Network Effects – Steam’s Dominance of the PC Gaming Market
Over the past decade, Steam has completely transformed the market for PC(computer) gaming. Before the introduction of Steam as an online marketplace, someone who wanted a PC game would have to buy a disc of the game from a computer/gaming store. This disc needed to be inserted into a disk drive to play it. However, with the recent and rapid increase in computing technology, options for downloading these games directly to a hard-drive became a reality. Steam, a platform that was already developed by Valve Corporation for video game updates, quickly expanded to take advantage of these new technologies to revolutionize the PC gaming experience. The attached article discusses how Steam how steam created its platform to capture the entire market and eliminate competition among PC gaming distributers.
Steam’s quick action was critical for their success and is the major reason it is such a dominant force in PC gaming. This rapid action is pivotal because Steam is a platform that is influenced by network effects. Network effects are factors that motivate individual decisions in situations where people receive direct benefits from aligning their behaviors with the behaviors of others. The accumulation of this personal action creates major changes in the structure and function of networks. Therefore, it is crucial that companies that aim to dominate a specific market act quickly. This is because they can influence the network’s structure before another company changes it in a way that individuals are reliant upon that company as it contains a vast majority of user. Steam is influenced by these network effects because it’s value to individuals is based upon both the number of video game producers and consumers using the platform.
The more people that use Steam, the more incentive producers have to sell their games on the platform. Also, the more producers that exist on Steam, the more incentive exists for consumers to use the platform. Additionally, Steam expanded its platform to be both a marketplace and a social network for gamers. This social network allows for friendship and communication between gamers and also the ability to download user-created modifications to games. The article explains how both of these affordances further increase network benefits because gamers who do not use steam, cannot be a part of the community or take advantage of user-created modifications which expand the game’s value. Over the past decade, Steam has grown rapidly in popularity and is used by nearly every PC gamer. This growth of the company changed the structure of the of PC gaming market from having producers, distributers (computer/game stores), and consumers to only having producers and consumers. Steam also added a new element to the market with its social media aspect which strengthened its hold on the PC gaming market. Therefore, it is essentially impossible for similar platforms to enter this market; there would be no incentive for individuals to transition to a platform with little to no users when the benefits of the platform are directly reliant upon the number of users.
Steam is a platform that is extremely successful and is a great example of how powerful network effects can be. This same effect can be seen in nearly every industry where users receive direct benefits from aligning their actions with others. The one question I have is if there are any forces which will prevent these corporations from creating monopolies and eliminating healthy competition in markets that are influenced by network effects?
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