The unusual formula that made Valve a video-game juggernaut
|Toronto Star 12 Aug 2017 at 14:26|
SEATTLEâOn Monday morning, the first two five-person teams filed into soundproof boxes, took a seat in front of custom-built computers, and began testing their reflexes and strategy in a quest for a cut of a $23-million prize pool.
In a darkened KeyArena around that stage, thousands of mostly young fans followed the action broadcast to the video screen above, with the fantasy-movie sounds of in-game clashes and live commentary blaring through the building.
But before all that, a curious opening act: a few words from a burly, bearded man in his 50s.
That would be Gabe Newell, one of the most powerful figures in video gaming.
Newellâs company, Valve, builds Dota 2, the video game whose signature tournament kicked off this week for its sixth year in Seattle. He typically takes the stage at the outset to thank fans for coming, before acknowledging that theyâre not here to see him.
That bit of public humility is typical from a man who maintains he isnât the boss of the company he owns.
At Valve, based outside Seattle, there is no formal hierarchy and no job titles. Workers vote with their time on what projects are worthwhile, wheeling their desk to a different corner of the office when theyâre ready for a new task.
Some former employees dispute the vision of a boss-less utopia, but there is no doubt the unusual corporate formula, however it works, has made Valve one of the most successful video-game companies in the world.
The maker of Dota 2, Counter-Strike and Half-Life, Valve also operates Steam, the main digital storefront for personal-computer games. That combination makes Valve the video-gaming equivalent of a movie studio like Universal Pictures, if Universal also happened to own Netflix.
âThey have two successful and distinctly different businesses,â said Michael Pachter, a video-game-industry analyst. âTheyâre a game developer, and theyâre good at it. And theyâre a publisher, and they make a ton of money. Nobody that I can think of has been that good at both.â
For most of the year, though, 21-year-old Valve is virtually invisible, its 325 employees plugging away in a nondescript office tower.
A privately held company â Newell is majority owner, and current and former employees own the rest â Valve tends to say little. The company largely ignores the industryâs trade shows and public-relations circuit. It hasnât published a news release in nearly two years.
A network of bloggers and video-game writers make a sport of filling that silence, reading between the lines of Valveâs public statements and Reddit posts to try to figure out what the company might be up to.
But Valve, now with a global reach and enough money in the bank to take on any project it wants, is no longer a scrappy upstart and is facing the growing pains that come with that scale. Legal challenges have targeted the hands-off way the company administers its empire.
An Australian court in December found Valve broke local consumer-protection laws and, in the U.S., lawsuits charged that the company helped enable underage gambling. The company denies both sets of allegations.
Some in the industry say the legal spotlight shows the pitfalls of building a company with few guardrails.
âValveâs approach is always âwe did this because we like it and we thought it was cool,â â said James Green, co-founder of Seattle-area game developer Carbon Games. âBut theyâve now gotten to the size where they can get in trouble.â
Valve offered a glimpse at its workings early this year, inviting a group of video-game journalists for an afternoon of meetings at its headquarters.
Newell, technically the CEO, and Erik Johnson, a longtime employee who pilots this weekâs tournament, among other major projects, explained how the company works.
Newell, 54, wields a detached, matter-of-fact tone as he moves comfortably between analysis of video games and social and economic theory. Rigid corporate hierarchy, he says, gets in the way of doing good work.
Concentrating information and decision-making power with a few people at the top makes sense if youâre manufacturing mufflers or running a military campaign, but it doesnât do much good in fast-changing, creative pursuits such as video games.
âWhen youâre doing invention rather than doing command-and-control, the information to make the decisions is actually local,â he said. âItâs distributed throughout your organization.â
For some decisions, a hierarchy appears.
Ed Owen, a hardware engineer who spent years working on Microsoftâs Xbox, joined Valve in 2012, drawn by the opportunity to build something new. He helped design Valveâs first hardware lab, spending millions of dollars on cutting-edge machinery as the company started building its own game controllers, computers and virtual-reality headset prototypes.
Eight months into the job, he was called into a room with a lawyer and a human-resources employee and laid off. He says he was told âyouâre not a Valve person.â
âIf youâre in the right group, Valve is a great place to work,â Owen said. If youâre not, âitâs a struggle every day.â
Jeri Ellsworth, another hardware engineer laid off in the same round of cuts in early 2013, put it another way: âThe one thing I found out the hard way is that there is actually a hidden layer of powerful management structure in the company.â
Valveâs Doug Lombardi, the companyâs de facto marketing lead and public-relations spokesperson, concedes that there are some decisions that require a break from consensus-based governance, times when someone has to pull the trigger.
Valve began in 1996 when Newell and Michael Harrington, two Microsoft millionaires, left the company to build a game studio.
Their first game, Half-Life, was a hit, helping establish the first-person shooter as the industryâs most popular genre. Harrington left shortly after the release.
Subsequent titles such as Half-Life 2 and the Portal series are regarded as masterworks of game design.
Today, Valve is better known for Steam, the online personal-computer software storefront launched in 2003. In exchange for a 30-per-cent cut of sales, Valve offers Steam as a platform for other developers to sell their own games.
The launch was well timed. Broadband internet coverage was expanding, making it more practical to download large video-game files instead of buying a physical disk. And the competition â the brick-and-mortar software and electronics stores that sold PC software â was struggling.
Steam has grown into the biggest retailer in PC gaming. Today, it accounts for as much as 50 per cent of downloaded PC game sales, analysts estimate.
Valve crossed $1 billion in annual revenue for the first time in 2012, according to a former employee, and industry analysts estimate that today Steam on its own brings in well more than $1 billion a year.
Newell is a billionaire by Bloombergâ ranking, which estimates his majority stake in the company is worth $5.4 billion.
Eight years ago, a few Valve employees who had tried their hand at Dota â a popular, fan-built modification of Blizzardâs Warcraft III â reached out to the modificationâs lead designer. Those conversations led to a job offer to come to Valve and work on a sequel.
In typical Valve fashion, nobody was assigned to work on the project, Newell said. Many employees were skeptical of the idea of making a game that was technically free to play, with players offered the option of buying in-game items afterward.
But after a Valve programmer got a prototype of the game world working, others saw the potential and jumped onto the game.
Dota 2 was released in 2013. Twelve million people played the game in the last month, placing it in the top five most popular multiplayer games.
Valve, as it has grown, looks more like a typical company in some respects. Human resources, formerly a task employees rotated through in their spare time, now is a department. So is legal.
The company is also building out its customer-support group, a response to complaints that it was unresponsive to Steam customers.
In one episode in Australia, it took Valve employees months to respond to refund disputes, which led to a court case and ruling that Valve had broken local consumer-protection laws. The company is appealing the verdict and its $2.1-million penalty.
The company admits to some failings. At the news event at Valve early this year, an employee started describing what he called the companyâs âreputationâ for poor support.
Johnson, from the back of the room, corrected him. âWe had bad support,â he said.
Observers say Valveâs success comes, in part, from patience. âValve timeâ is a running joke in the industry, referring to the companyâs tendency to miss publicly announced deadlines.
That freedom helps the company get things right, employees and observers say. Closely held Valve, unlike rivals Electronic Arts or Activision Blizzard, has no outside investors to answer to at the end of each quarter.
âThey donât worry about moment-to-moment; they worry about year-to-year,â said Jeff Pobst, who has worked off and on with Valve for 20 years and today leads area game studio Hidden Path Entertainment. âThey are always asking the question: âIs this really the right thing to do?â â
Newell and Johnson are reluctant to get that introspective.
To Johnson, looking back is useful when examining missteps, but can be a waste of time otherwise.
âYou have to admit youâre wrong,â Johnson said of Valveâs culture. âOften.â
One part of their legacy that Valve does regularly have to address: Newellâs future. In job interviews, Valve applicants often ask if the venerable CEO plans to stick around for long. The answer, the company says, is yes.
Newell doesnât appear to have time to think about retiring.
âEvery once in a while someone will say âshouldnât we celebrate this milestone,â and everybody else goes âno, we should actually get more work done,â â Newell said.
âThereâs cool stuff we havenât done yet.â
Valve by the numbers
$23.7 million (and counting): The prize pool for this weekâs Dota 2 tournament, the largest in esports history
12 million: Number of people who played Dota 2 in the last month
$25 billion: Estimated 2016 PC game sales. (Valveâs Steam, the main digital storefront for personal-computer games, may have processed $3.5 billion of that total.)