Will Valve Ask for a Cut of the Revenue from Sales of Digital Goods in SL?

[Prokofy Neva]

The story in the New York Times today talks about the Valve, makers of Steam, where Second Life will soon be listed in the "creation tools" section apparently, but in an environment of games perused by 40 million customers.

The article mentions that EA killed a deal with Valve because they wanted revenue from the sale of digital goods.

We don't know the nature of the deal LL is making with Valve now, but we should ask sooner rather than later whether this includes any notion of "sales tax" or even something as drastic as the LindEx going under the control of another company, or serving as some kind of Metaverse game currency exchange.

http://www.nytimes.com/2012/09/09/technology/valve-a-video-game-maker-with-few-rules.html?_r=2&pagewanted=2&hp

Last year, the company had a dust-up with Electronic Arts over Steam’s policy of taking a cut of all revenue generated from a game, like the sale of virtual goods, even after a player has bought the game. As a result, E.A. is not selling a number of its latest games through Steam.

Valve says that without such a policy, developers could easily game the Steam system by making all their software free and charging consumers for additional content later. It is worth pointing out, too, that E.A. last year began competing directly against Steam by starting its own online game store, Origin.

My understanding of this news about Steam at first was that it is like a mere listing of SL in a directory. But it may be more than that. Does LL pay for this privilege? Does Steam pay for this privilge?

Gwyn Llewelyn has an article about Steam in which she asks whether in fact we will all be logging on now via Steam.com or whatever.

So what does this move entail?

[Amiryu Hosoi]

LL already takes percentage of everything we do, upload textures, buy Lindens, sell lindens, sell items, and not to forget tier... I dont think Valve will take a piece of the pie also, if they do I will be out of here asap. Cant have all people take pieces of pie cant we. It is our pie!

 

Ami

[Darrius Gothly]

Interesting question Prok. (And wb btw)

The concept that yet another outside agency would be sticking their fingers into the Lindex is rather disconcerting. Also would you please link the article by Gwyn Llewelyn? Thank you.

[Prokofy Neva]

Gwyn's piece:

 

http://gwynethllewelyn.net/2012/08/21/full-steam-ahead-for-new-horizons/

[Prokofy Neva]

Well, look, there's no such thing in life as a free lunch.

Either Linden Lab pays Steam for the privilege of listing its software there, or Steam finds Second Life so compelling it pays Linden Lab for that wonder. Somehow, I think it's the former.

And...what is the nature of the deal? Does it take the form of cuts of sales? Either as a piece of the aggregate, or per sale? On the Marketplace? Through the view through sales? Or?

Let's say an existing Steam customer wants to download SL and go on it and explore and shop. He doesn't make a new SL account, he uses his existing Steam account. That's the beauty and convenience of Steam. So...where/how does he buy Lindens? Presumably he downloads SL with a Steam Viewer. That Steam viewer takes him to the Lindex from the viewer, right? Or?  How will it all work?

Gwyn speculates that maybe we will all have a Steam log-on.

[Madeliefste Oh]

In case Valve is asking a cut of the revenue, it will not be an amount in linden dollars.

My guess is that is will be not very different from what LL already does. The customers who pay with USD, pays a lot more then the customer who pays with L$. The merchant doesn't remark anything of this. When he asks for example 500 L$ for his item, he gets 500 L$ paid. LL takes the real money and you get the play money. When the merchant sells his 500 L$ on the Lindex he get just USD 1.88, while LL takes USD 2.43 from the customer. 

Now when Valve wants a piece of the cake, the USD price might go up to for example USD 3.00. And you, merchant who doesn't have access to the real dollar stream in the proces of selling, still get the 500 L$ play money you ask.

 

[Prokofy Neva]

I'm not sure if I follow you. Whether someone acquires Lindens inworld from others as gifts or as proceeds from sales, or whether he goes and buys Lindens, they are still worth the same amount -- the LindEx indeed determines that uniform value.

I saw something Desmond Shang wrote to the effect that he believed that if you bought Linden dollars, you couldn't cash them back out -- you could only cash out those from other residents. But that's not true. The LindEx is a place to sell any Linden, regardless of where or how you got it.

While technically true as a legal issue, SL isn't "play money". Technically, it's a license to access content. That license has a variable place on a marketplace.

The $500 is still worth the same in dollars whether you cash it out or not. The only way for it to become a different value is if there is inflation, which used to occur, and still does occur I imagine, through Supply Linden coming on to the LindEx and printing and selling money. So $1000 might not be worth $3.70 when all cashed out and all fees paid to Paypal, but only $3.50

The way a cut could be taken is the way Linden Lab already takes it -- at the point of sale. They take out their percentage, and if you sell a thing on the marketplace for $100, you don't get that full $100, but you get $95 or whatever it is that is left over after the commission. The commission could increase, if LL has to pay Valve, or there could be a second, Valve commission.

What you're saying seems to indicate that at the level of the LindEx, the cashout, Valve could charge something. That would only be the case of Valve takes over the LindEx. And I guess that's my prediction. They see the value of game currency exchanges. People want to exchange the World of Warcraft loot for some other game's guilders. And they can do that on a big game currency exchange, like ICM or the old Gaming Open Market which helped the Linden dollar acquire real value.

 

[Kampu Oyen]

There's no point in Valve taking separate cuts of every type of transaction in SL when what they're really after is just a cut of total SL revenues.

OTOH, "total SL revenues" IS a matter which nonetheless touches upon the question of where money goes when someone pays for and receives something through the SLM, but the merchant doesn't see the transaction and doesn't get paid.

My guess is that Valve's accountants might not be as "flexible" as LL's have been.

Just in case of that, at least, CTL might be well advised to have her bags packed.

Venezuela has no extradiction agreement with the US.

I hope that helps.

 

[Prokofy Neva]

Oh, yeah? Sure there's a point, *if that's where the money is*. We all realize that. Digital sales are the hope of the Internet.

The question is whether as a business-to-business agreement, LL has a fee it will pay Valve, that is a flat fee, or based on something else. Per sign-up? Per sale of digital goods? The deal with EA.com faltered *just on this question* if you read the New York Times. Valve didn't like EA.com just being content to selling the game and giving a cut to Valve of each individual subscription sale; if there were further downstream digital goods sold, they wanted a cut of that, too. EA.com doesn't have user-generated content in games, so it was game-god content.

But the same issue applies to the user made content in SL. Valve will want a piece of this, in one way or another. Either per sale, or per Lindex exchange transaction, or something.

Note that the CEO hired a Greek economist (!) to study virtual game currencies and sales on the margins of games. So he is serious about this.

CTL?

 

[Madeliefste Oh]

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Prokofy Neva wrote:

I'm not sure if I follow you. Whether someone acquires Lindens inworld from others as gifts or as proceeds from sales, or whether he goes and buys Lindens, they are still worth the same amount.

---

Have a look at the marketplace and see that a customer who pays in USD in stead of L$ pays 2.43 for an item that costs 500 L$.

Now this 2.43 USD goes to LL's bank account, and LL pays the merchants 500 L$. There is a huge price difference between the USD that LL takes, and the USD that the merchant gets when he sells his 500 L$.

Now when a Steam player can only pay in USD when he is buying... its easy money to make for LL and Valve.

[Jenni Darkwatch]

It's a good question. But the only one who can answer it is LL. And their communication skills are well beyond atrocious. My guess is we'll find out the same day they implement whatever policy they are planning to implement.

[Darrius Gothly]

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Prokofy Neva wrote:

Gwyn's piece:

http://gwynethllewelyn.net/2012/08/21/full-steam-ahead-for-new-horizons/

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Thank you Prok.

[Porky Gorky]

Microsoft are about to severly shaft Steam with the built-in Windows Store in Windows 8. Valve are reacting by trying to push the delopment of gaming titles onto other operating systems which has no chance of making up the share of the market they will loose in the coming years to MS. So based on that logic Valve must be looking for whatever additional revenue streams it can find that fit into it's business model. I would expect Valve are pushing as hard as they can to get their grotty little finger as far as they can into what is left of the SL pie. 

[Darrius Gothly]

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Porky Gorky wrote:

[snip] ...  Valve must be looking for whatever additional revenue streams it can find ... [snip] 

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I have an idea where they can find one. However, rather than write a novella here, I wrote it where I'm supposed to. But I'll Leave it to you to work Out a Guess.

[Deja Letov]

I think there are a lot of assumptions being thrown around but the fact is nobody knows until it's made public what their deal is. personally, I doubt very much that SL is just going to give a percentage of all of their profits away to Valve because frankly, I don't see the majority of sales coming from Valve. I also doubt very much that SL will be turning SL into a Valve based game requiring us to login there. I think...and hope...all it is..is a listing on the Steam directory and nothing more, in which case most likely it will just be SL paying Valve either per download or a flat fee for the listing. It just doesn't make any sort of financial sense for them to give away the entire pot when Valve is only showing up with a cup worth. And...if it does turn out that Valve will take a cut, I don't think of o the players will absorb it. That's a cost of marketing and most likely will be an expense through LL.

[Prokofy Neva]

Oh, I see what you mean. You mean the dollar listing of an item on the Marketplace for those who want to pay with a credit card in dollars.

But is the gap really that big? I'd have to check. Obviously, they have to use some standard rate to make that dollar determination. Do they change it often in keeping with the fluctuations on the LindeX?

And are you sure it really is so different? Because in order to assess the dollar equivalent, you have to calculate in the commission and the cashout fee for sending it on PayPal. After you do that, you see what the Linden is really worth.

The question really has to be examined scientifically and I'm really glad you flagged it. If the new Steam people are going to tend to buy things on the Marketplace with dollars instead of Lindens, then this has to be watched, and the commission may go up to satisfy a potential demand from Valve for a cut. But if Steam players get SL accounts and put a credit card on it, why wouldn't they buy Lindens to use in world and then spend those on the Marketplace, too? It's a question of how they will be steered, I guess.

[Perrie Juran]

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Prokofy Neva wrote:

Oh, I see what you mean. You mean the dollar listing of an item on the Marketplace for those who want to pay with a credit card in dollars.

 

But is the gap really that big? I'd have to check. Obviously, they have to use some standard rate to make that dollar determination. Do they change it often in keeping with the fluctuations on the LindeX?

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I'm not sure exactly how they do the math and you are probablt right that they take into account PayPal fees, etc, but I did a check on a number of items and it appears to be a 10% surcharge. 

The reason I think your right about the PayPal fees is that the mark up % appeared to be higher on items costing less tha $1000L.

 

[Paul Hexem]

As a Steam user, I can say I don't believe we have to worry. Valve does offer some free games on Steam, and technically speaking, SL is a free platform, with optional costs.

 

Morso, there are F2P games on Steam that offer optional microtransactions through their own respective stores, independent of Steam.

 

In the case of EA... EA is as greedy a company as they come, and would never give any games away free. Valve knows this. Any up front sales through Steam, Valve takes a cut, and EA simply didn't want to share.