How Does Steam Make Money? The Steam Business Model In A Nutshell

  • Steam is a digital, video game distribution service created by American video game developer and publisher Valve Corporation in 2003. The platform started as a patch distributor with a clunky interface but steadily grew into a popular game services platform enjoyed by millions of users every day.
  • Steam makes most of its money via the commissions it charges on all game sales, with the exact commission based on total net sales volume.
  • Steam charges a small “deposit fee” for new game developers who wish to list on the platform for distribution. There is also a flat transaction fee to protect against fraud and support new features in the Steam economy.

Origin story

Steam is a digital, video game distribution service created by American video game developer and publisher Valve Corporation in 2003. 

Steam started as a way for Valve to control the patching process for games like Counter-Strike. The platform was also used to prevent cheating and provide easier access to content produced by the game developer. However, Steam required a constant internet connection at a time when only 20% of American households had access to broadband internet. What’s more, the interface was clunky and players were often locked out of the games they purchased as the platform’s authentication servers struggled to cope with demand.

Nevertheless, the 2004 release of Half-Life 2 – which could only be played with a Steam account – increased the popularity of the platform with three prominent packages emblazoned across the Steam storefront. The following year, Valve made a decision that would essentially make the platform what is today. They decided that Steam would move away from being a humble patch distributor and allow third-party developers to host and sell their own games.

Steam continued to grow in the following years, adding a competitive eSport scene and features more common to social media sites such as friend community groups and integration with review service Metacritic. The Steam Workshop was released in 2011 after a major user interface overhaul, enabling gamers to create and upload content directly to the platform. Many such contributions were used in Counter-Strike Global Offensive and Team Fortress 2, with Valve’s introduction of skins to CSGO saving the game from ruin.

The Steam Marketplace was released in 2012, allowing in-game items to be bought and sold using funds from digital wallets. Two years later, Steam transitioned from a gaming platform to one providing game services. Users could transform their laptops and tablets into wireless monitors to stream games or broadcast their sessions live to family and friends.

Steam now features almost 30,000 games from major publisher releases to independent titles and everything in between. There are an estimated 120 million monthly active users who logged a combined total of 31.3 billion hours of playtime in 2020.

Steam revenue generation

Steam utilizes the online marketplace model where it connects buyers with sellers. The company collects various fees and commissions for providing services, facilitating transactions, and giving game developers exposure to a vast audience.

With that in mind, here is a more detailed look at how the company makes money.

Commissions

Most company revenue comes from the commissions Steam charges on the sale of a game. 

The exact commission depends on the game’s net sales volume:

  • Net sales volume of under $10 million – 30% commission.
  • Net sales volume between $10-50 million – 25% commission.
  • Net sales volume over $50 million – 20% commission.

Steam Direct fee

Steam Direct is a submission path designed to provide a streamlined, transparent, and affordable route for new game developers to submit games to the Steam platform.

For each new submission, the developer is required to pay an app deposit fee of $100. The deposit fee is recoupable from the payment made if the app reaches $1,000 in gross adjusted revenue.

Transaction fees

Steam collects a transaction fee of 5% to protect against fraudulent incidents and also to cover the cost of future Steam economy features. 

The minimum transaction fee is $0.01 and is charged to the buyer based on the total item cost.

Connected Business Models

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The play-to-earn model is a business model allowing gamers to farm or collect cryptocurrency and NFTs that can be sold on the market. This model has become a standard already in the “crypto gaming industry,” where the blockchain-based games enable token economics to kick in as an incentives mechanism at scale for users to play and be engaged.
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Candy Crush Saga is a match-three puzzle video game developed and published by King, a company specializing in social network-based games. Businessman Riccardo Zacconi co-founded King in 2003 after selling a subscription dating service he had also founded several years previous. The initial source of income for King was advertising revenue, but this strategy was abandoned in 2013. Today, Candy Crush Saga uses the freemium model (free to play) of revenue generation.

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