Mike Dunkle - Director of Cafe Operations talks

[RP.]

Mike Dunkle speaks at "Asian Game Developers Summit 2005"

WARNING: This is not the usuall type of "what next in CS" or "When is AM out" stuff, mostly he speaks about Steam and how they see it, and there is some financal stuff aswell.

Also, this is not an interview, but more of a lecture, also there is no transcript, but points taken by the writer.

Imo very good read, not the regular "what's next" interview but a different view (more PR and finance stuff).

Source: http://www.gamedev.net/columns/events/agds05-1/

Talk 1: Valve's Digital Distribution
Mike Dunkle - Director of Cafe Operations, Valve

The focus of the presentation was more on Valve's Steam Powered distribution system, which essentially provides content directly to their customers over the internet. The main thrust of this form of distribution is mainly to capture the indie development scene and motivated to revive the enthusiasm that comes out of that scene.

Steam is actually a main part of Valve’s business platform. Its embedded nature within the platform provides excellent support to its other core business components. With Steam in place, Valve can now support games faster and unobtrusively, as any patches are done when the customer logs into Steam. This is in contrast to the traditional file patch distribution that is commonly used to address bugs and fixes. The other benefit is the scalable framework of the distribution architecture available.

Currently Steam is running off 200 servers. Valve purchases bandwidth with multiple vendors to ensure that the Steam infrastructure is in order and in place. They pay $15/$20 per 1 Mbit of bandwidth. The cost is high to ensure that the user will not feel disadvantaged in their usage of Steam. Mike notes the need for servers to be set up in Malaysia to handle the poor connectivity to Steam from his previous night's experience. These high bandwidth costs are partially recouped through adverts from other companies. (I wanted to ask about the potential of building a similar distribution system using P2P, like Bittorrent, but forgot. Not that the "full game" is hosted on Bittorrent, but maybe a partial or 3/4 shared P2P distribution would be more logical.)

The obvious benefit of using Steam was the successful dampening of the piracy effect (I disagree with his assertion that piracy was successfully prevented via examples such as the fact that the new cracks on Half-Life 2 does not even require a person to log into Steam). Surprisingly, piracy was their least concern.

Online cheating is their main concern, as this was a driver to reduction in customer base as customers would leave the game altogether if they had bad experiences within the game environment. Mike reminded the audience at this point that we need to keep in mind that the end users are not the average young adult male, but is the 13-year old male to the 65-year old person. Steam thus needs to provide sufficient flexibility to ensure that the experiences of these end users will not be ignored.

The topic then shifted to how Steam distribution is better in giving the end user instant gratification of the game when compared to the installation through traditional CD/DVD media formats. According to him, Half-Life 2 was built (under Source which has Steam embedded within the code) with the ability for the gamer to start playing using 70MB of data. Instead of waiting for the whole game to be installed from the DVD, gamers can now start playing with the first 70MB while the rest of the data is installed in the background gaming environment.

Mike also explained Valve's commitment in building an online community that drives the content through SDKs. Valve has a 5-step plan that would help modders to distribute their own mods on the internet. Valve provides time, guidance and feedback on the mods that are released. These online modders would create a stronger support for the engine itself.

The Q&A session brought to fore the following:

* Valve is not ditching the retail system, as 75% of their business still comes through them.
* Revenue sharing with developers under the Steam system is 60/40 (developer/Valve).
* Developers will not need to use Source in order to use Steam.
* Mike encouraged developers to separate their retail distribution contract from the digital distribution contract/rights. Hold on to them separately and not together. Control in your distribution is essential in maintaining good profit margins.
* Valve also experienced problem with returns using Steam. But these are only less than 1% of the sales received. The problems are commonly in the form of charge backs from banks upon rejecting certain transactions upon the customer's request. This will need to be addressed when the number grows more significantly.
* The cost structure of Valve's game is roughly 3% for customer support, 10% for bandwidth, 1% for payment charges and the rest is the profit margin. Reasonably good margins.
* Steam distribution's success is shifting Valve into trying out episodic gaming distribution next.
* Marketing function should be kept within your own company, essential as it helps create identity. This identity will be specific to your company and therefore, must be guarded.