Gabe Newell is the co-founder and managing director of Valve. What we found during our conversation with the man himself is that those titles don’t mean much of anything, and he’s willing to throw his support behind whatever projects needs his help on a day to day basis. Valve has a unique structure… if you can even call it a structure. When you’re finished reading Mr. Newell’s thoughts on everything from Valve selling hardware to his love of tablet computing, be sure to join us for a tour of Valve Software’s offices.
Ben Kuchera: It’s been said you’re not much of an early riser. Can you walk us through a day of your life at Valve?
Gabe Newell: It used to be that I was the best multiplayer gamer here, and then we hired someone. It’s been downhill ever since. Just about anything I do, there’s someone here who does it better. Whether it’s game design, or business issues, or writing, or programming, or anything. I do a lot of things, but I tend to do them not as well as other people, so I tend to fill in holes as much as anything. If there’s something that needs to get done that’s not getting done, that’s what I end up doing. I don’t really have the same day, my days tend to be more reactive than many people’s.
That seems tricky for someone in your position. Is it hard to keep track of what’s going on in the company?
We’re a very flat organization, so we expect everybody to manage themselves. One of the things that people have to do when they’re here, they need to know when to broadcast to me when something’s important. We don’t have any sort of regular report system really at all. Most of the time when information is being distributed it’s because someone decided it was important and people needed to know about it. So the issues of keeping me on top of everything is more of a question of people deciding that getting me involved would be helpful for something they’re working on. It’s not my job to track down or supervise everyone and make sure they’re doing the right thing. It’s more like I’m a resource here and I can be helpful at addressing a problem. It works surprisingly well, but it takes a while for people to get used to it. We’re optimized for people who are very experienced and have been working for a long time and don’t really need someone looking over their shoulder or second-guessing their decisions.
It sounds like things are very fluid, but you’re also juggling a lot of projects. Do you have a five or ten year idea of what you would like to do?
We have a bunch of issues that we sort of identify as kind of structural, long term opportunities. So when you look at Steam, for example, we thought that there were a lot of opportunities to improve the design of business and the design of our relationship with customers and partners around the internet that drove a lot of our thinking about Steam. If you look at Team Fortress 2 we’ve been trying out a bunch of different ideas for how we think we can create more opportunities for community involvement and engagement with multiplayer games. So we tend to have these concepts that we all kick around and gnaw on and then we try to apply those. You can see that what we’re doing withDotA 2 is very much the result of a lot of things we think we learned with Team Fortress 2. If you look further out, like one of the things we’re pretty concerned about is the closing off of open platforms and what the implications are for content developers.
You know, the success that we’ve – that Apple has had in mobile has made a lot of people, rather than thinking of how can we build an open platform that builds on the strength that we’ve traditionally seen in open platforms, they say “oh, well we’re going to go off and build a closed platform as well.” And at the same time it seems really clear that dealing with a bunch of power issues and interface issues in mobile are going to be super important and critical to thinking of how we evolve gaming experiences forward. So you look at those things and you say “okay well we have to figure out a project that’s gonna let us wrestle effectively with those issues and then try out solutions with customers.” You know, where some of the things we’re looking at longer term are just spending a lot of time thinking about input devices. We’re also looking at some of the emerging output technologies that are coming along and trying to figure out how much of an impact that they’re gonna have on our designs. So we mock stuff up in our hardware labs and try and figure out different, sort of game fragments and see how those things work. But it does tend to be pretty focused on trying to get things to the point where we can get it in front of customers so they can start showing us what are the good ideas and what are the bad ideas.
That process always turned out to be a pretty successful strategy, and if you ask what we think we learned the most from, it’s any time we get something out to customers and they say okay, this is what we think we’re learning and make some changes and say “oh, I guess that wasn’t really what we should have been extracting from that, let’s try this.” So that’s actually much more what people wanted us to be hearing back from that.
Is there anything you’re seeing in terms of the inputs or outputs you’re experimenting with that you’re personally jazzed about, or you think that is really bearing fruit, or will in the near future?
Yeah, I mean there’s a surprising amount going on with new – they used to be called wearable computing before those all got kind of set on fire by losing investment firms hundreds of millions of dollars, so nobody wants to call them wearable computing, but they sort of look like the old wearable computing solutions, the difference being that they’re way higher resolution, way lighter weight, much better battery life, and things like that. It seems like just about the time that everybody gave up on them they actually started to become interesting, so we’ve been seeing a lot of stuff go on in that space that gets us excited. We’re trying to get our–the experiments we’ve been doing in–you know we did a ton of work on biofeedback, on biometrics, and that’ll, you know, from our point of view we were like “okay, this is all sort of proven out” and we’re just sort of scratching our heads trying to figure out the best way to get that hardware out to customers without something where we’d just say “okay, this works.” it’s not a question of whether or not this is going to be useful for customers, whether or not it’s going to be useful for content developers, you know, it’s figuring out the best way we can get these into people’s hands.
So we’re thinking of trying to figure out how to do the equivalent of the [Team Fortress] incremental approach in software design and try to figure out how would you get something similar to that in the hardware space as well. The sort of old method of, you know, let’s go make a giant pile of inventory and hope that some set of applications emerge to justify this giant hardware investment doesn’t seem to be the – very consistent with what we’ve seen to be the fastest ways to move stuff forward, so we’re trying to come up with an alternative to that that gives us the ability to iterate more rapidly. That stuff we’re like “this is good,” now we just need to figure out how we can start giving these to customers and iterating on the design quickly enough without having to go off and buy ten million of them and then find out we did something mildly stupid and then having to throw them all away and start over.
I’m very fascinated that you’re interested in wearable computers, especially in these days where our smart phones are basically handheld, touch screen systems. What about a more modular, full-featured approach that we used to see with these prototypes – where does that excite you, where do you see that going in the realm of games or other applications?
Well it’s exciting when you, you know, some of the prototypes that I’ve seen are basically the equivalent of a hundred inch display with considerably lower power requirements than a typical smartphone display, so if you just look at it straight up as a presentation technology that’s pretty interesting. It seems like some of the hard engineering problems are getting solved and a hundred inch display is way better than a ten inch display. The other thing that’s interesting is that a lot of these systems tend to allow you to overlap on a per-pixel basis the sort of real world with the virtual world. That’s sort of a more speculative class of applications, it requires obviously a lot of computation to try to figure out how to integrate pixels from the real world with pixels from the virtual world. So is that a for sure that that’ll end up resulting in a lot of interesting augmented reality games? I think that that’s pretty speculative, but if somebody here said “I’ve got a – I want to try something,” I don’t think there’s anybody here that would say “oh well there’s nothing, that’s a waste of time.” As opposed to the – it’s a hundred inch iPad where it’s pretty easy to see that that’s awfully nice, especially if it takes – it has battery power characteristics than more traditional kinds of displays.
Now do you see a future where Valve is actually selling hardware or do you just want to have things that could take advantage of that technology should it be popular?
Well, if we have to sell hardware we will. We have no reason to believe we’re any good at it, it’s more we think that we need to continue to have innovation and if the only way to get these kind of projects started is by us going and developing and selling the hardware directly then that’s what we’ll do. It’s definitely not the first thought that crosses our mind; we’d rather hardware people that are good at manufacturing and distributing hardware do that. We think it’s important enough that if that’s what we end up having to do then that’s what we end up having to do.
Now we’re talking about things like wearable computers and biofeedback and we’ve touched on Steam a little bit but there’s millions of people out there who are gnashing their teeth when they read this who just want to play Episode 3 or Left 4 Dead 3. Is there ever tension between all the different things that Valve is interested in doing?
Oh absolutely. We’re acutely aware of how much we annoy our fans and it’s pretty frustrating to us when we put them into that situation. We try to go as fast as we can and we try to pick the things that we think are going to be most valuable to our customers and if there’s some magic way we can get more work done in a day then we’d love to hear about it, but we recognize that it’s been a long time whereas we have so many games that people really love–Counterstrike, Half Life, Portal, Left 4 Dead, not a whole lot of Ricochet enthusiasts out there, and at the same time we want to be making sure that those games and those stories and those characters are moving forward while also making sure that we don’t just get into terminal sequelitis.
But we’ve always somehow, you know, part of the reason that we backed off talking so much about what was happening in the future is that when we’ve done that in the past, you know, with Half Life 1it was a year after we originally said it would be, Half Life 2 basically if you go and read the forum posts apparently took us fifty or sixty years to get done so we’re trying to be careful not to get people too excited and then have to go and disappoint them. So we’re sort of reacting in the other direction and saying “okay, well let’s have things a little more baked before we start getting people all excited about it.”
Steam, and pricing
You’ve had a lot of success with Steam, and the bundles, and the sales, and these kind of experiments, do you think at this point you have pricing figured out?
Oh no, not at all. I think we’re learning. We tend to–pricing is just part of an overall broader question about–we’re trying to think of it in terms of how we can create more value for customers that’s not, you know, the traditional way of thinking about pricing actually causes you to sort of segment it off from how you think about lots of things that you’re doing for customers. You should think of pricing almost as a service opportunity and think of ways of doing… it’s like a discovery problem. You wanna figure out how you can connect customers with the right collection of content and services and you need to get away from the sort of one size fits all broadcast mentality. Pricing is one of those things where a lot of people are still approaching it in almost a pre-Internet fashion instead of seeing that there’s actually an opportunity to do a better job of delivering the right stuff to the right customer for the right combination of pieces. So if you look at free-to-play, that should be kind of a wake up call to everybody in our industry that we should have been able to figure that out sooner, that this realization that a lot of customers create more value by being in the world than people were extracting by trying to charge them an upfront fee.
A selection of magazine covers featuring Valve titles
That’s just one example of what will probably be many insights that the gaming community comes up with as better ways of thinking about how you maximize value creations in a community. Free-to-play and the community contribution side are both just sort of different ends of the same spectrum, which is thinking about how to create more opportunities for value creation and value consumption, where you’re trying to get the right people connected to the people who are creating value for other people. So if somebody’s a really good team member you need some way of recognizing that and if you just sort of–the simple way of putting it is that person pays less money for the game. That’s sort of a simplistic way of saying they’re creating value, you have to capture that and if you fail to do it you’re being economically inefficient. That’s just a tiny way of rethinking about how everybody in the community is creating value and how you need to connect that to the right consumers and that’s what the value ends up being, not worrying about whether you charge $29.95 or $39.95, which actually causes you to pay attention to all of the wrong things.
How do you sit down and try to extract the data about which players are going to bring value into the game without almost embedding people into vent servers to listen to how they interact?
Well, we all play games all the time. It’s not Valve who will be saying that somebody’s more or less valuable, right? You have to create and design systems where the fact that somebody is valuable to some other group of people is discoverable by somebody else. The fact that you’re fun to play with is just one of many, many different ways that people can potentially create value in this kind of environment. The fact that I found that somebody was fun to play with needs to be efficiently and transparently communicated to other people who like to play with people who are like people I like to play with, which is totally different. You might find that person incredibly annoying and exasperating and not at all interesting to play with, so if you can create a system in which both of us end up getting the greatest amount enjoyment out of our experiences then you created a lot more value collectively, right? Each person is going to have a very different weighting of a bunch of different values, choices, preferences, and getting you connected to the right experiences with the right people with the right content is going to be a characteristic of a more successful systems, and just sort of treating everybody as if they’re exactly the same and only viewing them as opportunities to extract a retail entrance fee is gonna seem very archaic, I think, fairly soon.
Now this all sounds wonderful and it makes sense, but what kind of concrete mechanisms can you put in place that allow people to express who they like to play with and how they’re either giving or gaining value from the system?
Well, one of the things you have to do is start to come up with metrics, so we look at huge amounts of data all the time and then we try to figure which one’s predictive and which ones aren’t. So if you look at – here would be a simple example– so one of the decisions we made with Portal 2 was that we were gonna care a lot about whether or not people actually completed the game. And once you start paying attention to it and start changing stuff, you know, we made a bunch of changes afterPortal 2 shipped that significantly increased the number of people who actually were completing the game with, I think it was – we had some window like 30 days, so as soon as you just simply start paying attention to some metric and start making changes based on that metric and then measuring those results, you tend to get somebody somewhere fairly quickly. So if you were looking at people and saying “let’s not really care about who, let’s just take a trait agnostic approach to this and just simply view people as clumping together,” we’re not really sure why, some people would say “oh, I can assign various traits and characteristics to these people and I’ll just start measuring those things directly.”
The problem is that if your framework is wrong or if they don’t actually matter, you end up being screwed. So instead you just sort of say “let’s just see – let’s pick some behavior that we can measure and then start to look for correlations that we’ll then try to test for causalities.” So if somebody comes into a server who are the set of people that tend to stay on the server and who are the set of people that tend to leave. And then let’s look and see if that’s random or if it’s correlated, in other words if there are groups of people who tend to stay together and other groups of people who tend to avoid those people or leave or be mad. So then let’s use matchmaking and then say “so we’re going to put these people together,” and in fact what they should do is that they should all be more likely to stay through the entire match, and they also should be more likely to play again within the next week. And then you make those changes and you group those people together and you find out no I was totally wrong, right, none of those people actually did it.
Then you go, okay, there’s something about our model here that’s not working and we need to figure it out, and then you tinker with the model until you say “good, now we can actually with a lot of confidence say that there are groups of people and when we cluster them together they tend to play longer and they tend to play more often.” That way we don’t have to interview them, we don’t have to read their chat logs, but we probably made a set of changes that those people would perceive as being fairly valuable, so that’s just like a really simple example of the kind of thing that you would do without being particularly intrusive into the relationships yet would still probably have a pretty positive outcome for people in the community.
Now on a completely different subject, Rock, Paper, Shotgun ran kind of an odd story about a Russian customer who was banned from his Steam account and lost access to his games, and this kind of raised a very basic question that even lawyers couldn’t seem to answer concretely is whether or not we own the games we buy from Steam. I’m curious for your thoughts on this matter.
I think we’re actually checking to find out what was going on with our Russian customer, I got mail from people saying “what’s the deal with this?” So I actually haven’t heard back yet, but on its face it seems kind of broken and those are the sorts of things we’re happy to fix. If you’re asking me to render a legal opinion then I’m just not the super useful person to render a legal opinion. In that specific case people use my email, which is why it’s out there, and said “hey, this doesn’t seem right” and I’m actually waiting to hear what the result of that specific instance was. At first blush it sounded like we were doing something stupid and then we’ll get it fixed.
Valve's cafeteria
But even from kind of a more general point of view, you have services like Steam or Origin where these many purchases and micro-transactions and all these transactions we’re making through multiple companies are kind of tied to this overreaching account. Do you have lawyers who kind of look at the legal implication of where exactly you fit into that relationship?
Yeah, we have lawyers who look at stuff all the time, I’m not sure I’m answering your question directly. It’s sort of like this kind of messy issue, and it doesn’t really matter a whole lot what the legal issues are, the real thing is that you have to make your customers happy at the end of the day and if you’re not doing that it doesn’t really matter what you think about various supreme court decisions or EU decisions. If you’re not making your customers happy you’re doing something stupid and we certainly always want to make our customers happy. And I think we have a track record of having done that.
There’s also this huge conversation going, especially now with rumors of the new consoles, about used games and piracy. Do you feel like you’ve kind of successfully sidestepped those issues with Steam as a service provider?
You know, I get fairly frustrated when I hear how the issue is framed in a lot of cases. To us it seems pretty obvious that people always want to treat it as a pricing issue, that people are doing this because they can get it for free and so we just need to create these draconian DRM systems or ani-piracy systems, and that just really doesn’t match up with the data. If you do a good job of providing a great service giving people… as a customer I want to be able to access my stuff wherever I am, and if you put in place a system that makes me wonder if I’ll be able to get it then you’ve significantly decreased the value of it. So, you know, people were worried when we started using Steam initially because, oh my gosh, if I don’t have my discs what happens when I get a new machine? And after they’ve done this a couple times they’re like “oh my god, this is so much better, I’m so much more likely” – you know, this isn’t a legal argument, this is a real world argument – “I’m so much more likely to lose my discs than I am to have any problem with my Steam account, that seems way better than having a physical token that I use to access my content.”
A lot of times the systems that are put in place when you’re just trying to punish your evil customers for maybe doing something that’s not in their terms of service end up driving people towards service providers who don’t, right? So, you know, if I have to wait six months to get my Russian language translation and where I can get at this other guy on the street who will give me my Russian translation right away, it seems pretty obvious when you talk about it in those terms how the pirate selling pirated DVDs has a higher product than some of the people who try to DRM their way out of not giving customers what they really want.
Have you ever been tempted to put a set of standards for DRM across games on Steam? Unless you do a lot of research when you buy a game through the service you might not know exactly what you’re getting.
I’m not sure I understood what you’re trying to ask me.
Sure, like if you’re going to sell a game on Steam, has there ever been a temptation by you to kind of create a standardized set of DRM and holding publishers to it, or saying this kind of thing is inadmissible but will allow these certain solutions? Have you ever been tempted to get more hands-on on what kind of DRM is offered through what amounts to your storefront?
We tend to try to avoid being super dictatorial to either customers or partners. Recently I was in a meeting and there’s a company that had a third party DRM solution and we showed them look, this is what happens, at this point in your life cycle your DRM got hacked, right? Now let’s look at the data, did your sales change at all? No, your sales didn’t change one bit. Right? So here’s before and after, here’s where you have DRM that annoys your customers and causing huge numbers of support calls and in theory you would think that you would see a huge drop off in sales after that got hacked, and instead there was absolutely no difference in sales before or after. You know, and then we tell them you actually probably lost a whole bunch of sales as near as we can tell, here’s how much money you lost by bundling that with your product. So we do that all the time, we’re just – you know, I wouldn’t be super happy if some other third party tried to tell me how to have relationships with our customers and I expect other people feel the same way, and I also tend to think that customers don’t really like it when you try to impose rigid rules on them as well, so we tend to think and hope that over time people will move towards doing the things that are in the best interests of both the customers and the content developers.
You know, it’s a really bad idea to start off on the assumption that your customers are on the other side of some sort of battle with you. I really don’t think that is either accurate or a really good business strategy, and so we just sort of keep trying to show – you know, I think that we have a lot more credibility now with developers on issues like this simply because there’s so much data that we can show them where we say look, we’ve run all of these experiments, you know, this has been going on for many years now and we all can look at what the outcomes are and there really isn’t – there are lots of compelling instances where making customers – you know, giving customers a great experience and thinking of ways to create value for them is way more important than making it incredibly hard for the customers to move their products from one machine to another.
You’ve gotten, or Valve as a company has gotten more involved with the consoles, especially with Steam coming to the PlayStation 3. Is there anything that you think is very important to be included in the next generation of consoles, across the companies?
If you contrast what goes on in the movie space versus what goes on in the game space it’s clear that the games developers are moving several times faster than the movie developers, but then if you look in terms of thinking of ways to be innovative per providing higher value content, I mean if you look at the revenue numbers and the profitability numbers of the game space versus the movie space it’s clear that we’re moving a lot faster, and if you look at within the game space and you look at where a lot of the interesting things happening whether it’s World of Warcraft, whether it’s Facebook and social games, whether it’s innovations in things like free-to-play, they happen where people can experiment and do different things and they don’t happen in places where there are rigid, enclosed rules that restrict people.
You know, we still don’t have World of Warcraft on consoles and as a World of Warcraft player and as a console owner I find that super frustrating. I think the same thing happened in the past with a lot of hardware innovations, so there was way more opportunity for – you know, Nvidia and AMD existed in the PC space and that’s why they end up, you know, rather than internally developed proprietary graphics solutions on the consoles, they’re all gone, everything in the console space is coming from the PC now, and I think that we really need to see the same thing in terms of just general attitudes about platforms and that whichever console vendor sort of embraces that, I think they’ll see huge benefits. It’s not the games that are out there today, it’s the games that we don’t – haven’t even thought of yet that are gonna end up being important. I would push them very hard to stop thinking of themselves as being a platform for everything that already exists and start betting on the inventiveness and the benefits that you would get by embracing a more open approach to the internet and game delivery and game business models and things like that.
The centerpiece of Valve Software's lobby
Do you think that’s something that the corporate culture of places like Sony and to a greater extent it seems Microsoft would ever be willing to embrace?
I think that you either embrace the new approaches or you go away. I mean Sega and Atari and lots of other, you know, Vectrex, Commodore, you either figure out how to move forward or you get left behind and I don’t think it’s any different. As soon as Valve stops doing interesting, innovative work we’re gonna be left behind and we’ve all been around long enough in the game industry to know that and you have to be pretty myopic not to realize that just because something used to work a certain way there’s absolutely no reason for them to expect that that’s going to be the tickets to being successful in subsequent iterations. So whether or not they do it is a harder question to answer than is change inevitable and some people manage to make transitions. You know, if you ask me I thought Nintendo’s ability to make the transition from 2D to 3D was one of the hardest and yet also one of the most successful transitions that occurred in our industry. So people can do it but as soon as people stop somebody else will step in and keep the industry moving forward. That occurs a lot faster when you have open approaches. There’s sort of a hedging strategy, you can say everybody has to do everything exactly our way and as long as everybody has to put up with that degree of oversight and control on your part then your margins probably go up and your ability to make other people do stuff probably improves, but the problem with that is that when you fall you fall really fast and I think there’s so many examples of that in the history of our industry that you just, you know, some people will embrace those lessons and other people will be sending out their resumes.
From the conversation we’ve just had it really seems like the strategies and the products that come out of Valve are very fluid, almost on a month to month basis. If you were willing to kind of put on the crown and pick up the scepter what would be a dream project for you that the company is not yet involved with that you would love in the fantasy land to kind of put 100% of your resources behind?
So I use a tablet a ton, so if I could pick one magic wand I would have us all sit down and design a new, more gaming friendly tablet hardware interface and then build some content that really was designed at the same time as the hardware. So if I could pick one thing that would be it. Because I’m really frustrated as a tablet user with how mediocre the gaming inputs are.
And you know this is going to be on all the blogs the next day, when you pick up a tablet to use it, what tablet do you use?
Oh I use the iPad. I have an iPad 2.
We at the Penny Arcade Report would like to thank Mr. Newell for his time, and now it’s time to see where the science happens!
