Lately, platform-mediated networks have received a lot of attention with companies of the so-called “sharing economy” like Uber and AirBnB. However, platform-mediated networks are actually much older. Traditional examples include the credit card market which brings together cardholders with merchants and the video game industry, providing a platform on which players and game developers interact.
In this blog, we would like to elaborate more on two well-known platform businesses that jointly have transformed the gaming industry by using platform business models: Steam and XBox Live. Both distribute games digitally and therefore connect gamers with game developers. However, both platforms differ, among other key aspects, in their degree of openness and their business models.
Steam is a digital distributor of PC-games, which not only enables users to purchase digital copies of games online, but it also enables game developers to communicate and receive feedback from their users. In addition, one of the most special features of Steam is openness of the platform to gaming developers- while traditional gaming platforms tightly control the available content, Steam has implemented a democratic process called “Greenlight” that allows gamers to vote for games submitted by developers. Therefore, Steam is a two-sided and open platform, and next to the same-side network effects on the user side, there are also significant cross-side effects, as more users attract more developers. Steam’s only sponsor and provider is Valve, a game developing company.
While Steam distributes PC-games, XBox Live sells games for Microsoft’s line of XBox gaming consoles. However, XBox’s business model and features are very similar to Steam’s, including network effects. Furthermore, XBox Live also has only one sponsor and provider, namely Microsoft.
Comparison between Steam and XBox Live
Both companies have similar business models- both enable the interaction between game developers and gamers, while also offering gaming community features. Moreover, both companies generate revenue through a 30% commission on game sales, with XBox Live charging a monthly fee for their multiplayer functionality. However, there are also major differences between the two platforms- Steam’s community has around 125 million active users, while XBox Live has only 48 million, which suggests that gamers derive larger network effects from Steam. In addition, the two platforms differ in their openness- Steam is much more open, as it is free to access, has better backward availability, and is more open with regards to content. However, with its paid subscription XBox Live has a more dedicated community, which indicates that openness can be both a strength or weakness, depending on a firm’s strategy.
Predictions
A clear trend in recent years is the growth of the gaming industry, and especially video gaming. This suggest that both Steam and XBox Live face huge growth opportunities. However, there are also threads- one is the mobile gaming industry that keeps on growing rapidly. In addition, Valve is launching a console, on which gamers can play on Steam, that will compete directly with XBox and XBox Live.
Group 65
Lukas Braunschweig 381788
Karim El Mouttaki 384419
Ruben Roel 376930
Gabriela Tomova 382847
