Management Report on Game Development Company Valve

Executive Summary1
The game development is a multibillion dollar industry that generates more revenue that
Hollywood and is expected to out strip even the music industry in coming years to become the
worlds leading source of entertainment. In such a scenario Valve with its trademark steam
gaming system as well as hit games like Team Fortress, Counter Strike and Dota 2 has the
potential to become the largest computer gaming company in this burgeoning industry leaving
behind titans like Blizzard and Westwood in its dust.
With its unique no bosses corporate hierarchy, creative free hand given to its developers, its
understanding and involvement with its consumer base as well as its perfecting of the free to
play business model Valve has all the makings of a great computer game company and this
report aims to critically assess the success and failures of various aspects of the companys
strategic planning and management aiming to provide insight into what makes valve so
successful and offering course correcting advice where there is room for improvement.
Introduction
Background and History of the Industry
The computer gaming industry as well as the technology business in general is filled with stories
of rags to riches where geniuses who set up companies in their parents basements managed with
one great idea to become millionaires and kings of Silicon Valley what the stories often neglect
to mention is how quickly the fames and fortunes of those companies changed and that very few
very able to maintain their status as titans of industry. Take Sega for example a company that
ruled the console wars of the early 1990s but saw a huge change in fortunes as the years went by
and had to ultimately quit the console business altogether in 2002 due to huge financial losses.
1 Imagining the target audience for this report to be Valve employees it has been
written in a manner consistent with Valves other publications as well as corporate
culture

Going back even further into the past Atari the grandfather of all video games was started by
Nolan Bushnell with a meagre investment capital of 500 dollars; Atari was sold by Bushnell to
Warner for an estimated 32 million dollars and at its peak accounted for nearly a third of
Warners earnings but its fortune changed drastically soon after the departure of Bushnell from
the company in 1978 the companys stock fell to a third of its value over the next five years.
Before delving into an analysis or devising a strategy of any kind for a gaming company it is
pertinent to delve into the history of the gaming industry and take lessons from unique corporate
cultures that successful companies have maintained in the past.
The computer gaming industry was founded by Silicon Valley rebels; bright genius minds tired
of working mundane jobs, it has been an industry about making something radical something
cool something everyone will want to play. These companies were known for their relaxed
corporate structures and fun loving and innovative outlook on life. Atari at its peak was called
the party company and Bushnell often recounts a story of how the parents of a fresh hire came
to drop him off at work one day to find Bushnell, Alcorn and a number of other employees
sitting in a Jacuzzi bath tub in the middle of the day (Gameheadz, 2003). It was this fun loving
spirit and a lack to formal structure and the removal of any and all barriers to creativity that made
Atari great.
In this day and age the success of a game development company relies as much on its attunement
with the community as much as it does on the game itself. An ideal example would be that of
Blizzards World of Warcraft as well as Star Craft series; the tied in merchandise such as books,
posters, banners the huge presence of fan fiction and the frequent input from the community that
is incorporated into the games engine and lore are a huge factor in the success of these two
series.

Blizzard made a huge error in judgment where they chose to go against the wishes of their
gaming community and not developing their community developed Aeon of Strife map into a
proper standalone game. This error has cost Blizzard deeply as the creators of Eon of Strife rs
Eul, Guinsoo and Ice Frog moved to away to greener pastures getting involved with S2 studio,
Riot Gaming and Value to create a completely new genre of computer games known as MOBAs.
A mistake Blizzard has yet to recover from with their Heroes of the Storm being only in beta
testing mode as of now. It was this very mistake by Blizzard that Valve studios was able to
capitalize on launching their own MOBA and most successful tittle thus far named DOTA 2.
(Joindota, 2012).
Organizational Strategy and Management
Valve in a Nut Shell
Valve over the years have had various hit games that have had longer than average shelf lives
due to incredibly creative game features as well as business models that Valve has employed over
the years. Taking a prescriptive approach to strategy management valve has always believed in
going with their gut and working on projects that they deem will return the greatest profits on
both an economic level as well as in terms of sense of achievement for those working on the
project and this is precisely how while not the originator of the free to play business model it can
be said with little doubt that Valve has indeed perfected the free to play with the mantra of why
sell a game for a million dollars when you can sell a million games for 1.5 dollars.
Valve also boasts a uniquely flat corporate structure; while all organizations attempt to achieve or
claim to have flat corporate structures Valve is perhaps the only company in the world where
there are literally no job designations or fixed hierarchal structures of any kind. The best

demonstration of this lack of fixed roles was the end credits of Valves game Half Life where only
the names of everyone involved in the game making process were listed with no mention or
reference to their responsibilities or inputs.
Another great thing about Valve is the fact that unlike various other computer gaming companies
who sold out and being forced to obey corporate masters failed to produce the kind of quality
that their consumers would love Valve is completely self-funded as well as having complete
ownership of all its intellectual property rights, what this means for the company is discussed in
greater detail later on.
It is in these things that valve finds its true purpose as a company their mission while is to
produce quality games and thus make good money also includes a large element of community
engagement and a sense of corporate responsibility where they feel obligated to their consumer
base to produce games and products in a manner that is ideally tailored to the likings of their fan
base. Such integrity and value comes only with great leadership and vision; much like what valve
was originally built on when Gabe Newell left Microsoft while working on the XBOX 360
project and making a decent salary. It was Gabes understanding that being shackled by corporate
masters would never let true creativity flourish or provide his customers what they wanted and
deserved this was in turn what become the vision for Valve.
Room for Improvement and the way forward
While very technically sound and extremely well rounded individuals, Valve ultimately being a
software production company with no fixed traditional roles means that there is little room in
Valve for story tellers; I believe that one segment where Valve seems to be lacking is their ability
to tell epic stories; while all of Valve games have rich character backs stories and generally well

rounded and deep characters their stories can in no way match up to the legendary status of the
Queen of Blades Sara Kerrigan or that of Thrall the leader of the Horde in World of Warcraft.
Blizzard, perhaps Valves largest and most bitter competitor due to the fact that DOTA was
originally a modulated map played on the Warcraft 3 game engine, has been able to create and
sustain characters so strong and deep that they were able to create a whole new standalone game
Heroes of the Storm based on characters from their famous gaming franchises many of whole are
well over fifteen to twenty years old.
Diablo one and Warcraft: Orcs and Humans were launched a year before Gabe had even left
working for Microsoft to found Valve and yet characters Blizzard created for those series have
survived thus far, not only have they survived they are still present in games with their lore
actively increasing. A pressing question for the future for Valve is whether Valve shall be able to
create such characters that can stand the test of time growing and maturing alongside the people
who play those characters.
Strategy Analysis and SWOT
SWOT Analysis
Strengths:
Arguably Valves largest strength is the people it hires and the level of creativity that their
combined pool of skills and expertise brings to the company table. The strongly resource based
view that valve takes looking at the strengths of their own resources as opposed to looking to the
market to find trends and bandwagons to jump on has been the single most critical factor in the
companys success. Valve as opposed to its competitors truly understands its workers
understanding fully that it is truly limitless what bright minds can achieve if their creativity is

allowed to flow freely. Furthermore the understanding of how the gaming industry works as well
as the absolute freedom that comes with owning both the company as well as all intellectual
rights to their products means that Valve can make decisions that put the customer and
production value of their products before profitability. This rids the company of external
pressures that drove companies like Atari and Sega into the ground; it also means that while they
are guiding factors market research and the potential for sale are not the only reasonings behind
product development instead there is a greater focus on quality and the attempt to do something
great for example Half Life was completed and ready to be shipped in 1997 however after an
internal review the team working on it felt that the game was somehow lacking and therefore
began to redesign the game taking an entire year to finally launch Half Life which was a huge
financial success.
The Steam Workshop and the free to play business model that instead of relying on the sale of
games themselves generates revenue for the company through multiple micro transactions made
through the sale, trade and purchase of custom items made to add aesthetic value to games
without affection game dynamic in any way. A prime example of this would be Valves most wellknown product DOTA 2; while the game is completely free various designer items are available
that can be equipped to the game HUD as well as on the players themselves to increase the
aesthetic value of the game.
Many Valve games have huge and exponentially growing competitive scene with the DOTA 2
international tournament featuring a prize pool of nearly 3 million dollars; the largest ever prize
pool for a tournament in the history of E-Sports. Valves Quake as well as Counter Strike: Global
Offensive also have a health competitive scene with well-established and highly skilled teams
with large followings participating in both online and offline tournaments.

Weakness
Valve due to its focus on the programing abilities of its employees perhaps lacks a long term
sense of direction with Valve Handbook for New Employees itself mocking their lack of long
term planning stating we tend to be unable to look at the long term future or think beyond next
three months (Handbook for New Employees, 2012). While Valve does acknowledge the
potential draw backs of their corporate philosophy, it appears that these issues are not taken
seriously enough and Valve going with the mantra of if it isnt broke dont fix it tends to sweep
various very serious long term concerns under the rug.
Take for example the Steam Operating System that Valve unveiled in September of 2013; while
listed once more in the opportunity section of this analysis the SteamOS does not come without
inherent threats and Valves lack of experience in the console gaming industry might be a hugely
costly mistake for the company. Even though most Valve games are currently being
reprogrammed to run on the SteamOS with controllers this is a prime example of Valves lack of
long term vision and thorough research and planning before diving head long into a project and
investing hundreds upon hundred thousand dollars as well as precious time and resources on
projects. While coming with infinite potential the SteamOS and gaming console also comes with
certain risks it is hard to predict how the gaming community will react to these consoles and
whether gamers will wish to switch to these consoles to play their favorite games and how that
experience will be for them (GoldFarb,2013). If the SteamOS does indeed fail it wont be the
first time that an idea that was being worked on by Valve was shelved or did not perform up to
par, earlier in 1997 Prospero the second gaming tittle that Valve was making was permanently
shelved after over two years of work being put into the product.

Story telling is another weak point for Valve that I believe stems from their lack of long term
planning and vision. Valve ships out a number of labels each year many of which perform
superbly well on the market such as Portal 2 but inevitably all of them peak and die out. As a
gamer most of these games are the kind you play once and with great enthusiasm but lose out on
interest in never to play them again. Unlike Blizzard Valve has thus far been unable create and
sustain any long term products with characters that are able to captivate and hold the
imaginations of audience in such a big way; perhaps in a bid to address this issue Valve are
taking longer than usual in the development of their Half Life 3 title according to latest reports
trying to add greater depth to their characters attempted to incorporate different new features as
well as adding elements that other studios have used successfully(Sun, 2013).
Opportunity
The opportunities for Valve are limitless their complete lack of formal structure means that there
is a free flow of creativity that can take the company in any direction Valve from being merely a
game development company went on to make its own game engine called the source, it also
made its own online retailing as well as online gaming server called steam and has now unveiled
its own operating system as well as console. This goes to show how large the skill pool for the
company is allowing for technological innovation with no barriers to resist expansion and
diversification.
Another great competitive advantage Valve has over others is their attunement with the gaming
community having picked up various game MODs such as DOTA to develop into complete
standalone games. However the fullest extent of Valves engagement with the community and a
barometer of the loyalty that Valve consumers have with the company can best be exemplified by
the Volvo Give Dire Tide Campaign spurned by a recorded crank call that a Russian fan who

called the Volvo dealership in Seattle mistaking it for Valve to complain about the lack of an
annual event. The community uproar on the lack of Dire Tide for Halloween was so huge that
Valve immediately rushed to ship out the Dire Tide Halloween module for its DOTA 2 client, a
gesture well received by fans as well as critics (Tassi, 2013). Such fierce consumer loyalty and
engagement is rarely even seen in the gaming industry and Valve truly has an opportunity it can
capitalize on here.
Threats
Valve is poised with three great foes attacking from three different sides; the first of Valves
competitors as well as major threats is Riot Gaming with their tittle League of Legends.
Developed by Guinsoo one of the initial developers of DOTA 1 dating back to the early Warcraft
3 days League of Legends has a large following as well as consumer base than Valves competing
MOBA brand of DOTA 2. While DOTA 2 is universally considered to be a product with greater
finesse, having a more complex and engaging game play with a hero pool that is free to access to
all its users the DOTA 2 community is generally considered to be incredibly hostile and the
games level of complexity makes it harder for newer and younger gamers to catch on. Riots
League of Legends of the other hand welcomes new comers and is known for having a far less
hostile and more welcoming community.
The second as well as third threat that is faced by Valve come from large corporations of
Blizzard Entertainment and Microsoft. Blizzard settled outside of court with Valve when they
sold the DOTA trade mark for an unknown settlement. Even though Blizzard decided to settle on
its claim to the rights of DOTA, it did immediately shift its focus towards making its own MOBA
named Heroes of the Storm better known as HotS, a game that was revealed at Blizcon this year
and is now in the beta testing phase expected to be launched soon. HotS once it hits the shelves

will be a direct competitor to DOTA 2 and hopes to break away a huge part of Valves client base
with their own MOBA; HotS due to being released in a time where the MOBA genre is far better
established with clearer trends having emerged could gain the competitive edge through its better
more enhanced features that include a ladder system, various objective based maps as well as a
Player vs Environment (PVE) mode.
Recommendations and What the Future Holds
Valves strength lies in the creativity of its employees as according to Valve employees are the
most important thing in the universe, this extreme focus on choosing employees carefully and
finding the very best of the best has been the only reason I believe Valve to have succeeded for
so long. The Valve corporate structure and internal workings of the company while seem counter
intuitive on first glance most definitely have a method to that madness. I believe it is this
madness that gives Valve the greatest edge and the ability to achieve greatness in the gaming
industry however there is I feel a need for better regulation and precision to the methodology of
Valves madness. There need to be certain fixed long term goals that the company has to define
and try to adhere to, to some extent. What Valve is failing to currently take into account is that
while there are still a few seasoned veterans still active steering the overall ship it is a risky bet to
hope that things will continue this way. Valve needs better long term planning for which it needs
to hire a more diverse group of people; while claiming otherwise it would appear that Valve
subconsciously only assumes engineers and coders to be creative and thus losses out on a huge
number of possible recruits who coming from non-engineering backgrounds are better versed in
the art of forecasting, long term planning as well and most importantly the art of storytelling.
It is most important of all for Valve to focus on their story telling abilities where they spend
huge amounts of time and money developing game engines and technology to support visual

effects as well as game physics they wish to incorporate it would be prudent for Valve to spend
just as much time if not more on finding better more engaging stories to tell. Taking lessons from
Blizzards World of Warcraft and Bio Wares Dragon Age Origins I believe as technology
advances and the quality and level of graphics as well as in games effects produced by all leading
companies begin to saturate and look more and more like one another the future will be
dominated by whoever is able to tell the most compelling most attractive stories and it is for this
reason that I believe unless Valve gets better story tellers it shall always remain in Blizzards
shadows.

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