The video game industry has changed rapidly. The first games were played with floppy disks and CD ROMS. Nowadays, digital video games are offered on platforms like Steam and Playstation Network.
The shift to digital games was a key element in the growth of the video game industry and platforms played a big role in this shift. The total industry now has a value of almost $90 billion. Console gaming and PC gaming account for the biggest shares with a value of $32 and $36 billion, respectively. The market leaders are Playstation Network (console) and Steam (PC), both digital gaming platforms (Takahashi, 2017 & Tassi, 2012).
A PC gaming platform like Steam, links players and developers for the networked market, this generates network effects. Steam offers and provides infrastructure and rules to facilitate a two-sided market (Eisenmann et al. 2006). The added value of platforms like Steam depends on the number of users on the network. This creates cross side network effects for developers and gamers. Subsequently, there are same side network effects where each side attracts more users to that side.
There are four different roles in a platform mediated network, which can be open or closed (Eisenmann et al. 2009). Steam is a proprietary platform, as there is an open demand and supply side (gamers and developers), one platform provider (Steam) and one platform sponsor (Valve). Gamers affiliate with either one of the gaming platforms in the market through the power of the community, making it a mono-homing platform. The possibility to distribute games digitally and predominantly positive network effects in this market, allowed platforms like Steam and Playstation Network to dominate the market and disrupt the PC gaming industry.
Furthermore, business models are based on a variable percentage per game sold for the platform provider. The remaining amount is for the developers. Platform providers benefit from network effects which increase the amount of games sold. The five forces model introduced by Porter does not apply in the same manner to platforms (Van Alstyne et al. 2016). The ultimate source of competitive advantage for a platform is the number of interactions and the associated network effects. For Steam this translates into the number of consumers that buy, play or rate a game or participate in the forum focused on a game (Tassi, 2012).
Lastly, the prediction for the industry is that the shift to digitalization is likely to maximize even further and the global market is expected to grow 6.2% yearly towards 2020 to reach $128.5 billion revenue (McDonald, 2017). VR gaming is the next development in the gaming industry (Rogers, 2016). Collaborations with companies as Oculus exist and most games are compatible for VR. In 2020, mobile gaming will represent more than half of the total games market. If all games become available for mobile phones with the help of VR and their operating system as a platform, there will be no need for different platforms anymore. This will make platforms like Steam and Playstation Network obsolete.
Sources:
Link to technology of the week video:
https://www.youtube.com/watch?v=hL-zkvTboLM&feature=youtu.be
Scientific articles:
Eisenmann, T. R., Parker, G., & Van Alstyne, M. W. (2006). Strategies for two-sided markets. Harvard business review, 84(10), 92.
Eisenmann, T. R., Parker, G., & Van Alstyne, M. W. (2009). Opening platforms: How, when and why? Platforms, Markets and Innovation (Chapter 6). Edited by Annabelle Gawer.
Van Alstyne, M. W., Parker, G. G., & Choudary, S. P. (2016). Pipelines, platforms, and the new rules of strategy. Harvard Business Review, 94(4), 54-62.
Articles from the internet:
McDonald, E. (2017, April 20). THE GLOBAL GAMES MARKET WILL REACH $108.9 BILLION IN 2017 WITH MOBILE TAKING 42%. Retrieved October 06, 2017, from https://newzoo.com/insights/articles/the-global-games-market-will-reach-108-9-billion-in-2017-with-mobile-taking-42/
Rogers, A. (2016, June 06). An Investor’s Guide to the US Video Gaming Industry. Retrieved October 06, 2017, from http://marketrealist.com/2016/06/is-virtual-reality-the-next-big-driver-in-the-gaming-space/
Takahashi, D. (2017, March 16). Sony dominates console market with 57% share worldwide. Retrieved October 06, 2017, from https://venturebeat.com/2017/03/16/sony-dominates-console-market-with-57-share-worldwide/
Tassi, P. (2012, February 16). The Numbers Behind Steam’s Success. Retrieved October 06, 2017, from https://www.forbes.com/sites/insertcoin/2012/02/16/the-numbers-behind-steams-success/#23391ae470fd
