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How Steam could replace all consoles and even GameStop πŸ”— 1439057911  

Steam is one of many online software systems used to distribute computer games. Eventually, it's face will change when even AAA games start to be distributed by the browser; but the suggestions I will lay out here should apply regardless. It will also be applicable to all other online game distribution systems, and as you will see, can be generalized to the software market at large.

Games, like much software, is distributed under "licensing". Anything distributed via digital means is trivially easy to copy, and so the only way they can reasonably expect sales in a similar fashion to more traditional games (like board games) is to enforce their copyright via a end-user licensing agreement. This worked reasonably well when the software was distributed on physical media; and this sector still thrives thanks to re-selling used games being possible.

Online distribution, however, has not had the benefit to the consumer of being able to transfer ownership of a license to their software. Effectively, once you bought it, you are stuck with it, unless you sell your whole library of games you bought with that particular distribution service. This is not feasible for many gamers, as they have reputation and identity tied up with their distribution system (as many games' online component relies on said distribution service as a backend). So, why has the ability to transfer license even between users not been allowed yet?

It is obvious that transferring between distribution systems would not be a trivial task; being as the publishers and distributors would all have to get on the same page legally. But when it comes to peers inside a distribution system, there's no technical reason that licenses could not be transferred via auction. The reason such has not happened yet is because the publishers of the games is attempting to use the market power of the distribution system to suppress the used market, as they fear they would make less money. Their fears are not unfounded, as sales of used physical copies would attest. However, there are ways that the publishers could be accommodated which would satisfy the customers as well.

First, the publishers (or the distributors) could offer to buy back used licenses for some fraction of the new price, and then resell them at reduced price. This would satisfy the publishers, the sellers and the buyers, as each gets an economic benefit they would not have beforehand. Furthermore, the reduction in revenue from sales of new licenses could easily be made up for by the increased sales of used licenses, as they churn through multiple re-sellings. It is likely that this would maximize the revenues obtained in the long run.

Alternatively, an auction service could be set up where the sellers set the price, and a portion of the proceeds is kicked back to the distributor and publisher. This would provide actual market signaling, which is useful information to the publishers; if licenses sell on the used market at a discount or a premium, they can adjust their prices on new licenses to increase sales. Furthermore, if the licenses expire after a time, the market could discount them pro rata, and do many of the things that traditional commodity markets do.

I feel that the publishers will likely go for the first option, being as it gives them more control; however, experiments with the latter might just prove to be unexpectedly lucrative. I suspect the second would have the best application for games that can only sustain a certain number of users at a time, such as MMOs. Then due to the (somewhat) artificially restricted supply of seats on a server, the good games could command quite a premium on the market. On a small scale, this already goes on privately.

Of course, marketplaces like this would also be easy targets for VATs and other excises. Thankfully, the internet has successfully resisted such things for normal retail so far. Hopefully it takes a new world order to tax the internet; I think we can resist that for a good while yet. Maybe even the one-worlders won't be able to interfere, if the success of bitcoin and SilkRoad is any measure.

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