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Valve boss explains Steam pricing experiments

Valve boss Gabe Newell explains some of the pricing experiments the company has toyed with in the last few years, and what they've learned from them.


Steam has become pretty well-known for its regular sales, which offer sizable discounts on games and classic bundles. Valve boss Gabe Newell has explained the string of pricing experiments that led to its current strategy of regular sales, in hopes that it will help inform the digital marketplace on the whole.

First, they measured price elasticity by quietly dropping the price of a game. "What we saw was that pricing was perfectly elastic," Newell said at at TechNW panel reported by Geekwire. "In other words, our gross revenue would remain constant. We thought, hooray, we understand this really well. There's no way to use price to increase or decrease the size of your business."

But that assumption was proven wrong rather quickly, when Valve tried out a heavily promoted sale. While they expected gross revenue to remain the same during a sale, given the reduced cost and increased purchases necessary to offset the discount, revenue actually increased significantly. "Instead what we saw was our gross revenue increased by a factor of 40," Newell said. "Not 40 percent, but a factor of 40. Which is completely not predicted by our previous experience with silent price variation."

He calls this practice "time-shifting revenue," saying the company is moving sales from the future. But even by that reasoning, it had greater long-term benefits, since the games on sale continued to increase their numbers after the sale was over. "Essentially, your audience, the people who bought the game, were more effective than traditional promotional tools." He says the company then tried the same experiment with a third-party game and saw the same results.

Newell also claims that making Team Fortress 2 free-to-play increased sales by a factor of five. "That doesn't make sense if you're trying to think of it purely as a pricing phenomenon." But he says it pays off in the long-run, since most F2P publishers Valve has talked to have reported a 2-3% conversion rate of people purchasing in-game. A meatier game like TF2 enjoys 20-30% of people who purchase extras.

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From The Chatty
  • reply
    October 24, 2011 8:15 AM

    Steve Watts posted a new article, Valve boss explains Steam pricing experiments.

    Valve boss Gabe Newell explains some of the pricing experiments the company has toyed with in the last few years, and what they've learned from them.

    • reply
      October 24, 2011 8:20 AM

      That's a huge increase for promoted discounts, and an insane dlc percentage for TF2.

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      October 24, 2011 8:33 AM

      How about they experiment with the radical notion that $ != €?

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        October 24, 2011 8:45 AM

        Slow down their captain economics

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        October 24, 2011 8:47 AM

        That's publishers in general, though I think Steam may be a little more hog-tied in the manner.

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        October 24, 2011 8:57 AM


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          October 24, 2011 11:22 AM

          No UK treatment here, it's all listed in Euros.

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        October 25, 2011 2:07 AM

        Even after working in the gaming industry for the past 5 years I still feel pain for Euros and Aussies when it comes to game prices. It really does get pretty ridiculous sometimes when you add in all the regional licensing fees, etc.

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      October 24, 2011 11:03 AM

      I think gaming as a whole is pretty lucky that Steam came along. The Steam sales have lead to a paradigm shift in digital retail pricing. It's damn awesome.

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        October 24, 2011 11:21 AM

        There's lots of games I wouldn't have gotten without those sales. Sales are also a good idea for this kind of product, one that you can't just return.

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          October 24, 2011 11:26 AM

          also the more 'stuff' you own withs team, the less likely you'll buy at another company (and stop using steam)

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      October 24, 2011 11:16 AM

      I like these kind of articles. Thank you!

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      October 24, 2011 2:03 PM

      Nice, maybe some other online retailers could learn a thing or two from this. Well done again Valve

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      October 25, 2011 2:12 AM

      In other news, LA Noire just got Nice Beach'd... was $50 US for Aussies when it hit the store at the start of the week, now it's $89.99 (currently $81 with 10% pre-order discount).

      Talk is cheap.

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