Less Is More: Gabe Newell On Game Pricing

By John Walker on October 24th, 2011 at 11:28 am.

Will someone please listen to him?

There’s a lot we don’t understand about pricing games. But as more and more evidence pours in, the most common pattern appears to be: the less you charge, the more you make. There are so very many examples of this, from iOS pricing phenomena, to the extraordinary revenue generated by the Humble Bundle pay-what-you-want schemes. Further to this come comments from Valve’s boss, Gabe Newell, who recently explained how erratic pricing results can be, but the undoubtable success of offering massive discounts. And perhaps more surprisingly, they seem to have discovered the importance of using the phrase “Free to play”.

It seems Valve are constantly experimenting on us. Newell explains how the various offers that have appeared on Steam are as much science as they are capitalism. As reported by Geek Wire, Newell discussed the difference between silently discounting a game, and making a big fuss about a sale. When they quietly lowered prices, they found it to be elastic (sales increase proportionally, so the overall revenue remains the same), but…

“The sale is a highly promoted event that has ancillary media like comic books and movies associated with it. We do a 75 percent price reduction, our Counter-Strike experience tells us that our gross revenue would remain constant. Instead what we saw was our gross revenue increased by a factor of 40. Not 40 percent, but a factor of 40. Which is completely not predicted by our previous experience with silent price variation.”

This experiment was successfully repeated with a third party game, and the result is the non-stop flow of heavy discounts you’ll now see on Steam. It’s no coincidence that the already massively discounted GTA games, being priced at 75% for all of them ever (now £5) is the number one best selling title on Steam.

More peculiar is the discovery of the difference between saying something is “free” and saying it’s “free to play”. Newell’s explanation is not entirely clear, but it seems that the latter implies some greater level of content and long-term support for players. He says,

“The most recent thing that also is really puzzling is that we made products available for free on numerous occasions, without significantly impacting the audience size. We recently said, we’re now going to do something different, we’re not only going to signal that it’s free but we’re going to say, ‘it’s free to play,’ which is not really a pricing signal, even though that’s what you would ordinarily think it is. And our user base for our first product that we made free to play, Team Fortress 2, increased by a factor of five. That doesn’t make sense if you’re trying to think of it purely as a pricing phenomenon.

Why is free and free to play so different? Well then you have to start thinking about how value creation actually occurs, and what it is that people are valuing, and what the statement that something is free to play implies about the future value of the experience that they’re going to have.”

And being free to play, rather than simply free, seems to bring with it profit. Newell reports that since TF2 has become F2P, they’re seeing a conversion rate of players of 20 to 30 percent, going from getting the product free, to spending money on hats, etc. Why? No one yet knows. As the bossman concludes,

“We don’t understand what’s going on. All we know is we’re going to keep running these experiments to try and understand better what it is that our customers are telling us. And there are clearly things that we don’t understand because a simple analysis of these statistics implies very contradictory yet reproducible results. So clearly there are things that we don’t understand, and we’re trying to develop theories for them.”

Make sure to read the rest of Geek Wire’s transcription, which also includes thoughts on piracy, and Valve’s impressive success in Russia.

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150 Comments »

  1. ZIGS says:

    That’s all fine and dandy but why do Aussies have to pay 90 US Dollars for some games while Americans only pay 50?

    • Subject 706 says:

      Reparations tax. The extra 40$ goes to the victims fund for the descendants of the victims of your ancestors crimes. You are a former prison colony after all.

    • BAshment says:

      its payback for minogue.

      Edit: and those turd fosters adverts.

    • Real Horrorshow says:

      97% chance Subject 706 is English.

    • Brumisator says:

      Send subject 706 to room 101.

    • Premium User Badge PoulWrist says:

      Well, happens to everyone. GTA complete pack, 5£ ? OK! No, it’s 10€ which is 73,5% more expensive.

    • JackShandy says:

      It’s ‘cos Mad Max steals so many copies as they’re being trucked through.

    • Dana says:

      Because such are prices in brick&mortar stores (for whatever reasons), if publisher decided to lower the price on Steam for Australians, b&m stores would refuse to stock on boxes, which still take major part of sales of big titles.

    • ThinkAndGrowWitcher says:

      For goodness sake, man. First the darta-strings have to travel half-way round the world. Then, they must find their way through all the thick barbeque smoke. Of course there’s an extra premium!

    • Derppy says:

      Exactly what Dana said.

      Retail stores have control over the digital market. This is one of the effects, along with the fact physical copies are often cheaper than digital copies, which doesn’t make sense.

      Basically if a publisher sells a game in Steam for £10 and it’s priced £15 in Gamestop, Gamestop will say “You know what, we will ban this product from our stores!”. Publisher is sort of forced to ask more for the product that has no shipping or packaging costs, which is incredibly stupid.

      The only way to end this is to buy games from digital distribution platforms, not from retail stores, not from sites who sell retail keys to activate in DDPs (g2play etc.). It might cost a few more bucks, but consider it an investment in PC game industry.

      When the share of digital distribution platforms grows larger, at some point when Gamestop goes “We’ll ban your game!” to a publisher, the publisher can just say “You know what? It’s your loss. We’ll get more sales from Steam anyway!”.

      Then it’s much more likely we’ll get even pricing across different countries. Some publishers might still want to be lame and continue the uneven pricing, but at least retail stores are out of the equation.

    • Teknorat says:

      I always just have my UK friends buy me Steam games when Australia is getting ripped off.

    • thegooseking says:

      For the last time.

      It’s because the Australian dollar is strong against the US dollar right now, and domestic purchasing power value of a currency doesn’t shift according to currency exchange rate value. (Actually, what happens in a strong economy is that you get richer by getting more dollars; not by having the value of your dollars increase. Which is exactly what’s happened in Australia.) Because purchasing power value and exchange value are not the same thing. Because making them the same thing would be a very bad idea.

      In pure exchange rate terms, the average Australian earns more than twice what the average American earns. Is that because the US has horribly employee-unfriendly labour laws? Well… only partly. It’s mostly because salaries are decided based on the purchasing power value of the currency, not the exchange value.

      Let’s imagine, then, that purchasing power was the same thing as exchange value. Well, the prices of games would go down. So would the price of everything else. But you would also earn half as much as you do, so there would be no real advantage. But it’s worse than that, see, because if purchasing power value was the same as exchange value, prices and salaries would have to change whenever there was a fluctuation in the currency market, which would lead to a rip in the space-time continuum extreme lack of market confidence, which would almost certainly lead to a depression. Which you don’t want.

    • LGM says:

      It’s because of the American-Australian war! Tensions have been high since then! If you don’t know what I’m talking about, then you never played GTA3! :D

    • thegooseking says:

      @LGM, That too.

    • Subject 706 says:

      @Real Horrorshow
      I fall into the 3% margin of error, since I am swedish, with a passion for history-based jokes :)

    • Milky1985 says:

      “Basically if a publisher sells a game in Steam for £10 and it’s priced £15 in Gamestop, Gamestop will say “You know what, we will ban this product from our stores!”. Publisher is sort of forced to ask more for the product that has no shipping or packaging costs, which is incredibly stupid.”

      I was in game this weekend and they have GTA4 PC for about £8-10, greater than the £5 on steam.

      Didn’t see or hear any fuss about the steam sales, and remember , game are “evil” and stop thq releasing games on steam so i would expect them to stop the sale!!!!!

      Or it could just be that prices are set per country to be a certain percentage of what is considered the luxury budget for a household, and this ammoutn varies between country based on cost of living and ownership?

    • drewski says:

      Prices are set based on nothing more than whatever the market will bear. Australian prices are high because Australians pay high prices.

    • thegooseking says:

      90 AUD is about 65 “International dollars”, (one international dollar is worth 1.39 Australian dollars) which means it’s the equivalent of an American paying 65 US dollars in purchasing power terms. I notice that, in the Steam store, Rage is $90 in Australia and $60 in the US. So Australians are in real terms paying $5 more.

      The international dollar is a hypothetical currency that exists as a benchmark for purchasing power, derived by the International Comparison Program by comparison of many goods and services around the globe. The exchange rate of a currency to international dollars is the answer to the question, “How much would a person in that country have to spend in their own currency to get what an American can buy for $1?” The international dollar is useful because it offers a more accurate picture of purchasing power unaffected by the fluctuations of currency markets, which are really kind of irrelevant.

      Here is a list of how various currencies compare to the international dollar from the WHO (they’re 2005 statistics, but that’s ok, because comparative purchasing power doesn’t change nearly as much as currency markets). (The list is an Excel spreadsheet.)
      Here’s an explanation from a proper economist and not an amateur like me on what PPP and the International Dollar mean from the IMF.

      I hope that clears things up.

    • jonfitt says:

      @thegooseking
      If we could just make it so the commentators on just one games website mostly understood this, the world would be a better place.
      .
      The one part that warrants further explanation though is: why local purchasing power determines the cost of things *when buying on the internet*. It is conceivable (but not the truth) that when one is purchasing on the Internet you are taking part in a single global market.

    • sinister agent says:

      Some fine theories, but you’re all missing the point. The reason that Australians always get screwed over is because it’s funny.

    • Shadram says:

      Yeah, screwing the Aussies is always funny. But why should us Kiwis also have to suffer?

      Some publishers do it right (Batman: Arkham City is US$50 on Steam here), so why can’t the rest?

    • Srethron says:

      We blame Australia because Canada was unavailable.

    • DrSlek says:

      Well publishers set the price on Steam, so really the only reason the AU prices is so high is because publishers know Australians have no real choice but to pay. At least Valve games on Steam are fairly cheap though.

      EA gets 100% of the profits from Origin, so you’d expect the price of the games on there to come down as they no longer have to pay as much for overheads….but no. Games like The Sims Medieval and Crysis 2 are $80AUD on Origin. Last time I bothered to check anyway.

    • mead says:

      Interesting @thegooseking but this digital price difference phenomena isn’t across the board. Selfishly, I hope this is a signal that the global marketplace and digital goods are different than the existing markets and physical goods.

      For example, Valve charge the same price in Steam AU and Steam US. The GTA series are the same price, with a couple of exceptions.
      But then, the price of COD:MW2 has remained at its original price while dropping in price elsewhere. Shift 2 is 4 times the price in AU. There’s a lot of price differences that aren’t uniform using only the international dollar as a translation.

      I thought it was Activision/EA published games that were being so annoying, but then I found EA also appear on the other side of prices: EA/THQ offer better prices in AU than US for older games (Mirrors Edge, DoW, Deadspace…). I can see how this international dollar does seem to fit with brick and mortar game prices, but given the strangeness that Gabe observed in digital distribution, perhaps there is more to it online.

      Thanks for the informative posts.

    • Fiatil says:

      @thegooseking

      You know I was reading this while taking a break from studying for my International FInancial Management exam tomorrow. You’ve robbed me of my break, but that was a very nice study guide at least.

    • Premium User Badge bear912 says:

      Infinite, free (or trivially low-cost) duplication of a product tends to screw up what little economic theory I know. I don’t think hiring an economist would be all that helpful, to be honest.

    • Smion says:

      Anti-Dingo insurrance doesn’t come cheap.

    • Neon Kitten says:

      The point everyone is missing here is that when I buy a game on Steam, I am buying a product from a US store in US dollars, and my credit card is billed in the US.

      Imagine if I went to the US and walked into a games store in, say, San Francisco. I see Arkham City on the shelf, US$49.95. I pick it up and take it to the counter. The sales assistant says hi, and I reply in my Australian accent. Without a word he rings the game up as US$99.95 and when I ask why, he says “because that is the price for people from your country.”

      What is happening on Steam is exactly the same thing. Talk about “international dollars” and wages and purchasing power all you like, the ultimate fact is that a US retailer is being instructed by game distributors to price-gouge Australians in order to protect the Australian retail market.

      I bought my copy of Arkham City when it was $39. If I saw it now at double-price, I would have NOT bought it just like I didn’t buy LA Noire, or had it gifted from the UK like I had to do with Skyrim.

      It is a global marketplace these days. You can’t fool people on price any more.

  2. Burning Man says:

    Maybe he should talk to an economist. I’m no expert, but I sense he’s just trying to answer questions that have already been asked and answered.

    • MD says:

      I suspect that when each ‘experiment’ has the happy side-effect of netting them enough cash to buy the moon, they’re pretty happy to keep on doing this research independently, redundant or not :p

    • Kdansky says:

      You mean one of these guys that are about as knowledgeable as monkeys when it comes to stocks, and have zero clue on how digital distribution works?

      Economic theories usually assume bell curves for money, and rational customers. Both assumptions are incorrect.

      I recommend some Talib – Black Swan reading.

    • Zetetic says:

      Kdansky is quite correct. He should speak to a proper psychologist.

    • formivore says:

      Software is more or less a monopoly product so you can’t rely on the market to converge on the best price. The only thing you can do is try offering different prices as an experiment to figure out the demand curve. Also Newell is saying that demand depends on marketing, which is even less of a science.

    • Michal Gancarski says:

      @Kdansky

      “Economic theories usually assume bell curves for money, and rational customers. Both assumptions are incorrect.”

      Your assumptions about these assumptions are incorrect.

    • JackShandy says:

      How many Economists have done studies on digital distribution as it relates to games? And is it really better to trust them instead of making your own judgments based on your own data?

    • Joe Duck says:

      @Kdansky: I agree with your Talib – Black Swan recommendation, with one caveat: The book contains a grand total of one idea in it. Said idea (extrapolation is not science but wishful thinking) is sufficiently explained in chapter 1 and the rest of the book is just him telling to himself how cool he is because he had that idea that only he came upon. Him and every engineer or physicist before him, of course, but that is another matter. Talib is a good read.

    • Burning Man says:

      @JackShandy

      No, but relying on software engineers to do your economic strategy math for you seems silly, which is also what it seems like they’re doing. Additionally, I’m a firm believer in going to the ‘basics’ of every situation. What he’s saying about his revenue jumping by 40x, all you have to do is take the factors involved and break them down. What could digital distribution represent? Ease of access, ease of storage, ease of communication between peers… What parallels can I draw from similar scenarios elsewhere? Amazon? No, delivery time is a factor there. Why don’t I draw up a nice little equation and factor in a term that denotes the effect minimal delivery time might have? You can always use lessons learned elsewhere and apply them to your scenario, which an economist would help you do.

      Like I said, I’m no economist. But economics makes common sense a science, and this man seems to be communicating that he’s applying a layman’s algorithms to data and coming up with nowt. Which bewilders me.

    • Premium User Badge Big Murray says:

      If listening to economists got you to these conclusions, the likes of EA and Activision (who are basically run by economists) would have gone down this route long ago.

    • JFS says:

      @ Michal Garcanski
      While there are situations where customers behave rationally, in general Kdansky is right. There is no homo oeconomicus most of the time. The bell curve for money, though, that doesn’t hold up (but mainly because it’s expressed quite imprecisely, I don’t exactly know what he means).

    • InternetBatman says:

      Ugh, god no. They’re in a really good place right now, why would they want to ruin that by listening to an economist?

      Joking aside, you don’t need an economics degree to do math and this is a relatively new field. The most comparable thing right now is iTunes, and Steam is hardware neutral which is a huge difference. They have some very capable, very math literate people working at Valve, running their own experiments and collecting their own data. I doubt Economics is beyond them.

    • kharnevil says:

      Burning Man says

      “No, but relying on software engineers to do your economic strategy math for you seems silly”

      “an economist would help you”

      As a scientist by training (I suppose a software monkey in practice) after meetings with ‘economists’, the most polite response you’d get from our office is a quiet chuckle, or maybe some a subtle guffaw into our coffee.

      I teach some business graduates in some seminars at uni admittedly for science classes not market-y stuff.

      Now, I’m not an expert on market nomenclature, but I can tell you economists have bad maths. I’d take the software engineers’ analysis any day.

      Of course, this is just my two penneth.

    • Premium User Badge Wisq says:

      No no, silly. You don’t hire an economist so you can listen to them. You hire them so you can show them your data after each sale and watch them slowly go nuts because you’re destroying their entire theory of how economics works.

      Then you put them on display in a cage so everyone can laugh at their now-insane gibbering and continue making boatloads of money that the economist said they shouldn’t be able to make.

    • Emeraude says:

      Amusingly enough, as one economist friend puts it: “The more assured, verifiable and usable an economical theory is, the less power it holds over political decisions”. That’s because economy is generally used as a posteriori justification for decisions that were already taken.

      I think people are letting their (justified) anger for the financial world and its recent fuck ups color economy in ways it does not deserve.

    • Donjo says:

      I’d imagine he has talked to a couple of economists and probably employs a few for good measure.

    • Baf says:

      Saying that they should talk to an economist instead of collecting their own data is like saying that a person who wants to know what the weather is like outside should talk to a meteorologist instead of looking out the window.

    • akeso says:

      There has been research on this for ages and is pretty common knowledge in academic circles of economics.
      Look in Journal of Management of Information Systems for example and you’ll see a publication about once every other issue.
      The problem isn’t that this sort of information is not being researched, the problem is that companies like valve OWN the majority of the research and therefore it never enters the public or academic domain.

    • tnankie says:

      @Joe Duck, I am very glad I am not the only one who was a bit mystified/disappointed by Taleb’s book. I found him incredibly smug and self congratulatory the whole way through…well I say the whole way through I still haven’t read the last quarter of the book despite me reading the first 3/4 twice (the second time was me trying to get the momentum up to finish it)

      Economics: The science of explaining tomorrow why the predictions you made yesterday didn’t come true today.

  3. MiniMatt says:

    Undoubtedly some interesting psychology going on. On the sale thing I’d be curious how much of the effect is down to “it’s on sale so if I buy now I’d be saving money” syndrome. I’m sure many of us are familiar with the friend / partner who will buy a handbag reduced from £50 to £25 but wouldn’t necessarily have bought it were it £25 to begin with.

    If the above effect is in play then I guess that would suggest that pricing games initially at cheap values wouldn’t work; one must first release at “full price” to set a value marker in people’s minds, before slashing that price to make people think “bargain”.

    The free versus free-to-play anomaly appears rather well discussed up above, my hunch would be that the above mentioned hunches are on the right track.

    • Gundrea says:

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    • Arbodnangle Scrulp says:

      Heck, I nearly bought the GTA pack (games I already own and paid full price for on release date, disks in the cupboard etc) just for the convenience of having them on Steam.

    • Premium User Badge jezcentral says:

      I think many of us do that on a regular basis.

    • Calneon says:

      There’s a good article explaining Price Anchoring here.

    • Starky says:

      Arbodnangle I can beat that…

      I almost bought the GTA pack just to have GTA 4 on steam.

      I already have every other GTA game on steam (including liberty city episodes), and I own a retail copy of GTA 4.

      It actually took a surprising amount of willpower to resist – hell it took less willpower when I quit smoking cold turkey.

    • Skabooga says:

      Steam. More addicting than nicotine? (I know I’ve spent more money on the former :)

    • Inglourious Badger says:

      @ MiniMatt

      So true! When my girlfriend comes back from a (thankfully occassional) shopping spree she will excitedly tell me how much she SAVED on each item, never how much they actually cost.

      And I’m exactly the same with Steam sales. A quick tally now confirms I own 29 games I haven’t played. Some of those are from bundles I bought for the other games, sure, but STILL. And it includes the 3 Doom games + add on packs which I knew I’d never get round to playing (again, I’ve played them all pre-Steam) but it was under £5 for the lot! How can you refuse! How!?

      Sigh

  4. sneetch says:

    Personal attack on his physical appearance unrelated to gaming at all!

    Just thought I’d get that in there early.

    I was in Game the other day and I realise that days I’d rather buy two good games at €25 a pop than one slightly better game at €40. For me €25 is the “sod it, I’ll give it a shot” level for impulse buying. On Steam I’ll cheerfully buy a game for €10-20 and even if I don’t play it that much I’ll be happy enough.

    • MiniMatt says:

      I confess that a dark and tiny little evil part of me was tempted to crowbar in a price of pies joke but one of those and it’s a slippery slope into mother-in-law jokes and before I know it I’d be recycling Bernard Manning material.

    • Fwiffo says:

      Not *that* many jokes about turkeys are there?

    • caddyB says:

      If I earned that much I’d be 40 times fatter.

    • PoLLeNSKi says:

      @Fwiffo I only know one but it’s pretty fowl

    • Skabooga says:

      Please, don’t bird-en us with such low humor.

  5. talon03 says:

    I love Valve’s attitude. “We don’t know what’s going to happen, but we’re going to try it anyway and see if it works.” Such a contrast to EA, Activision et al. who seem to actively discourage innovation and are content to pump out the same game every year with a different number at the end.

    • Premium User Badge Joshua says:

      Perhaps Valve has some money to spare? They have some ongoing projects, but are earning massive amounts of money trough steam and by releasing some cool games. EA has a bigger company, with quite a few failed projects we never hear from again, and has a lot of things going on all the time. Due to its massive size, EA might have less ‘breathing space’ then Valve has now.

    • Archonsod says:

      Yeah, but in fairness, EA, Activision et al have a few thousand more staff members salaries to worry about.

    • Premium User Badge PoulWrist says:

      I’d say EA are a pretty adventuresome company. After all, they start up their own digital distribution platform in sharkinfested waters full of hating fanboys and people obsessed with shopping one place. “Let’s see how it goes” they said, and threw a lot of backing in to the project.

    • Roshin says:

      I keep thinking of Bulletstorm, which is discounted everywhere, except in Europe, where it’s still 50 euros on Steam and hasn’t been on sale once. And then the devs complained that it didn’t sell well in Europe.

    • Mirqy says:

      Of course this is Valve’s attitude. There is science to be done on the people who are still alive.

    • Bhazor says:

      L4D2, Half Life 2, Half Life 2 episode 1, Half Life 2 Episode 2, Team Fortress 2, Counter Strike Source, Counter Strike Online, Counter Strike GO, DOTA 2, Alien Swarm, Day of Defeat: Source.

      Crazy fountain of unrestrained creativity here people. This is from arguably the safest developer in the business who make millions of dollars from selling third party games. They have the money and the talent to do *anything*.

    • stupid_mcgee says:

      @ PoulWrist: “After all, they [EA] start up their own digital distribution platform in sharkinfested waters full of hating fanboys and people obsessed with shopping one place.”

      Sigh… Can people stop saying this? It just goes to show how incredibly easy it is to fool the public. Origin is in NOT new. EA has had digital distribution since October 2005. It was called EA Link, then EA Download, then EA Store, then came the EA Store plus EA Download Manager, then came Origin.

      People keep thinking that EA just all of a sudden up and started just now, but in fact EA has been ignoring their own digital distribution channel for years, and it has been known for a long time to be complete crap. Bad prices, shady pricing schemes (they used to charge you $2 if you wanted to be able to download your titles again after 6 months), and horrendously slow speeds. Not to mention a buggy client that lost data, couldn’t reliably run install routines, and a host of other issues. When they were sans-client, the install routines for digital editions was also mangled beyond belief.

      If this truly was EA’s first foray into digi distro, I might be more inclined to give them the benefit of a doubt. As it is, they’ve had tons of time and tons of money to address this issue, more so than when Valve started Steam. This isn’t a new business venture for them. This is EA trying to recoup losses and cash-in on recent market-analyst reports of how profitable digi distro can be after years and years of shitting on their own digi distro service. Thankfully, as one of the world’s largest publishers of video games, they can also use that position as a strong-arm tactic to make high-value 3rd party titles sole exclusives to their “brand new” service and to potentially discourage purchases from any leading competitors that they might view as a threat to their projected revenue streams.

      Now, if you don’t mind; my pal over here, Rowdy Roddy Piper, wants you try these sunglasses on…

    • V. Profane says:

      It’s because Valve are a private company and so they don’t have to worry about bullshit like market confidence and shareholders.

  6. MuscleHorse says:

    One thing I’ve noticed in myself if that I won’t buy even quite cheap games, despite wanting them, until they are discounted further. Orcs Must Die will hardly break the bank at £11 but I’m now waiting for it to be closer to £5.

    • Battlehenkie says:

      Do you happen to be Dutch?

    • sneetch says:

      I’m genuinely curious, if they had said it was £22 but 50% off and reduced to £11 would you think “bargain! I’ll take it”?

      I think I would, I mean, I bought OMD anyway but I’m so much of a sucker for a “bargain” that I have a small stack of shrink wrapped games that I’ll probably never get round to playing.

    • Joe Duck says:

      @Battlehenkie: As a foreign living in the lovely countries under the sea, I wholeheartedly agree with your comment. :D

  7. Premium User Badge Jubaal says:

    I think he is turning into Robin Williams…..

  8. Tusque D'Ivoire says:

    By the time TF2 went free to play and shortly after when steam introduced further F2P games, the term “free to play” was already well established amongst the MMO market. But i don’t really understand why the “free” games had little success. maybe most of them just sucked.

    • Spliter says:

      I think the difference between the “free to play” and “free” is the usual quality we attribute to it from our experience.
      If something is free then the dev is most likely not gaining anything from it , and thus can’t spend more time on his/her game polishing it up.
      If it’s free to play then the dev is likely gaining something from making the game, hopefully enough to support it and polish it up even after the release.

    • Snargelfargen says:

      Bang on, Spliter. We unconsciously assign less value to a game that is “free”. The reasoning is that it isn’t worth selling, anymore/people don’t want to buy it whereas a game that is “free-to-play” has an air of exlusivity to it. It may not make a lot sense, but we make these judgements all the time as a sort of automatic reflex.

      It’s also part of the reason why you see luxury products selling for ridiculously high prices. The pointlessly high cost must mean that it somehow has more value, therefore it is worth paying!

      Humans are dumb :-(

    • caddyB says:

      Humans are still mostly animals, I find.

    • Premium User Badge Malibu Stacey says:

      Not sure how true this is but a friend of mine who volunteers every summer for a few months in various African countries says in a lot of African countries, if you give people stuff for free, they don’t want it because they think it has no value where as if you charge an arbitrary price like $1 everyone wants one.

    • Sassenach says:

      As an example of a free game, how is Alien Swarm doing these days? I still think it is quite neat, and if they offered a few other campaigns might have been able to sell quite well. People seemed to lose interest in it quite quickly though.

    • Snargelfargen says:

      @Malibu Stacey – That’s interesting, there’s all sorts of reasons why they might be hesitant to accept free stuff. Apart from the saying “don’t look a gift horse in the mouth”, charity can be a double-edged sword in some cultures where you are expected to share any windfall with the rest of the community.

  9. Fox89 says:

    And this is why I love Steam so very very much. I probably spend more on games now then ever before even though most of the games I buy on Steam are at cut prices. It is that sense of value, when I see a game with ‘OK’ reviews at £30, I’m not taking a risk on it. Not a chance. But when The Last Remnant was being sold for a fiver last week, I jumped on it.

    Steam sales and pay what you want schemes are great at getting large numbers of people to buy games that they wouldn’t otherwise touch. Same with free to play stuff, when it’s not going to cost a damn thing, why not try it out? There’s no risk.

    The Steam promotions have proven a great way to take much more of my money than ever before, but leave me much happier about it all at the same time.

  10. Teddy Leach says:

    … Isn’t Steam affected by Euro=Dollar pricing bollocks?

    • Premium User Badge PoulWrist says:

      Yes, it is.

      But in weird ways, because the publishers themselves set those prices, so it’s up to them. I bought a game recently that was something like 2,75€ but advertised as 5$ on various websites telling me about the offer.
      Then, the GTA pack is advertised here as 5£, but it is 10€, which is 73,5% more.

  11. Brumisator says:

    It’s fun to think how innovative at borderline piracy Russians are.
    Nowadays, instead of selling pirated games, some Russians sell legal steam games via various websites, at a fraction of the cost, to anyone in the world. Since prices in Russia are so much lower.

  12. Squishpoke says:

    Valve should certainly give their economists on staff a healthy raise.

    Remember the Steam Trading update? Far too people appreciate the ingenuity of this kind of stuff.

    • Brumisator says:

      What economists on staff?

      Economists are very good at explaining why something happened. After the facts.
      Valve, on the other hand, have no idea what’s going on, are flying by the seat of their pants wildly in all kinds of directions and finding what works and don’t work.

    • zeroskill says:

      Im relatively sure Valve doesnt have any economists on their staff.

    • ResonanceCascade says:

      Being good at describing why something happened isn’t that impressive if you can’t translate that into a future strategy that relies on predictable results. What Valve is doing is probably much better for their business than anything the average economist would be able to contribute.

      The decision-makers at Valve (including Gabe) are clearly very scientifically-minded, and that approach seems to be working for them.

    • RadioactiveMan says:

      This is foolishness. Of course Valve has economists…. Even if no one at Valve has specific job title of “Economist”, I guarantee they have people whose jobs include a large amount of economic thinking and planning. I expect Valve is educating at least some their people to highest degree possible on business issues through workshops, conferences, lectures, etc. If not I would be extremely surprised. Valve has not blundered into their position in the gaming industry- To me it appears they have a very well thought-out business plan which they are executing in an exceptional manner.

      They are doing their own internal research to figure out where to go from here. Yes, they might be re-learning some lessons and principals that may already have been discovered somewhere by someone. The value of doing research and testing and refining your hypothesis, using your own employees, is HUGE and will have long-term benefit. Further, they are learning things that specifically apply to digital distribution, which is still a pretty new concept. I think its telling that the other guy in this interview, who is the former Microsoft “games chief” is saying how incredible Gabe’s claims are. I would say this is a pretty clear indication that Microsoft, who also certainly has economically-minded employees, is leagues behind Valve.

      Good for Valve. They are exactly the kind of company I would love to invest in. I realize that they probably would never want investors, and are infact better off for not having them.

    • Donjo says:

      @RadioactiveMan No way, Valve is just this big crazy warehouse with people running around on stilts playing paintball with lazer sights and making the most absurd Rube Goldberg devices. Every so often a game plonks out of a slot at the end of the building and when it sells everyone shrugs their shoulders and looks at each other incredulously: “We did it again! How did that happen?!”.

  13. asshibbitty says:

    Cool stuff about Russia. It’s not only localization issues though, they’ve also lowered prices to regional level, are messing with virtual currencies which are big here, the shop is all in non-retarded Russian, even the graphics and fonts are nice.

    • zeroskill says:

      Also they are enabling Russians to buy Steam wallet credit via local kiosks : http://store.steampowered.com/news/6568/

    • onodera says:

      Despite Gabe’s position that “the people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russia” Steam is joining their ranks at this very moment. After it switched to roubles and lowered the prices to Russian levels lots of games disappeared from its catalogue. Fallout: New Vegas and 3 of its DLCs I’ve bought are, thankfully, not gone, Amazon-style, from my library, but I can no longer buy anything from Bethesda. How many people will wait six months so Steam can launch its version simultaneously with the localized one? And not many of them are smart enough to use an American proxy to buy it sooner. It’s a hurdle high enough to visit TPB instead.

    • Uninteresting Curse File Implement says:

      The switch to rubles and lower prices for Russia was a p. cool move and all, but why did it have to happen right after I bought a bunch of games at American prices? All my shit, devalued overnight. Oh well.

  14. Dawngreeter says:

    This is post-scarcity in the making. How much do you charge and what do you offer when your customer can get what you’re selling for free. The only question absent from the equation currently is “what do you charge in?” because we still assume monetary units, as determined by people not involved in the transaction. But that’s gonna go up in flames soon.

    • Kollega says:

      It’s not post-scarcity if there’s still scarcity. Especially if it’s artificial. Case in point: TF2 hats.

      True post-scarcity economy assumes that the producer of valuables (in this case, video games) gets clothes to wear, food to eat, home to live in, and other important things for free (hence the “post-” in “post-scarcity”) via some extremely advanced technology, so he can focus entirely on his craft and give away the end result for free. Money, and thus the nesseciety to charge it for your product, is out of the equation entirely.

      Or at least that’s how i percieve it.

    • Dawngreeter says:

      You may have mistaken my post for another post which also had the word “post-scarcity” in it.

    • Kollega says:

      On reflection, i see the implications that phrase “in the making” carries – that it’s a transitional period from “cripes, how do we get people to give us money to spend on food when they can just pirate our games for free?” to eventual “hooray, we don’t have to care about money anymore, let’s make good games and distribute them for free with zero strings attached!”. But make no mistake, Gabe’s hat shop and annual sales are the starting point of this transition, not the middle and certainly not the end of it.

  15. Spliter says:

    I have to agree with everything he says.
    At the start of this year I had about 15 games on steam, now I have 50, most of which I bought through those sweet sweet deals they have.

    It really brightens my day whey industry people say that promotions=everyone is happy both the gamers and the devs.

  16. aircool says:

    If a game is cheap, I’m likely to give it a go, even if it’s not normally my kind of game. However, I’m unlikely to buy a game which I’ll probably like if it’s priced over £15 unless it’s a top quality game which offers something above and beyond its genre.

    For example, I know what a Call of Duty game is going to be like, so I won’t bother buying it unless it’s really cheap, as it’s just a standard FPS. Whereas something like Amnesia: The Dark Descent I’ll pick up and try on recommendation alone.

    Of course, it’s easy to buy a game less than the RRP, especially now that hard copies seem to be cheaper than digital downloads (and for many reasons, I still prefer hard copies), but a low price on an unknown game is a tasty hook for me.

  17. Premium User Badge TheTourist314 says:

    One question for him: Using only one data point (TF2), how can he be certain that “free to play” raises player count explicitly rather than the “free”? It could just be riding on the popularity of being TF2, a known game that has been continually updated and kept fresh for the past 4 years. I do suppose that’s probably what he means by “ongoing value” though.

    • Bhazor says:

      I’m more concerned about using a hundred year old game like CS to show the effect of price reductions. I don’t care how popular your game is after so many years you’ll be selling a, relatively, tiny number per week so a forty fold increase isn’t as impressive as it sounds.

    • Starky says:

      Erm, I think that is him talking about why they started sales in the first place, that CS was their first test to the now weekly steam sale format.

      So that sale would have been what in 2007-2008? And would have been cs source probably.

    • Premium User Badge Malibu Stacey says:

      Some people clearly missed when they gave away Portal for free a couple of times in the last few years.

  18. Kollega says:

    No matter what Gabe says, i still won’t forgive him and his studio for turning TF2 into a hat simulator, ruining it’s aesthetic with medieval or futuristic promotional items, and splitting the community into haves and have-nots, all in the name of profit.

    I don’t care if anyone says i’m wrong. That’s how i percieve it, and unless hats become much more abundant and promotional items will be replaced with more fitting ones, that’s how it will stay for me.

    Also, Gabe, why did you lower prices for Russia but not Kazakhstan? That just strikes me as odd, seeing as Kazakhstan is very similar to Russia in socioeconomic terms (if somewhat poorer – the conversion rate of local currency to rouble is approximately 5 to 1).

    • diamondmx says:

      There are several things that are a bit silly about your complaint, but they’re mostly subjective.
      However, your point about TF2 being a game of haves and have-nots, is simply incorrect for multiple reasons:
      1) Any player can find any weapons except (I believe, you might be able to get these too) the promotional items (eg. Deux Ex set) through random drops, which aren’t exactly rare.
      2) The original set is actually pretty well balanced against the extra items. The extra items provide additional options, but take other options away.
      3) Many of the best non-standard items are still tied into the achievements system, too.

      Basically, TF2 sells vanity items and convenience items (The three categories of MT items being Pay To Win, Convience, Vanity – in decreasing order of evil). And as it’s not a particularly serious game anyway, it doesn’t matter that much. The only things I would prefer as a non-MT player who bought the game at full price on launch (I hate MT on principle and TF2 somehow still avoids irritating me), is the silly crates which clutter my inventory needlessly, sadly missing overpriced keys (which I do not believe ever drop) to open them.

    • Kollega says:

      Do you know how many hats i got out of “Let’s ruin TF2!” deal? Two. One promotional, and one as a random drop. I have been playing this game from the spring of 2008 and about to the autumn of 2010.

      My point is: haves and have-nots playing toghether creates an even more horrible split than haves and have-nots being divided (say, via map packs). It creates hostility, and things like “poor and Irish” turn from harmless jokes into actual insults. But since the only guy who’s allowed to talk is Mr. Money, and since The Great Chain moves in mysterious ways, i figure my complaints about not-having aren’t really that valid.

    • Premium User Badge TheTourist314 says:

      YEAH, OCCUPY TF2

    • diamondmx says:

      The thing that confuses me is that you care about the hats. They’re dumb. Really dumb and pointless.
      They do nothing. (Can they be crafted? I’ve never tried)

      As for people being dicks…not really the fault of the payment system. Not that it makes it less of a problem, but lay the blame where it belongs. I believe there’s a system in place to report abusive players, and it sounds like this counts.

      PS: I find it odd that I’m defending any MT system, but it really is the least offensive model I’ve seen *anywhere*. And the exchange for making the game in many respects free (opening what is arguably a great game to many more players)

      PPS: A second complaint I would levy is that you must have paid Valve some money (either the game itself or any MT item) to trade any items to another player.

    • Ergates_Antius says:

      ” i figure my complaints about not-having aren’t really that valid.”
      When the thing you’re complaining about not having are imaginary hats then no, not really.

    • Pointless Puppies says:

      You don’t actually play TF2, do you?

      I say that because I shared your same silly attitude regarding the game for a while before I booted it up for the first time since about a year and I found the game exactly the same as when I left it. I realized that, at the end of the day, the game still is very much TF2 no matter how many different colored polygons sit on top of the players’ head. Then I realized my silly view of “TF IS RUINED FOREVER” is just that. Silly.

    • MultiVaC says:

      “My point is: haves and have-nots playing toghether creates an even more horrible split than haves and have-nots being divided (say, via map packs). It creates hostility, and things like “poor and Irish” turn from harmless jokes into actual insults.”

      What a weird thing to say. Even is there were sort of bizarre, hat-based bigotry constantly filling TF2 servers (there isn’t), how could you possibly be sincerely offended by something like that? It’s an online video game. You can expect people to be insulted because of their score, the class they play, their tactics, their name, the pitch of their voice, or their perceived race/gender/religion/mental capacity/sexuality. Insulting someone’s lack of imaginary hats has got to be the least hurtful insult ever devised by the human race. Some of those other forms of antagonism are really horrible, and there are serious problems with the way people conduct themselves in online games. It has nothing to do with micro-transactions being introduced to the game, and the the TF2 community is generally the same as it always has been. I certainly wouldn’t want them splitting it with map packs.

      I should also mention that I still play TF2 regularly and I’ve never seen genuine hostility toward a individual person in-game because of a hat. I can’t think of a single instance I’ve witnessed of that.

  19. Premium User Badge jezcentral says:

    I wish someone would get some info from Gabe about Steam UK’s lack of certain AAA games. I think that is the most important thing to do with UK PC gaming at the moment.

    Are there any of these shenanigans in other countries?

    • zeroskill says:

      Yeah well there are. As far as I know, Eastern Europe wont get anything from Bethesda, no Rage, no Elder Scrolls V. I cant buy those games anyway. However, this is, as with other issues, like regional pricing, a problem with the publishers. There isnt anything Steam/Valve can do about that, other then try and reason with publishers.

    • Premium User Badge jezcentral says:

      I know it’s not in Valve’s control, but the rumours are saying it’s not in the publishers’ hands either. I think THQ’s smaller size makes them prey to the retailers, whilst the likes of EA and ActiBlizz can shrug and threaten to withold BF3 or MW3.

      On a related note, I see Amazon have got Space Marine for £17.99, half the price of GAME (£34.99….lolwut?). That’s the equivalent of a Steam sale right there!)

  20. Bhazor says:

    QUICK! HOLD THE FRONTPAGE!

    HIGHLY PUBLISHIZED PRICE CUTS CAUSES MORE GAMES TO BE SOLD DURING SALE THAN BEFORE!!!

    • Premium User Badge VelvetFistIronGlove says:

      Congratulations on your reading comprehension skills.

      what we saw was our gross revenue increased by a factor of 40.

    • Bhazor says:

      As I said elsewhere you have to put that 40 fold increase into context.

      Counter Strike: Source is a six year old game. I don’t care how popular your game is but after that long your sales will be a trickle compared to before. Generally you get a big pay off at release and then a steady but declining trickle to the sale where you get another pay off followed by a trickle (the trickle caused by renewed word of mouth from those who bought during the sale).

      Again, this isn’t news its basic economy.

    • Starky says:

      “This experiment was successfully repeated with a third party game, and the result is the non-stop flow of heavy discounts you’ll now see on Steam.”

      Again, this implies what Gabe was talking about was the very first try at a “steam sale” not some recent sale of CS. Which they then confirmed on a 3rd party, which led to them doing regular 75% sales, which then led to massive twice-yearly blowout sales.

    • ResonanceCascade says:

      This isn’t “basic economy.” Supply and demand is contextual, you can’t say that cutting the price will result in more revenue as a blanket statement.

      According to a previous statement from Newell, cutting the price of a game in half at retail results in about twice as many sales; or no more revenue. This shows that the demand curve is much, much flatter for digital goods — but only if it’s presented as part of a sale.

      That’s pretty unexpected.

  21. Sheza says:

    Isn’t it obvious?

    “Free” = A previously full-priced game or game with no purchasable extras.
    “Free To Play” = A game designed to be free initially offering purchasable extras.

    Free To Play games are almost always 100% online based.

    • Aemony says:

      Not if Memoir ’44 Online is anything to go after. It uses a Pay to Play model but has a freely available trial of the game. Simply because of this trial (and all accounts are created as a trial account upon creation) the developers called the game as a Free to Try game. This in turn was enough for Valve to put the game on the F2P category of Steam…

      Needless to say, some people was furious that a P2P game was faulty advertised as a F2P game.

  22. Aemony says:

    The difference with Free and Free to Play could easily be seen recently when Memoir ’44 Online was added to Steam as a Free to Play game, yet it is actually using a Pay to Play model, with a freely downloadable trial (Free to Try they called it). A forum thread was immediately created and support tickets filed to make Valve go back on their decision to include it among the Free to Play games only because the trial version was available for free.

  23. busfahrer says:

    As always, this comic can be of immense help in understanding the situation:

    http://i.imgur.com/smTgZ.jpg

  24. Hendar23 says:

    I haven’t paid more than $20 for a game in about two years, (Dragon Age I think) and about the only game I have a flicker of interest in that is over that point is Portal 2. It’ll go on sale sooner or later, and I have too many games to play as it is. I see people still paying $60 for new games, and I just think that’s insanity. It’s bloody obvious (to me) that if you drop the price to the point where people can buy without worrying about buyers remorse, your gonna sell a shitload more.

    Did anyone else naively think that when digital distribution came in that the digital version of games would be cheaper? I figured that as, once the infrastructure was set up, all they had to pay for was bandwidth. A bricks an mortar store distribution system has to pay for someone to make the disc, print the manual, someone to put it in the box, put those boxes on a truck, someone to drive it to the store, someone to unload it and put it on the shelves and someone to stand there all day selling them. But the digital version costs the same. I guess people are willing to pay for the convenience?

  25. Binary77 says:

    Fair play that Gabe wants to branch out & ‘experiment’ with sales models & help Steam compete better in the market, but i can’t help but think that this stuff is seriously holding back their in-house games development.

    ‘Steam: The Games Store’ seems to be really overshadowing ‘Valve: The Games Developers’ at the moment.

    I’m sure i don’t need to mention a certain series that has been left unconcluded…

    • Tancosin says:

      I know. It’s been what, 2 years since L4D2? When are you gonna release Number 3, Valve!

  26. RegisteredUser says:

    If I don’t have to pay 5 EUR to buy a game, I am more inclined to spend 1-2 EUR on silly hats.
    I think it breaks down to something as simple as that.

    As for the 75% => 40x more exposure, now that is awesome, if just for the fact that I will no longer pay more than 2-10 EUR for any given game ever(although over 8 EUR already feels very expensive to me now), and this means I might get to purchase things sooner than at every xmas..

  27. InternetBatman says:

    I love Steam deals and check every day. I really do play more and buy more because of them. Oddly enough, I felt bad about buying New Vegas at $20 or $15 (can’t remember). It’s such a wonderful game with so much content that it felt like I was ripping someone off. That’s the only time that’s ever happened to me.

    • Avish says:

      I felt bad about buying Recettear as part of a 5$ bundle, so I bought it as a gift to my sister at full price.

      With FNV you can also buy the DLCs to feel better (they are also great).

  28. Crimsoneer says:

    “But as more and more evidence pours in, the most common pattern appears to be: the less you charge, the more you make. ”

    John, presenting this as a pattern is BS, and you know it. Anecdotes are not data. People have had the exact OPPOSITE result, in many circumstances. I’m pretty sure Cliffski did a blog post about this at somepoint? Or go tell that to the maker of that ball racing game nobody bought.

    I’m not saying you’re wrong, but I don’t think we’ve got enough data at all to claim we’ve seen a pattern of
    lower prices -> more profit

    • Kadayi says:

      Yes. I think there’s a false dichotomy at play. Saying lower prices = more profit only works for certain types of gaming experience, it’s not something that fits all. You can’t sell enough copies of say a SP game like Mass Effect at $5 to make it viable financial proposition, let alone justify the budget and resources. If you want high production values, you have to charge a high initial price to recoup the outlay in the first few months of sale, otherwise it’s a no go.

  29. killmachine says:

    i just had to span 5 minutes waiting time so i did this:
    http://imageshack.us/photo/my-images/220/gabend.jpg/

    gabe, i love you, you are one of the greatest in game development. but do something for your health, so we will see lots of new stuff from you for as long as possible.

  30. Mario Figueiredo says:

    Oh Jeff Vogel, Jeff Vogel!
    I wish you were Gabe Newell
    and Gabe Newell was you.
    Then, he might sing a different tune;
    Not serve hypocrisy with a spoon.

    The wise man already said:
    Be yourself and not too bad.
    But don’t tell others what to do,
    because the others are you too.

  31. Mario Figueiredo says:

    – duplicated –

  32. Premium User Badge thedavehooker says:

    “One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates.”

    Thank you Gabe Newell, now someone forward this to UbiSoft.

  33. sinister agent says:

    I do hope Valve are laboriously documenting the methodology and findings etc. of all these things they like to poke around with. They’re in a rather unique position in a similarly unique industry at a very important time, and seem to have a mindset that finding new stuff out is worth it even if it means a failed experiment now and then. Obviously they want max profits, it’s only natural, but they seem to genuinely just want to know more about their industry for the sake of interest, which is a great attitude to have, and if they ever release the less “trade secret” like data they find, it could be a very interesting read.

  34. smoke.tetsu says:

    Am I the only one for which “free to play” or F2P carries a negative connotation? I’m not into MMOs or TF2 and most of the F2P games I’ve played weren’t ones that struck my fancy and I also feel like it’s almost like bait and switch. Where you get this “free” game but most of the good stuff is locked away until you purchase it.

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  36. Bobic says:

    Heavy.

  37. eryynlhanu says:

    He said, that by reducing CS:S’s price, to have fourty times as much profit as that they usually would have. Meaning that the game must’ve sold 4×40=160 times as much. (25% of its original price)
    Companies strive for a couple %’s more profit, while Valve pulls in a 3900% increase in PROFITduring a sale. That’s 3900% more profit, and 15600% more sales.
    Don’t you see what’s going on? Valve gets thousands where others strive for a couple percents.seo service