This part of my series of pieces titles “Lessons Learned” is more of a history lesson than an advice piece. It’s a peek behind the veil of retail for devs and the curious rather than hot tips for success.
In the PC retail sector so much has changed within the last 10 years (or 5 years or 3 years) and the recent ‘store wars’ in the press is just the tip of another shift. There are big challenges facing PC retailers right now. When I refer to retailers or 3rd party retailers in this piece I’m talking about everyone who’s not Steam/Epic/Uplay/Origin but is selling you keys for those platforms.
There’s a myriad factors behind why PC retail might be struggling (some likely aren’t, more on that later) and this blog post is only scratching the surface. These are some of lessons I’ve learned about PC retail as well as the problems currently being faced by stores right now.
It’s getting more complex every day
I started working in PC games retail at Get Games in 2012. It was a brilliant year for indie games with Thomas Was Alone, Dear Esther, FTL, Hotline Miami and more all launched. However, it was still a time of heavy gatekeeping by Steam and console platforms too. What did this mean for digital retailers?
It meant that you had a growing audience wanting to buy games from a small pool of (typically) AAA publishers. A store like Get Games and our competitors at the time such as Green Man Gaming or GamersGate could build a community and offer them more frequent promotions and steeper discounts than Steam did. This involved a lot of work but it was a great time to grow community and increase your customer base.
This system isn’t as simple any more because the way retail works behind the scenes and the relationships involved are constantly changing. Here’s some examples:
- There are more stores than ever before. At the time of writing the price comparison site isthereanydeal.com lists 25 digital stores for PC games. The majority of these did not exist in 2012.
- Platforms like Genba Digital do brilliant work in helping new stores to start distributing and to help publishers sell their games globally. But up until a few years ago stores relied on direct strategic publisher→ retailer partnerships to stand out.
- New stores like Epic Games’ do not support 3rd party retailers at all and it seems some publishers may follow suit.
- Digital retailers are part of diversifying organizations. Examples: Fanatical is part of Focus Multimedia who are a leading provider of Driving Theory Test software. Both Humble and Green Man Gaming are publishers.
- Subscription models like Humble Monthly, Origin Premier and Xbox Game Pass continue to gain in popularity and give customers a steady supply of premium games to enjoy.
Unlimited shelf space can be a problem
To anyone working in e-commerce this situation is pretty evident. It’s one of the biggest advantages you have, but one of the biggest challenges for publishers/developers today. Stores are overcrowded with more and more games flooding in and developers can find themselves at the mercy of algorithms running amok.
Some consumers/industry folk will say the period around 2011-2015 was a ‘Golden Age’ where prices were low and competition was limited. However, it was more common for PC releases to be delayed or to be ridiculously buggy and overall there were far fewer customers.
Today your game’s earning potential on PC is much higher but you’re not just competing with thousands of new games – you’re also competing with every game ever released on that store. In a physical store games leave the shelves after a few years unless they really perform or get a new edition.
At Get Games the 5th biggest selling title in the store’s lifetime was Call of Duty 4 because we had special offers on it that went deeper than what Activision typically offered on Steam. Fallout: New Vegas and Fallout 3 also make the Top 10 for similar price reasons. Customers were often willing to buy AAA ‘classics’ over recent releases and this principle still applies today so retail plays into it.
If I go through my Steam discovery queue several times (and bear in mind that thanks to Get Games I own most popular releases of 2012-2015) I get 52% of titles being 2018/19 recent releases but 35% are 2017 or earlier. Games such as Sherlock Holmes: Devil’s Daughter, Worms WMD, Kingdom: New Lands and Broforce are all suggested and all have sold very well on Steam since their launch. Third party retailers will operate in a different way but you’ll see similar results. Combining upselling based on user data with promotional plans or publisher specific deals means popular games stay popular if even there’s a human making the decisions instead of an algorithm.
Publishers and developers are focused on the present and the future. Who am I competing with right now? What opportunities do I have to make this game succeed so my next once can get made? That’s a good attitude to have but when you’re working on marketing plans and outlining your audience think about this: “Am I actually going to be competing with the classic my game’s inspired by?” Or to give it a marketers angle: “How can I make these people playing a 10-year old game come and play mine?”
The audience is smaller than you think
Infinite shelf space and intelligent algorithms mean more profit and gaming happiness for everyone involved! Well, not if there aren’t enough customers playing. The vast majority of PC gamers (ie. anyone who plays anything on PC) will only purchase direct from Steam or another publisher’s platform. 3rd party folks are dealing with all the folks who know to shop around and like a good deal. It’s a big audience, but it’s a savvy one.
If I’m a PC gamer who wants the lowest price on everything. I will go to a shadowy market like G2A or maybe a less shady (but still a shade of grey) key re-seller like CDkeys.com. This means 100% pub/dev supporting 3rd party retailers are left with everyone who isn’t entirely price sensitive, ie. they want to support devs and they want good customer service. Nonetheles, these customers still want a good deal and have plenty of tools to check that like IsThereAnyDeal or Razer Game Deals.
How big is this audience? If you take the Get Games data across 2012-2015 we had an average of 8,000 homepage hits per day and each hit had an average value of £0.25. Our mailing list was the biggest marketing channel with our 60k-70k signups contributing the most traffic after organic.
That’s a small audience but a valuable one!
SteamSpy published a claim that there were only 1.3 Million “core players” in 2015. Things will have changed since then but I still don’t see the 3rd party retail market having more than a few million customers out of the global 1.2 Billion PC gamers that exist if you include all things casual and F2P. You could point to the GameDeals subreddit and say it’s about 600,000 people but that excludes non-English speaking customers. This point gets proved by stores like Voidu who have made their mark in retail by targeting non-English communities.
The margins are very thin
70/30 used to be the standard share when I started but publishers began to move away from that and offered less. For indie developers on Steam I can’t help but support this move. “What is Steam doing to earn my 30%?” is a great question to be asking right now. But from a 3rd party retailer’s point of view going much lower presents a problem. Let’s have a look.
You’re selling Cry Dragon Creed IV on an 80/20 split. This game is going to be huge or pre-orders. The publisher’s SRP is $39.99 but they’ve offered all retailers a 20% launch discount so they can sell it as low as $31.99 and keep their full margin of that.
But there’s a problem, your competitor is selling Cry Dragon Creed IV at $27.99. That’s 30% off! They’ve decided to cut into their own margin to have the lowest price on this chunky AAA bad boy. That extra 10% comes entirely out of their $6.39 margin so now they’re only making $2.39 and you need to find a way to match that!
That’s still money right? But then you throw in VAT, PayPal and Credit Card fees (the last two are entirely the retailer’s responsibility) and there’s very little left from that sale. Platforms bear the brunt of server costs but retailers still need a small army of web developers, content administrators and marketers to operate.
You know your audience is a price sensitive and savvy one so having Cry Dragon Creed IV as a loss leader may be unsuccessful if your customers are coming for THAT price on THAT particular game only. As developers (rightfully) demand more from the big platforms the consequences for 3rd party ones could be more damaging.
So. You’re part of a global phenomenon but your audience is smaller than many in the industry might think. Your shelf space is unlimited but your marketing, customer service and product admin resources are limited by how many people you can afford to hire. What else is on the plate of retailers?
Fraud is the biggest issue you won’t hear about
Fraud is a huge problem for digital retail as a whole but it has some special nuance in the PC space. Customers expect their codes instantly and no anti-fraud method is perfect. At Get Games dealing with fraud tested the patience of my colleagues Dermot and Jordan who had to deal with the outcome of it. So here’s an explanation as to why fraud sucks extra hard for 3rd party PC retailers.
Almost all gaming platforms use keys, strings of text and numbers that are delivered in an email or scratched off on a gift card. Fraudsters will buy lists of credit card details along with addresses and contact numbers. They’ll then (either by hand or with scripts) shop round stores to find those that’ll take their stolen cards in exchange for keys.
The card companies themselves employ plenty of anti-fraud (blocking multiple purchases on single cards or checking IP address against card registered address) but these aren’t at all foolproof and retailers need their own systems to deal with this. Going into detail on these systems here could make them more vulnerable but we can tell you about one retailer that actually uses human input to check and validate every purchase that comes through.
If fraud gets through then the retailer only finds out when a chargeback from the card companies comes through. That sale is lost and the effort involved makes it a net loss for the retailer. Publishers can cancel keys that are reported as fraud but not all of them do this cancellation diligently.
In short, don’t buy games on marketplaces or on places where the price is too good to be true.
Community is everything
Steam doesn’t do anything with community. Customers have a myriad of frustrations and Steam forums can be anything from a quiet village of happiness to a raging hellhole of moderation depending on your game’s specific circumstances.
Community is essential for 3rd party retailers. However, the managers of these face slightly different issues to their developer counterparts. You can talk about anything you want and have a lot of fun but your objective is to hit sales targets. Your community will know if you have the best price on the games they want, so what else can you do to keep them buying from you in droves?
I still don’t have a miracle answer for this. However, one thing we were encouraged to do was play around with humour on CRM and social. We’d create artwork of varying quality to disrupt what people would expect on the homepage and even did weirder experiments like this corporate-video parody for a browser extension. In an age before Discord we’d fire up our Steam group on regular occasions and have photoshop contests to win codes or do really challenging code-giveaway quizzes rather than just firing out freebies. This humour and our customer service were the most common bits of positive feedback we received from consumers and in the years since many brands in games have adopted this strategy.
Can you make your virtual store a good place to hang out like the independent games shops of old were? Can you keep people active on your forum/Reddit/Discord etc whilst they’ve got many more focused and game specific communities to join? Some stores like Fanatical (formerly Bundle Stars) have driven heavily into this whereas others have stuck to the ol’ Facebook/Twitter combo. In my opinion the stores that will succeed in the years to come are the ones that can keep a community alive and build their loyalty in a way that’s similar to the long-gone high-street stores.
The Future?
The most positive change for 3rd party retail would be the big three console platforms allowing developers and publishers to sell their own keys in the same way Steam currently does. This is exceptionally unlikely and I’d expect those platform holders to control 3rd party retail directly through their own commercial teams if at all.
The attitude of publishers is also shifting. In 2012 having 3rd party retail partners did something very useful to your business beyond revenue – they provided full attribution info for sales (that’s who brought your game and where they came from on the internet) where Steam did not.
The scenario I expect is the decline of 3rd party retailers in favour of publisher platforms and subscription services. These stores won’t vanish, so long as Steam retains its popularity, but they’ll need to diversify to survive and make sure they have a community that’s willing to support them even if they aren’t the cheapest.
Nick Marshall 