!” Surely Valve would never allow Steam to take actions like those of Microsoft, a company which was prosecuted for its anti-competitive practices with varying degrees of success in countries across the globe. But, in fact, Valve has already taken steps down this dark and dangerous road, and the dim lantern lighting the way is Steamworks.

Steamworks is an application programming interface (API) offered by Valve which allows third-party publishers to integrate their games into Steam. For publishers, this idea is the bee’s knees: Using Steamworks grants access to Steam’s authentication services, Steam’s community features and Steam’s ability to rapidly deliver patches and DLC. These are all features that publishers would ideally provide anyway, but Steam has them built and ready to go for the low price of absolutely free. As a result, such popular titles as Modern Warfare 2 and Dawn of War 2 have jumped on the Steamworks bandwagon.

There’s a catch, however: Once a publisher elects to use Steamworks in one of its titles, its customers must use Steam to play it – no exceptions. Publishers don’t mind this, because it’s easier for customers to purchase a publisher’s other titles when the Steam client is installed and ready to go by default. But for competitors to Steam, like Direct2Drive and Impulse, Steamworks is the end of days. Brad Wardell commented on Steamworks in the 2009 Stardock Customer Report, saying “Once a game requires Steamworks, it is effectively cut off from us, which limits our content.” These words, however, are like honey compared to those of Direct2Drive. When Direct2Drive decided not to carry the blockbuster Modern Warfare 2, Gamasutra asked the company for comment. In reply, Direct2Drive stated, “We don’t believe games should force the user to install a Trojan Horse.”

These complaints are akin to some of those lodged against Microsoft in the last 12 years. Anyone who has ever used Windows knows Microsoft has long included a suite of products with its operating systems, the most infamous of which is Internet Explorer. Competitors such as Netscape argued that by including such software with each copy of Windows, Microsoft created a platform on which it was incredibly difficult for Netscape’s own browser to maintain a foothold. At the time of the first anti-trust lawsuits in the late 1990s, Windows did not allow users to uninstall Internet Explorer, and it was difficult for users to designate third-party products as their default browsers. While Microsoft was able to settle their case in the United States, the company has been ordered to pay massive fines by governments such as the European Union.

Steam’s tight integration with Steamworks is uncomfortably similar. Steamworks installs Steam automatically, even if the user isn’t interested in Steam or the user purchased the game through some other digital distribution service. And unlike Internet Explorer, there is no way for the user to opt out of using Steam. Install Steam or don’t play the game – those are the only choices. This kind of limitation on the use of a product is extremely anti-competitive and is sure to cause continued tussles between Steam and its rivals.

A Less Evil Empire

While the Microsoft example is an apt way of examining how Steamworks can be anti-competitive, it has a glaring flaw: Intent.

Microsoft earned the nickname of the “Evil Empire” because it was ruthless in how it went about hobbling competitors. There was a long list of companies, industry experts and consumers with a score to settle, making Microsoft an easy target. Steam’s users, however, seem to love the service, and the game developer which owns it is arguably one of the most capable in the business today. In other words, the big difference between Microsoft’s Internet Explorer and Valve’s Steam, despite some similarities in the ways the products are distributed, is that Steam represents the good guys.

Ill intent, however, is not the only mark of a monopoly. Intel provides the perfect example. While the Microsoft monopoly has fostered no small amount of distrust and scorn for the Windows operating system, it is hard to find such dislike for Intel. Intel’s products have been leaders in the computer processor industry for most of the company’s history. As Intel has pointed out in its responses to various anti-trust suits across the globe, today’s processors are massively faster than those built two decades ago and yet also cheaper than ever before.

But in spite of this, Intel has already lost anti-trust lawsuits in the European Union and South Korea. The company also complied with an order to discontinue anti-competitive practices in Japan rather than face a threatened fine. Intel faced these problems because, despite the fact that it has no real intent to harm consumers and doesn’t (at least publicly) appear to harbor Microsoft’s perverse desire to demolish all competition, the company’s actions were anti-competitive. Intel entered into rebate agreements with PC vendors which were based on volume. Because of this, AMD had a hard time selling large volumes of processors even when their processors were better, because it was more profitable for companies like Dell to continue selling Intel processors and take advantage of Intel’s discounts. Leader in it’s field or not, Intel was still slapped with lawsuits because of this behavior. Having a clean public image may help a company’s bottom line, but it can only keep governments from poking their noses around for so long.

The Road to Hell

The case of Intel shows us that monopolies in large markets inevitably attract attention even if the offending companies cultivate a good reputation, and this will be a hazard for Steam in the future. The best estimates are that Steam already has 70 percent of the digital distribution market – only 10 percent shy of Intel’s day-to-day market share in the computer processor market. Worse, there is every reason to believe Valve’s momentum will turn a snowball into an avalanche. As more games use Steamworks, more gamers will have to use Steam. And as Steam’s active user base grows, it will become harder and harder for developers and publishers to opt out of the platform – and so on.

This is good news for Valve’s bottom line, but Steam’s growing size could force the company to become more accountable for its actions. In another example from the Intel case, AMD complained that it could not even give away processors because Intel’s rebates had afforded Intel a stranglehold on the market. The idea of “giving away” processors is itself rather anti-competitive, but no one slapped AMD with a lawsuit because the company was simply too small to attract scrutiny.

For now, Steam has the same luxury AMD did. Despite Steam’s grip on the digital distribution market, retail stores are still where most gamers buy their games. But that won’t be the case forever. Today, Valve can avoid attention because it is only the biggest fish in a relatively small pond. But what happens in 10 years, when digital distribution likely accounts for over half of all game sales? What happens in 20, when digital distribution has taken over almost completely? And perhaps most importantly of all, what happens if Valve’s current gamer-friendly management retires or is ousted in a corporate coup?

Valve hasn’t yet taken the accusations that Steam is an infant monopoly seriously. Jason Holtman, Valve’s Director of Business Development, responded to such criticism by ignoring it, saying, “If we started doing things that were bad decisions for customers or developers, they can just move and go somewhere else.” But Valve needs to wise up. The company’s intentions are not in doubt, but if they don’t accept that their software is crippling their competitors, they could be in for a rude – and costly – awakening.

M.S. Smith is a freelance writer in Portland, Oregon. He writes under the business name of Digital Ink Writing and operates a technology blog called SmidgenPC.