The Sad State of Digital Software Distribution

I have pondered this very thing Jeff. I actually wrote and indepenantly sold some software about 8 years ago. I made 100% of the retail, which because I had extremely low sales wound up just barely covering my cost to produce the CDs and market. Now I am seriously thinking of making an online version of the same thing and making it free, but with ads running in it…stay tuned.

Well, yeah. Of course it’s bad… With the big names.

I’ve had lots of great experiences with independent games. Ditto for music. As a rule I will only buy MP3s with no DRM. Of course, not many big names give you that option (They Might Be Giants being a very notable exception).

Steam is infuriating, irrespective of price issues.

Fuck Steam. That is the end of discussion on this issue.

I play and buy lots of games. What I find particularly amusing (or disheartening, take your pick) is that many companies will actually provide BONUSES with the in-store boxes, that you cannot get with the same-priced digital download. I could understand this, if the digital download was some kind of bargain deal, but it’s not.

For example, if you buy an Everquest expansion digitally, you get just that 1 expansion. Buy the same expansion in a box in a store, get all 13 (!) previous expansions for free.

I have a sinking feeling that the brick-and-mortar publishers are putting tight contractual restrictions against development studios, that restrict their digital distribution options.

I recently purchased The Orange Box and the price at my local London Drugs was the same as the online Steam price. Call me old school (ok, should I really be playing Half Life 2 at almost 50 years old ;-), but I went and got my “hard copy” at London Drugs…

Btw, Brad Cox, inventor of Objective-C amongst other things, had all of this figured out in 1996 with a book entitled, “Superdistribution - objects as property on the electronic frontier.” A man (way) ahead of his time.

I disagree with some of the sentiment you express here. I purchase games like Half-Life 2 and Bioshock via Steam with the full knowledge that the author is getting a bigger cut than if I had bought at the store. I want that. It helps me vote with my dollars better. It’s like I’m sending them a donation.

That’s not to say that all digital downloads are created equally, of course, like Vance’s Everquest example.

One point that I think has been missed here is that of RD costs.

While digital distribution should logically be cheaper than boxed software, we should remember that just because there is no jewel case doesn’t mean it didn’t cost anything to produce. (Come on developers, your brain cycles are worth something!)

I don’t disagree with the notion that the distribution costs are lower (but not zero) with a downloadable product, but it’s certainly not “all profit.”

(As an aside, this is the same argument I always hear against the pharmaceuticals companies, the music industry, and increasingly book publishers. People -even people in the industry!- forget to amortize the development costs of the intellectual property and think that huge profits are being made where they may only be modest.)

Valve may not pass on the savings to the consumer, but I still do think they charge a reasonable price.

I want Valve to get stinking rich so they dare experiment with new, creative, games like “Portal” and don’t feel like they have to watch their bottom line by just churning out new versions of old franchises.

[Digital software distribution should cost less.]

What economics text are you reading? The one I’m reading says that a monopoly can charge any price it wants, subject to the constraints imposed by “inferior goods” to which consumers might switch. Since there is only one publisher of any given game, it does not surprise me in the least that they charge the same price online as in the brick and mortar:

  1. Online is easier for the consumer. He does not have to go to the store, buy the game, keep track of a DVD, etc.
  2. If he was willing to pay a certain amount at a store, he should be willing to pay the same amount online. Why in the world would a company charge less for something even when the willingness-to-pay is the same?

Just thought I’d say that my friend referred me to this blog a week or so ago and already I’ve started to love your blogs. I read them and learn a lot every time and I can really connect with your views. The 64/32 bit thing really helped me as well. Thank you so much and I’ll be reading every blog you write. :slight_smile:

@Steve Jackson:

So it’s ok to raise the price because of manufacturing costs but it’s not ok to drop the price because of reduced distribution costs?

It has nothing to do with “OK,” “good,” or “moral.” It has everything to do with what people will pay. Since enough people will pay $60 rather than $50, Microsoft and others have made the decision that that is the most profitable price point for them. The part about RD costs are a load of crap they say just to spin it in a favorable direction. If seven times as many people would buy the game at $15 per package, then they would sell it at $15 per package, assuming costs are less than or equal to $6.42 per unit in both scenarios. RD has nothing to do with it.

Here’s the takeaway: companies don’t charge prices based on what it costs to develop a game. They charge prices based on the maximizing profit (or minimizing loss in the case that they are in the red). The reason why games which cost less to develop are cheaper is not that they cost less to develop. Rather, it’s because no one would buy them at the more expensive prices and their producers would not make money.

I still purchase music cds rather than downloading mp3 files.

A cd in a music store now can easily run $20 while the same album downloaded probably cost about $12.

In this case, you are buying two versions of the same product but with different fidelity. If you are listening on a nice stereo, the different between 44k wave files and mp3 files is plainly obvious.

This is not really analogous because the software versions that you receive though a download or on physical media have identical fidelity.

The problem with the “digital locker” concept where you can only get the software online is the same problem that I have with copy protection. Renting software doesn’t make sense for the consumer.

I still use software that I purchased from companies that have been out of business for years. I had to find cracks to run these software packages which makes me a “criminal”.

How would people react if their Studebaker sedans quit running permanently when the company went out of business?

It’s never in the interest of established companies to undercut hard-won relationships and infrastructure they’ve invested in. It’s always in the interest of new companies to innovate. This situation is absolutely what you expect if you look at it from an economic viewpoint.

“…Distribution costs effectively drop to zero”

That’s not true. Do you know how much it costs to get the bandwidth to distribute big games over wires? Do the math. Cost of a T3 line x number of lines = $$tens of the thousands of dollars. That’s if you go with a T3. Faster lines are even more expensive. Then you have to pay the people who administer the web sites, the servers, the firewalls, the hardware, the electricity to run the servers and AC the… Even if they outsource the whole process, it still costs a ton of money.

The total cost is nowhere near zero. It’s zero for YOU to download the game as a cost of bandwidth because you’re already paying a flat fee for broadband.

Although Steam suck in prices, it has it#8217;s discounts too (Orange box came with 5$ discount in pre-order). And for old games it insures compatibility and viability (it#8217;s the only place you can find some games, like Excellent Game Psychonauts). And with a broadband it#8217;s some times faster to download the game than it#8217;s to go to the store and buy it. No no-cd cracks problem.

And in the topic of prices, Steam is a wonder for me. I live in Brazil, and games are imported and resold at insanely high prices. It#8217;s so bad that it#8217;s almost impossible to buy a playstation 2 not unblocked (without mod-chips). The problem with more memory use of having steam on, if you let it at the tray bar it consumes less than 10 MB. I also find easier to install a game in steam than it is with the cd/dvd. But like the Australian guys the prices depend on the exchange rate for me too. Buy the game although, it#8217;s still a problem with all the credit card stuff#8230;

Also, for the all the off-line story, Does Offline Mode Still Matter?
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And then there’s the fantastic Ticketmaster “convenience charge” for the privilege to print out your purchased tickets at home using your very own paper and ink! Wow! I get to pay Ticketmaster to lower their costs? Sweet!

A small software vendor may rely upon BrickMortar stores for exposure. Some software is bought because a user sees it on the shelf and likes it. For the right price, they’ll try it.

If the maker prices the software below what the BM stores sell it for, then the BM stores quit selling it.

That is why direct digital download sales are at FullRetailListPrice.

Yes indeedy, broadband is pervasive, all right. Broadband is so pervasive in these Benighted States of America that more than 50% of Americans on the internet do NOT have broadband.
I don’t have broaband.
Nobody I know has broaband.
Maybe your premise is deluded and bizarre. Maybe the reality (as statistics inctrontrovertibly prove) remains that most Americans are stuck on dialup, and will be until they die.
That answer your question?

@Ordinary Geek

There’s no need to be nitpicking on jeff’s numbers. Anyone whom has worked in retail knows that they are not wholly accurate. However, I think Jeff’s purpose was not to evangelize to the early adopters, but to the PHB’s out there. :wink: Its up to the engineers and accountants to nitpick on numbers, but to the PHB’s, numbers like that can make them change their mind. Of course, it all depends on what Jeff has to say. I just get annoyed when people try to nitpick a good article, and use that as blog fodder.

I do quite agree with the article, and the fact is, if there is no drm on the download… you can ease your bandwidth costs by using bittorrent :). Like what Blizzard does.

I find it difficult to agree with Jeff’s view. Just becasue there are fewer middlemen in the digital distribution chain, the price of a digital product should cost less than a physical retail copy? Are you saying that Valve and Iron Lore do not deserve more profit share generated from the product?

Competitive businesses never operate on “cost plus” model because it is so reactive to your business environment that by the time you realize your margin is too small you’re already too late. What you strive for is what economists called “surplus capacity” - the maximum amount of profit you can get. And how do you know the maximum profit? That’s the market price. And what is price? It’s the value customers are willing to pay for the product.

Which goes back to what I said in the beginning: this whole discussion of digital vs. physical distribution is irrelevant as it is not about who gets more money. The real issue is the value of the product - does Jeff consider his copy of Titan Quest worth the 29.95 that he paid for?