Gabe Newell was on hand last week at the BAFTA awards to receive the very prestigious Academy Fellowship. While there, Newell revealed a fairly startling statistic, Valve's business has grown by about 50% over the past year alone. That is some incredible growth for any company, much less in an industry that seen the recent closure of some half a dozen studios.
Newell chalks the company's performance up to open platforms and user-generated content, but that's really only telling half of the story. What Valve has created is an entire economy of user powered microtransactions. While the company obviously has a long history of high sales figures, the Counterstrike and Half-Life series, for example, had great numbers, this is not how the company makes the bulk of its income. In fact, in the past year, actual game sales probably reflected barely a fraction of what Valve is making.
Valve's big money earner is the Steam Workshop, a way for players to participate in the company's microtransaction system. Players submit items they've designed for games such as Team Fortress 2 and DotA 2, both of which already feature hundreds of different functional and cosmetic collectibles. If Valve chooses to implement an item you've made, you'll receive a 25% cut of the profits, with prices for these items ranging from $0.99 and up.
It seems like an interesting system, and although Valve shares a cut, you'd think that it would at the very least help support the maintenance of the games, both of which are free to play. Here's the kicker though, a PC Gamer report found that some of the creators of top selling Team Fortress 2 items had earned six figure salaries over the course of twelve months. That's hundreds of thousands of dollars in the sale of just a handful of digital items. Even more incredible, that amount only represents the 25% commission that Valve pays out. Simply put, Valve earned millions upon millions of dollars in the sale of digital goods they didn't create, for a game that's almost five years old.
Valve is quickly becoming less of a game creator, and more of a content enabler. They're putting the tools into players' hands, and simply helping to guide the outcome. Just last year, the company released Source Filmmaker, the actual tool that their animators use to create cut scenes and promotional materials. How does that make Valve money? How about thousands of high-profile, fan created videos that marketed their games without Valve having to lift a finger or spend a penny.
The business strategy Valve is pursuing is not only successful, it's nearly entirely unique in the game development world. Instead of shoehorning microtransactions, DLC, and expansion packs into their games, they're giving players the opportunity to build the features they want to see in their games. As a result, Valve has experienced very little of the backlash that is currently being felt by big name publishers such as EA and Activision, who are struggling to find ways to create additional income streams that feel organic to their products.
Valve doesn't seem to be stopping either. This year will see a growth in the use of the Steam Wallet, a proprietary, dollar-equivalent currency that enables users to purchase games or in-game items on Steam. This has enabled the company to keep more money inside of their infrastructure, without having to resort to confusing currency exchanges such as Xbox Live's Microsoft Points.
Additionally, Valve is already aggressively rolling out the Steam Marketplace, a system where users can sell their items to other players for Steam Wallet cash. Every week, more and more items become available to buy and sell on the Marketplace, and if the rumors turn out to be true, players will one day be able to trade unused copies of games as well.
Does this mean that Valve will stop developing games? Hardly. After all, if it wasn't for the top notch quality of games such as Team Fortress 2, there likely wouldn't be an audience to facilitate this system at all. But with Valve's latest release, DotA 2, launching as free to play with built-in, day-one implementation of the Steam Workshop, we're definitely looking at a much different landscape than we were, even five years ago.