The Long Tail of Steam

Post date: Oct 24, 2011 9:52:38 AM

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Traditionally (before e-commerce), for a product to be successful it needed to have high-volume appeal. However, due to cost reduction and better targeted marketing (possible due to the Internet), money can be made selling to niche markets. Collectively niches can generate sales numbers similar to or better than traditional markets (Davis, 2005).

Steam is an online digital entertainment company that currently offers 1100 games for purchase, download and play from any computer (Steam, 2010).Compared to department stores that rarely offer more than 100 titles (usually the more popular ones), Steam’s range is simply larger and caters better to specific interests rather than current trends. Such business models are what Anderson referred to when he coined the term leveraging the long tail (Anderson, n.d.).

Traditionally retailers only targeted the ‘head of a market’. However, collectively, products in the tail have the potential for similar or greater sales (Anderson, n.d.).

Companies such as Steam are able to cater to these niche markets by using new technologies to reduce costs (Wikipedia, 2010). Users enter, edit and update their personal information negating the need for some customer service employees. Steam users enter their own details from payment information through to their billing address (Steam, 2010). Self service extends to support, using the Steam forums and knowledge base gamers can ask their peers technical questions. This reduces the amount of money spent on support staff.

Products purchased from Steam are delivered virtually over the Internet in a digital form (Steam, 2010). In contrast to traditional business models, Steam does not pay for products until they have been sold to a customer. Furthermore, like other companies that trade in digital content there are few costs associated with a physical retail front or delivery.

Where the cost of inventory storage and distribution is low it becomes profitable to sell relatively unpopular products (Wikipedia, 2010). As a result vendors no longer need to put consumers in a one size fits all container (Anderson, n.d.).However, as the tail lengthens, consumers may find it hard to navigate to products of interest. Sites such as Steam use algorithmic data management to match supply and demand (O’Reilly, 2005). Based off pages a user visits, Steam recommends other games they might be interested in.

In summary, as Anderson (n.d.) suggests, People gravitate towards niches that are narrow interests (and everyone has them). Trends show that through using new technologies to reduce costs collectively, niche markets are as economically viable as their traditional high appeal counterparts. Businesses can now be built on hitting the growing niche market (Holter, 2006).

As for the future of Steam, I would like to see them follow the trend of the Apple App store and allow more independent developers to submit games for sale (this would lengthen their tail too).