Bit Shift

All of the news surrounding Valve recently is very interesting to me. We already discussed Greenlight and the implications it may have. But, the comments Gabe made at Casual Connect about Windows 8, their views on growing Linux, and the future of gaming hints at a more complicated story about the way Valve approaches customers. 

The irony is that Gabe’s comments about a closed system echo quite a bit back about the fears of game publishers, developers, and even many consumers have with Steam. If you’ve read me in the past, you know that I favor more competition over less. But one of the harder truths of free markets, and this is especially true of technological markets in the internet age, is that there is an increasing value to monopoly. “Network effects tend to lead to dominant markets: the big get bigger,” as Bruce Schneier put it. The truth behind Steam’s success is that customers enjoy the benefits of the single platform. When you’re as customer-focused as Valve is, it’s hard to ignore millions of customers effectively begging for lock in. Steam’s resources just naturally allow it to solve problems that others don’t want to solve or can’t solve. Steamworks is a good example, as it solved the matchmaking problems that so many devs could not tackle consistently well and it pleased the development customers too, by saving them money. SteamGuard is another benefit a monopoly gives you. The Steam Workshop, Valve Anti-Cheat, etc… It’s not that it’s impossible to give these features without a market lock, it’s that, as Schneier says, “the big are more valuable, because they are big.”

Of course, the big difference between Valve and Microsoft is the trust that the former has earned from its customers. Microsoft’s products also have very high switching costs, and Valve knows this. If Microsoft were to be unusually on-the-ball for Windows 8 and its App Store (which is not a great bet to take, but hypothetically), then Valve gets pushed out of the next PC the customer buys. Gabe’s point is that Microsoft is showing signs that it’s desperate enough to do this. To close up the OS so that competing with Apple is realistic. This may look like a shot in Microsoft’s foot to us now, but in 5 years it may seem a foregone conclusion. And since switching cost from Windows is very high (because a Mac is expensive and because desktop Linux is just harder to switch to for a smaller games population), having a diversity of options is critical to being able to pivot as a digital distributor.

By the way, speaking of high switching costs, what might tip you off in this story or this other story that Microsoft is changing monetization strategies for Windows 8? I’ll stall while you read those. Okay, fine, I’ll just tell you. $40 pricing (for a limited time) and a high minimum purchase price on apps tells you that Microsoft learned a lot from Xbox about where its bacon comes from. If you saw $40 for Windows 8 when you might have paid $100 for Windows 7 a couple of years ago, that might be low enough to be a no brainer for even advanced users.

But, once you are in the Windows 8 environment, what if you don’t like it? Well, now that you’ve incurred the low entrance fee and are looking for an exit, how much are your options worth to you? How much of a switching cost do you want to incur on top of the sunk cost? A Macbook Pro for $1,500? Or maybe a Linux build for the cost of your comfort and possibly frustration?

The amount of investment that problem-solvers like Valve put into making the other options more appealing changes the switching cost significantly for its core audience. I was surprised to see that, after not logging into Steam on a Mac since it was first released 2 years ago, I have around 110 Mac-compatible games in my Steam account versus 347 in my Windows account. 2 years ago, I had zero. Now, over 1/3 of all Steam games are on the Mac platform, which is just an amazing option for customers.

Now, imagine desktop Linux 2 years after Steam support. That’s something like the world of choice that Gabe and Valve are hoping to usher in. And that’s the type of competition I’m excited about.