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!).
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!