Is Steam Evil?
Economic, legal, and moral takes on their 30% platform fee
For years, iOS has held a stranglehold on mobile game developers. 30% of all app revenue went to Apple, and you were not allowed to use third party app stores or payment rails. No longer! Epic’s legal crusade has finally borne fruit. Everyone from Spotify to Squad Busters are now finding ways to dodge the 30% tax. Android has always kept a slightly looser grip, like the second-fastest speeder on the highway. But now they too will have to fall in line.
The news has prompted a lot of side-eye towards Steam. Like iOS and Android, Steam takes their 30% cut as the immovable incumbent on PC. Big Rigney lays out the issue and Dr. Joost calls for action. “Monopoly” and “anti-trust” get bandied about in the call to break Steam’s crown. If we’re spouting off-the-cuff opinions, I want in too.
Steam is a Monopoly*
Technically Steam is not a *monopoly – they are not the only seller of PC games. But “monopoly” is used colloquially to mean “market power”, and Steam certainly has overwhelming market power. Over 75% of PC game sales are on Steam. Competitors have come for the throne from a variety of angles; EA Origin with exclusive titles, GOG Galaxy with DRM-free, and Epic Games Store with a much lower 12% cut. None of them have managed to make much of a dent.
Is this economically harmful? In classic economic models, market power can be used to raise prices and harm society via deadweight loss. Steam does not seem to be doing this. Games on Steam are all priced at MSRP, and they haven’t taken retaliatory action against Epic Game Store’s discounts. In fact, Steam responded to Epic’s lower cut by cutting their own take rates, which seems like healthy price competition.
Admittedly, Steam has implemented a regressive tax, only reducing their cut for games that earn above $10 million. In contrast, Epic has implemented a progressive tax, taking 0% from games that earn under $1 million, and 12% for those above. This is a strategic move, similar to local governments offering big companies tax breaks to relocate. Steam could realistically use customers if a big name like GTA VI goes Epic-exclusive, but if missing a small indie game has no real impact.
Steam isn’t Illegal
Steam doesn’t seem to be doing any shady anti-competitive practices. They don’t pay for pre-installs the way Google does. They don’t block alternative game stores the way Apple does (though admittedly they lack the vertical integration to do so). To the contrary, Steam even allowed games to install their own launchers; for a hot minute, Ubisoft games launched thru Steam would force-install uPlay. Steam doesn't shadowban sellers for discounting off-platform the way Amazon does. They don’t undercut competitors at a loss like the goated J.D. Rockefeller. Steam just got in early, provided a useful service, and retained loyal customers.
With that said, the law is a living body, shaped by legislators and litigators. Our current anti-trust laws may be outdated in the internet age. Most tech giants weren’t technically doing anything illegal. Lena Khan’s anti-trust crusade is coming after them. Even though she left during the Trump purge, her movement seems to be continuing under the new administration. Maybe Steam will be deemed illegal in the future.
Steam seems Moral, for the Moment
Now for my personal take. Valve seems to operate Steam with the moral high ground. They pioneered digital distribution. They opened the indie floodgates. They supported modding and trading and esports. They’re relatively transparent with their data – steamdb.info is an open book that you won’t find for any other platform. They don’t sue over copyright bullshit. They’re run by a bunch of libertarians at the top: not the corporate type, but the pro-competition type. I like and trust them.
… But, a decade ago, I would have said the same things to support Google. “Don’t be evil” and all that. Nowadays, I’ve flipped completely. Google pretty much controls the gateway to the internet, via Chrome/Chromium browsers and Search. With their market dominance, they seem to have shifted from value creation to value extraction. Search is now filled with SEO garbage which they don’t seem to care to stop. Ads are proliferating, and Chrome increasingly prevents ad-blockers. Maps is clogged with fake store locations and bot reviews. Even their ad auctions has switched from second-price to first-price auctions, which really upset the econ nerd in me. Despite their earnest origins, it seems that their benevolent company culture has slowly eroded as corporate ladder-climbers find ways to boost their OKRs at the expense of users.
Unlike Google, Valve is a private company. Glorious leader Gabe seems to have a good head on his shoulders and heart in his soul. They’re not susceptible to the same short-term quarterly earnings pressures of a public company. In Gabe’s words:
"If you are going to ascribe everything we do to being greedy, at least give us credit for being greedy long (value creation) and not greedy short (screwing over customers)."
But one day, Gabe will die or pass the torch to someone else. One day, the enormous market power that Valve wields will fall into the hands of someone who may have fewer moral scruples. What then? As they say, an ounce of prevention is worth a pound of cure.