A Guide to the ‘Grey’ Market in Product Keys – Part 1

You might be wondering what grey market product keys are. First you must understand what the ‘grey’ market is. A grey market is one that is legal, but unregulated and not authorised by the original manufacturer. This is in contrast to the black market which involves the sale of illegal products or services. In the context of product keys the grey market involves the sale of software or computer games that have been bought in one country but are then sold in another for profit. Like most commodities there is nothing illegal about this and many advantages for successful traders and customers. This is due to the digital nature of the product. A copy of a game or software bought in Russia for example, is unlikely to be any different to one sold in the UK. If the software is downloaded from the internet and requires a product key to activate then the downloaded software will be the same – it’s just the product key that is unique. Therefore to the end user the product they have bought is no different to one bought from their local shop. The advantage to the end user is that the product may be vastly cheaper thanks to the difference in the value of their local country to the original software source and local market conditions.

We can see many examples of this type grey market product key trade in the real world. Steam by Valve software is currently the most popular digital distribution platform for PC games in the world with 70% of the market share [Source: Slacknews]. Steam offers the ability to buy and download games in a number of countries including Europe, USA and Russia. Whatever region you buy the game from it comes in multiple languages as the game itself is the same in all regions. However there are differences in the price of the same game depending on where you live. A game that is $40 in the USA may be £40 in the UK meaning that looking at the exchange rate the price for the same game is almost double in the USA compared to the UK. This may be because of local tax rates, price paid to the publisher or other local market reasons. It also means that if a UK buyer was to go to the US and purchase a game in the US for $40, bring the product activation key for the game back to the UK and activate on his Steam account back home he would have the same game for $40 rather than £40.

The distribution of computer software and PC games is particularly prevalent because of the widespread availability of digital distribution platforms such as Steam and the digital nature of product keys. Typically product keys in the grey market are distributed through email by suppliers buying products where software is far cheaper in their local currency, such as Russia, China and Eastern Europe and then selling them to buyers in more expensive countries such as Europe and the USA. Because the product transfer is by email there are no shipping costs (which would normally wipe out most of the savings of importing the software) and delivery is instantaneous.

This all sounds great to the end user as they can benefit from cheaper prices for their favourite games and software. Why pay $40 for a game through Steam or their local games shop when they can go on eBay and get instant delivery of the same game for half the price? However there are also losers in this method – the publisher and local retailers. Typically different publishers will distribute the same product in different countries. This means the publisher will be losing sales in its local market to rivals which they will want to protect. Local retailers are also unlikely to be happy at the prospect of cheap copies of their product flooding local markets and forcing them to reduce their prices and lose sales. However publishers have developed methods of combat the expansion of grey market keys.