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Valve Corporation - Game Developer or eCommerce Juggernaut?

Valve Corporation was launched in 1996 by two former Microsoft employees, Gabe Newell and Mike Harrington. By 2017 (20 years later), Valve generates over $3.5 billion annually in revenue.

Valve Corporation was launched in 1996 by two former Microsoft employees, Gabe Newell and Mike Harrington. By 2017 (20 years later), Valve generates over $3.5 billion annually in revenue.

In 1996, Gabe Newell and Mike Harrington left Microsoft to start Valve Corporation. Two years later in 1998 they released their first product, a PC video game titled 'Half-Life', and since 1998, Half-Life has become a cult icon, and is widely considered as one of the best video games ever made. And this was the first step in a journey that would put this small studio on the map, and begin the road to a multi-billion dollar business.

Valve has remained privately held since its genesis, founder Gabe Newell has stated he has avoided taking Valve public because publicly traded companies end up focusing solely on immediate benefits (short-term revenue/quarterly earnings) vs. long-term decisions, like innovation (that may or may not lead to revenue).

It’s also important to note that Mike Harrington left shortly after the release of Half-Life and Gabe has been the sole owner ever since.

And although this blog post is as much about Valve as it is Gabe, there is a ton of relevant and very valuable content on the web that goes into his leadership and management style. If you are interested - take a quick look at this, and this#2, and this#3.

Ironically, when most analysts think of eCommerce giants they think of Amazon, Wal-Mart, Alibaba, eBay, Apple, Target, Gap, etc. to name just a few. But what about Valve? If Valve was included in this analysis how would they fair to some of the biggest retail giants? Well, Valve is recognized with generating just under $3.5B USD in revenue for FY 2016 - they would be ranked #7 out of the top #50 retailers when comparing eCommerce revenue. The leaders being Amazon ($94.67B), Apple ($16.8B), Wal-Mart ($14.4B), Macy's ($4.6B), Costco ($4.2B), QVC ($4B) and then Valve(!). That would mean Valve would beat out the likes of Nordstrom ($3.2B), Target Corp ($3B), Kohl's ($2.87B), Gap ($2.53B), and Nike ($2.17B) to name just a few.

But what makes Valve so successful as an e-retailer? And what do they actually sell? And for obvious reasons - what is Steam? And how are they ultimately disrupting, and innovating in an industry that has arguably been dominated by a select few players (Sony, Nintendo and Microsoft) from the publisher side since the beginning of gaming (if not gaming software as a whole)?

Let's start with the Steam Platform (store-page). And here is the link to download the installer and read more about the overall platform (about us page).

The Steam Platform launched in 2004, coinciding with the release of the sequel to the wildly popular PC video game Half-Life. Initially it was designed to be a digital platform to (1) allow users and consumers to download Half-Life 2 directly to their PC without having to go to a physical retailer to purchase the game. This also enabled Valve, to deliver (2) patches and updates in real-time to their customers as they would be logged online to play - and could also be used to manage anti-cheat gameplay. And thirdly (3) the biggest reason is that Half-Life 2 was designed to be episodic (for info on what Episodic Games are check this out). So this would allow them to easily capitalize on the convenience factor to capture sales two more times (with episodes 1 and 2). And over the next 13 years - Steam grew to become an online store with thousands of publishers selling their games solely through Steam, and with a community hub for reviews, blogs, articles and curated content that brought gamers and developers closer together.

The success of Steam exploded when it became the go-to 3rd party marketplace for eCommerce games, and all publishers (big and small) leveraged it to sell their software.  And because of this centrality, Steam evolved to become a governance body of the entire marketplace, ensuring that both users were respecting terms of service, and so were publishers and developers. This success let to some exciting new innovations like  Steam's Early Access and Greenlight programs to propagate the increase of indie developers and to bolster a form of 'real-time crowd funding' for smaller studios. Through this program, some highly successful and popular video games were launched. And this also gave a unique identity to Steam with gamers and aspiring developers.

Over the years with TONS of data on their customers (PC specs, game preferences, game time usage, demographic and geographic data, networking speed etc.) all came together to provide a fairly detailed and accurate picture of their customers. This led to further innovation into new product verticals like, Game Hardware, highlighted by the HTC Vive (in partnership with Valve/HTC) and the Steam Machine.

According to a page on Steam's own website, the concurrent number of users logged in playing a game at any given time is expressed here. Worldwide it peeked at 16.7 million users in the past 48 hours (almost half the population of Canada!).

Steam Stats Analytics.jpg

It has also been noted that Steam has the highest profitability per employee than any other business in the US and represents over 70% of the downloadable PC game market (which could also be a one of the key reasons for Gamestop's challenges in transforming).

As you can see, eCommerce giants don't necessarily need to be multi-billion dollar retail juggernauts, but they can be dedicated and specialized players with highly valued products, deep vertical market penetration, sense of innovation, loyal customer base and a visionary CEO.

I would love to hear your thoughts, so please leave a comment or reach out!

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An Introspective on Branding

Imagine you are now hired as a consultant to a company who engages in selling digital ad space, the only customer touch point besides their website (which is highly praised for it's ease of use and clean design) is their call center where customers can speak to a customer service operator 24/7. However, recently - and the reason you are hired is because there is mounting customer complaints about the overall service quality and experience by customers.

The brand message that the company, called XYZ Telecommunications touts is that "THE FUTURE IS FRIENDLY". Executives are concerned because they are fairly new and cannot risk having this continue on for much longer.

What would be the elements you would evaluate for this business?

Take 10 to 15 minutes and make a list of what you would evaluate.



My assumption is that your list will comprise a variation of the below elements, that typically revolve around the call center associate, wait times, consistency of service and some systematic problem with the call center.

Typical responses include:

  • Know customer name
  • Be cheery happy, and polite
  • Have the relevant information
  • Ask the customer how they are?
  • Quickness of answer call (no call waiting) *waiting times*
  • Answering machine system, human touch and engagement
  • Ease of use to call (where is customer contact number)
  • Hours of operation / availability
  • Consistency of information (experience should be consistent)

But the truth is that that is not where we start - first we must look more generally at our overall business. Some of the key questions we should be looking at are:

  1. First to understand what the brand is. The truth in delivering our brand experience, how true is this to the real experience. Is FUTURE IS FRIENDLY, really a true thing that we are believing to achieve/ follow and exercise?
  2. What kind of experience would this be - "the future is friendly", we need to choose and select the right people for this job: personality, education, etc. Are they representative of this brand?
  3. Training – what are the standards and procedures that required to create the aura of “the future is friendly”, what is the level of overall customer service that needs to be achieved. What technical experience or preferences need to be in place to compete over competitors?
  4. Organizational practices and imbued elements to give the support that customer service needs, really to give them “authority” that at least 50% of the time they can achieve all issues themselves, and that within 95% time they can get it within 2 degrees of separation for those customers, so they don’t need a 3rd contact person.
  5. Also ensure that the front staff gets the right IT support, right technology, right databases, information and tools. Recognize long term customers. Account weights and values.

The list can easily go on, but you get the idea. Before we even start questioning specific attributes and service wait times, electronic messaging services versus personal operators we need to evaluate what the company is actually doing, the approach must be top down, inside and out.

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Schulich's Globe & Mail Ad - Featuring... Me!

I was thrilled and honoured to have my Graduate school (Shulich School of Business) ask me to be featured in their advertising campaign for 2017. It is a fantastic school, with an excellent faculty and a challenging, yet superb curriculum!

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By 2021, China will surpass the United States as the largest e-commerce marketplace

Key trends on the global e-commerce market:

  • The  value of the global online retail industry is anticipated to grow by 106.9% from 2014, to be estimated at over $2 trillion dollars by 2019.

  • Electronics is the largest segment of this (22%) followed by apparel/footwear (19%) and finally books, music and videos (12%)

  • Overall annual growth rate is likely to decline 2014 to 2019, from over 21% to about 12% by  2019

  • As anticipated, the three biggest geographic markets for e-commerce is the Americas (37%), Europe (34%) and Asia-Pacific (28%)

  • China represents 16.4% of the overall e-commerce market globally at $161.9 Billion and represents 58% of the entire Asia-Pacific market

China e-commerce, by the numbers:

China is projected to surpass the United States as the largest e-commerce market by 2021. That gap is expected to close at a rate of 12.56% per year from 2014. Although the United States will grow healthily at 13.50% for the next 4 years until 2019, the Chinese e-commerce market will grow aggressively at 26.05%. This is conservative, compared to the 56.20% growth China experienced between 2013 and 2014 (numerically, $70 billion).

The biggest drivers for this growth, come from two broad areas. First, growing average household income is ushering in a larger audience of “middle class” earners who have more disposable income than have existed historically. This is also reflected in the growth of the coffee retailing business, luxury car market and designer clothes business, which are highly correlated to disposable income. Additionally, growing mobile penetration from 81% in 2014 to an expected penetration of 87% in 2017 articulates a nation embracing technology.

Sources:

MarketLine
GMID (Global Information Database)

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LucasArts: Innovator First, Game Developer Second

We have all heard stories about the company IDEO, and how innovative it is (if you haven’t heard of IDEO, give this article a quick read). IDEO first came to fame back in 1983 when it created the first mouse for Apple: the Lisa Mouse.  By creating countless prototypes and conducting hundreds of focus groups, it created a product whose technology has remained unchanged for almost 20 years!

During my MBA, IDEO has been used over and over again as a great case study to explore innovation. The business is created and designed solely to be an innovation center, to help businesses solve unique problems and to create wildly new products that have not existed before. IDEO is continuously ranked as one of the most unique and exciting places to work, with a decentralized management structure, diverse project teams and a wide array of clients across many markets and product categories. Employees have wildly varied professional and personal experiences and it has proved over and over again that having the right stuff isn’t necessarily about hiring the best of the best academically, or attracting people from the most profitable companies. To show that the proof is in the pudding, recently IDEO hired a 91 year old who applied there after sending in a letter with her resume and cover letter. IDEO understands that to create products across industries and markets, the work force must reflect that diversity in those needs.

But one business that has largely been under the radar for innovation is LucasArts (or in the beginning Lucasfilm Games). Since Disney’s acquisition of LucasArts, part of the larger acquisition of LucasFilms in 2012 and the subsequent halt in operations and layoff of its employees in 2013, a lot has come to surface in more detail about the inside workings of the studio. A recent article by PC Gamer, has explored a lot of the lost lore, development and history that made LucasArts the most successful game studio in the world between the early 1980s to late-1990s. One unexpected benefit in PC Gamer's article is how the business was run, the culture and the people who were at the center of each of the 66 games that were published, and the hundreds of games that never made it past development, storyboard or just concept.

Just as IDEO emphasizes a culture of optimism, collaboration, ownership and experimentation, the same occurred at LucasArts. In 1984, when George Lucas started the game division he set out a mandate to his team, which was to strive to make experimental, innovative and technologically superior games[1].

One thing can be said for sure, if you are a game designer or game developer in 2015, chances are you played a LucasArts game growing up. And this knowledge is used interchangeably today to quickly articulate specific story arches or character types. You want a scallywag type of character who is our hero? Then you want a Guybrush Threepwood. You want a story that’s dark, yet funny, but unique? Then you want a Grim Fandango.

The team at LucasArts were doing novel and experimental things during their time, for example at the end of Monkey Island II: Le Chuck’s Revenge, after completing the game and the credits rolled, their appeared a strange message encouraging whoever played the game to turn off your computer, including references to playing racquetball, wash your car, cook dinner, to swimming among many, many others[2].

By September 1995, LucasArts held four of the top twenty games titles of the year (Dark Forces, X-Wing Collector’s Edition, TIE Fighter and Full Throttle)[3]. By years end though, LucasArts arguably had 5 of the 20 spots, including the late release of The Dig which has since become a cult classic.

Today, the emphasis on smaller more application based games is prevalent like Angry Birds, Candy Crush, and Farmville. Whole organizations like Zynga have come to focus their whole business strategy on creating these types of games. But the first company to venture into this realm was LucasArts. In 1996, they were known as “Desktop Adventures” and they used to come on a single floppy disk and were considered miniature games, offering between 30 minutes and 1 hour of gameplay. There was minimal usage of music and sound effects were looped to be used repeatedly. The first game of one of these Desktop Adventures was with the Indiana Jones franchise[4].

In 1993, when LucasArts appointed a new CEO Randy Komisar he knew that LucasArts was more than the number of game titles produced but the people that made them. “There is really a rare blend of talent and relationships at Lucas. The company really pushes the technology to provide more of a cinematic experience; it’s a different view of where the market’s going”[5].

Just like IDEO, where innovation starts internally with the people who are at the heart of the process, the same was evident at LucasArts. The strategic direction set out from its inception allowed them to look at opportunities without prejudice. By experimenting with interesting and unique stories, to different types of games, allowed them to enjoy being one of the best game development companies for the past 3 decades. LucasArts is one example that can be extracted from a plethora of industries, being innovative and successful starts first internally.

 

 

[1] Smith, Rob. Rogue Leaders: The Story of LucasArts. Published 2008 by Chronicle Books. p. 38

[2] Cifaldi, Frank. Game Developers 20.5:Farewell LucasArts. (May 2013). Copyright 2013, United Business Media

[3] Interactive Daily: LucasArts In The Lead (September 21, 1995): 1.

[4] Bray, Jim. Edmonton Journal, LucasArts leads players on ‘Indy’ quests. August 8, 1996: H.5.

[5] Fisher, M. Lawrence. New York Times. Chief Executive Named at Lucas’s Software Unit. ProQuest Historical Newspapers: The New York Times pg. D5

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