Gamer Survey Indicates Amazon Could Threaten Valve’s Growth

Valve's Steam Store and Amazon (AMZN 3.14%) are keeping the pressure on brick-and-mortar rivals GameStop (GME 4.19%) and Best Buy (BBY 0.56%), according to GameSpot GameTrax's survey of 2,200 gamers in March.

According to the survey, Steam topped Amazon, GameStop, and Best Buy in the brand perception and brand affinity categories, but it trailed Amazon in terms of overall gamer "mind share" -- defined as being the first store considered for video game purchases.

Source: GameSpot GameTrax, March 2014.

Amazon pushes back against Valve
These rankings indicate that Amazon is becoming a major threat to Valve. Amazon's 30% mind share represented steep growth from the 18% it claimed last year, and was gained at the expense of both GameStop (50% down to 38%) and Steam's (10% to 9%) losses.

Amazon's online games store is gaining ground against Steam. Source: Amazon.

Steam, which accounts for approximately 70% of the digital distribution market on PCs, is also one of the largest multiplayer gaming networks in the world with 75 million active users. That puts it well ahead of the 48 million users who use Microsoft's (NASDAQ: MSFT) Xbox Live, but far behind the 100 million users on Sony's (NYSE: SNE) PlayStation Network (PSN).

Meanwhile, Amazon's gains in retail mind share put it in a perfect position to evolve its mobile gaming network, GameCircle, into a multiplayer network contender against those three services. GameCircle is currently integrated in certain Kindle/Android and Apple (NASDAQ: AAPL) iOS titles, and is generally used to track achievements and records.

However, GameCircle's importance could significantly rise thanks to the the Fire TV set top box, which expands the service into living rooms. The main drawback is that GameCircle was developed with mobile devices in mind, and therefore lacks the hit console and Windows games that make Steam, Xbox Live, and PSN so popular.

Yet if Amazon merged GameCircle with its minimal "Games & Software Downloader" PC software, it could possibly turn GameCircle into a full-featured multiplayer gaming network. If Amazon takes that route, it will likely launch its own DRM (digital rights management) front-end -- similar to Ubisoft's (NASDAQOTH: UBSFF) Uplay, Electronic Arts' (EA 0.60%) Origin, and Steam -- to keep its ecosystem segregated from its competitors.

Valve and Amazon versus brick-and-mortar competitors
GameSpot's survey also revealed the five key attributes gamers look for in online or brick-or-mortar retailers:

Source: GameStop GameTrax, March 2014.

In terms of selection and pricing, brick-and-mortar retailers simply can't compete against Valve and Amazon's massive game libraries. There are currently over 3,000 digital titles available on Steam and over 226,000 games on Amazon (7,200 of which are digital downloads). Top titles on Steam and Amazon are also very competitively priced against GameStop and Best Buy:

Comparison of lowest prices. Source: Company websites, prices from April 14.

Colliding DRM ecosystems cause frustration
However, you probably noticed that Titanfall -- one of the most popular games on the PC, Xbox 360, and Xbox One -- isn't available on Steam.

That's because major publishers like EA can "lock" its best-selling titles, such as Titanfall and Battlefield 4, into their own DRM ecosystems like Origin. That's a strategy squarely aimed at throttling Steam's influence, since Amazon, GameStop, and Best Buy customers can still purchase those same games online and activate them via Origin accounts instead of Steam.

EA is locking Steam out of newer titles like Titanfall. Source: Steam Store.

Another problem with conflicting DRM ecosystems like Origin, Uplay, and Steam is that they can can be incompatible with certain purchases on Amazon. For example, if a customer purchases a digital download labeled as a "Steam" version, the code cannot be activated via Uplay. Therefore, if a gamer has a base version of a PC game installed on Uplay, DLC (downloadable content) codes meant for the Steam version will be useless.

This incompatibility between DRM platforms and DLCs can frustrate gamers who have more than one of the DRM platforms installed. Many gamers install several DRM platforms, since "flash sales" -- one of Amazon and Valve's time-tested strategies -- keeps gamers checking in repeatedly throughout the day for steep discounts.

Lastly, Amazon has a key strength that EA lacks -- customer satisfaction, which 69% of surveyed gamers consider "very important." Last year, Temkin Research ranked Amazon fifth in terms of best customer experience in America. EA, on the other hand, was named the "Worst Company in America" in 2011 and 2012 by Consumerist, due to server issues, questionable DLC and microtransaction practices, and weak customer support. Valve's Steam Store wasn't ranked by either Temkin or Consumerist.

The road ahead
Looking ahead, Valve and Amazon are definitely the top names to watch in retail gaming. Valve is trying to bring PC gaming to living rooms with Steam Machines, while Amazon is trying to do the same with mobile games on the Fire TV. Gamers love them, and they love selling games -- a reciprocal relationship that doesn't always exist with GameStop or Best Buy.

However, I suspect that Amazon has much bigger plans for unifying its distribution platform for digital games, especially with the release of a 3D smartphone on the way. If that happens, Amazon could seriously upset Steam's business model in the same way it disrupted big box retailers over the past decade.