When you think about a typical successful company, who is it that comes to mind? Apple? Toyota? Ford? Those are all good examples, by all means. But what about Valve, Blizzard or Id Software? Or a company called Wargaming.net? These are all, as you might have noticed, gaming companies. And in a lot of cases, gaming companies have been miles ahead of other (IT-)companies when it comes to innovation, company culture and how we relate to our customers and community.

 

Utilize the community

One of my favourite stories about how game companies have been ahead of other major IT-companies starts with Microsoft and a man named Gabe Newell. Like Bill Gates, Newell dropped out of Harvard to start his career with Microsoft. He was recruited by Steve Ballmer, and spent 13 years working at Microsoft, becoming a so-called “Microsoft Millionaire” in the process [1]. At one point during his career, Newell was conducting a survey to find out if Windows was actually being used as much as Microsoft thought it was. He also tried to find out how people used their home computers in general. The survey revealed that people use computers primarily for two things: games and porn. Supporting this was the fact that Windows was only the 2nd most frequently installed piece of software on the computers he examined. So what number 1? Doom by Id Software. Apparently, Microsoft, the huge corporate superpower, had been out-distributed by a 12-person team from Texas. How? By distributing directly to the customer using shareware, instead of going through retailers. Microsoft’s response? Hire 500 more sales people [2]. Apparently they didn’t learn much from that little lesson.

 

Empathize with your customers

Let’s fast-forward a few years, to 1996. We’re still following Gabe Newell. The guy makes for a remarkable case study. In 1996, Newell started Valve Corp., and released the classic Half-Life in 1998. This is quite the feat in itself, and laid the foundation for Valve’s continuing success. But the really interesting part comes at the turn of the millennium. Piracy is the big topic in the entertainment industry, and the game industry is no exception. It is from the gaming industry, however, that the solution seems to emerge. While the music and movie industries are busy persecuting the pirates, Newell and Valve made an important realization: piracy is not a price issue, but a service issue. Piracy doesn’t exist just because people want to steal good products. They just want to get them fast, and for a reasonable price.

“If a pirate offers a product anywhere in the world, 24/7, purchasable from the convenience of your personal computer, and the legal provider says the product is region-locked, will come to your country 3 months after the US release, and can only be purchased at a brick-and-mortar store, then the pirate’s service is more valuable.” – Gabe Newell [7]

With this in mind, Steam was released in 2003. Steam is an online distribution service for games, where users can buy, download and keep their games updated. It is not until around 5 years later, in 2008, that the music and movie industry catches up by launching Spotify and Netflix’s streaming service [3, 4 ,5]. Not that Spotify necessarily should be considered part of what most people call “the music industry” (studios, labels etc.), but that is a story for a different day.

Be a talent scout

If you can’t beat them, join them…or hire them. Two of Valve’s great successes (Counter-Strike and DOTA 2) come from hiring members of the gaming community. More precicely, the game modding community. A “mod” (short for “modification”) is basically using one game as a basis, then modifying it, often to such extent that the end result is a completely different game. Counter-Strike is a great example. The game is a modification of Half-Life, but in 1999, Counter Strike had become more popular than Half-Life itself. Valve quickly recognized the talent of the people behind Counter-Strike, and hired them, along with acquiring the intellectual property for Counter-Strike itself. Counter-Strike has since become a huge franchise.

Another example is DOTA 2, which is highly relevant at the moment. Similar to the story of Counter-Strike and Half-Life, DOTA (Defence of the Ancients) was a mod for Warcraft 3. Warcraft 3 was developed by Blizzard Entertainment. As with the previous example, the mod quickly became even more popular than the original game. Valve hired the developer behind Dota, and together they created the hugely successful sequel, Dota 2, which we will return to later.

Talent can come from surprising places, and sometimes the richest pool of talent consists of the people that engage and invest in your product so passionately that they try to improve it, either by modifying it or otherwise. Yet so many companies overlook this and instead hunt these people down for copyright infringement.

 

Cultivate a good working environment, don’t try to force it

In Valve’s early life, Newell was a firm believer in “one person, one office”. Many still believe this to be the most productive office environment, and they may be right in certain cases. In Valve’s case however, this was not right. Even though most developers had their own office, Newell would find people visiting each other’s offices to work together, or even just gather up in the meeting room. Today Newell shares an office with two other people, and most developers work in an “open office” solution with rolling desks, such that they can quickly set up and dissolve work groups [2].

The point here is that even though Newell was a firm believer in a certain way of doing things, he recognized that different developers have different requirements to work optimally. Just like with beer and yoghurt, you are cultivating something that is already there, rather than forcing people into work routines or environments that feel unnatural to them. Employees were enabled to work the way that they felt was best, and it seems to have yielded good results. Today, Valve is an extremely productive company: they have a greater revenue and profit per employee than Apple, Google and Microsoft [2].

 

Gamify!

“Gamification” has become quite the buzzword recently. But let’s forget the hype for a second and think about some important gamification elements: social and competitive metagames.

The social metagames are where Valve currently makes a large portion of its money. Dota 2, for example, uses the “Free to Play” business-model, where the game itself is free, but players pay for additional content. This additional content is not something you are pushed into buying in any way. It is actually mostly just cosmetic additions to your game avatars, which do not give players any kind of advantage. Except from looking more bad-ass and striking fear (or laughter) into the hearts of your opponents, of course. The thing is, this stuff sells. Over time, many players happily spend more money on this kind of content while playing the game, than they would spend on paying for the game up front. This creates a social metagame where people have fun by customizing their avatars, as well as other aspects of the game. Another key point is that much of this content is created by the players, allowing them to make money by contributing to the game and its community. Some of Valve’s highest earning contributors have made over $500 000 a year by creating content for their games [2]!

Another interesting aspect of the community-created content is the economy that appears. Just like other kinds of art, in-game items can soar in value as they disappear from the online store, and can only be acquired by trading with other players who already have the item. For Dota 2 and other games, “black markets” have emerged, where the price for a single, purely cosmetic in-game item can reach thousands of dollars.

Another important gamification element is the competitive metagame. Competitions and tournaments are a huge part of gaming these days. In recent years, competitive gaming (or eSports) has grown immensely, and Dota 2’s competitive scene is a great example. Close to Dota 2’s launch, Valve hosted an international tournament, where the winning team would receive a prize of 1 million dollars, an unprecedented amount of prize money in eSports. A documentary about this ground-breaking tournament was actually released recently. The initial tournament’s success served as fuel to the ever-growing fire that is now Dota 2’s competitive scene. In 2013, the 3rd tournament of this kind was hosted, and the 1st prize had by then increased to $1.5 million [8]. Tickets for this year’s tournament are already sold out, months in advance.

The really interesting part starts in context with the 2013 tournament, where a large part of the prize money was provided by the community. Leading up to the tournament, Valve released an “Interactive Compendium” that players could buy, where a portion of the money went into the prize pool [8]. In the compendium, you could read about the tournament and the teams, as well as make predictions for the tournament and win prizes. It’s a win-win scenario for everyone involved, and people are happily spending their money to support the tournament and their favourite players.

 

Can this improve our products and services?

There’s probably not a one-to-one relation between what works in the game industry and what works in other industries. But there certainly are some lessons to learn. When I look at successful games, certain qualities appear frequently:

• Low threshold for trying out the product (free to play)
• High quality (even though it’s free)
• Social metagames
• Competitive metagames
• The product creates its own economy or ecosystem (item trading)
• Frequent updates – new features are released frequently, often weekly
• Easy for players to create new content and contribute to the community
• Incentives for professional players

Some of these properties can certainly be applied to other products than just games. Many successful products (that are not games) already possess several of these properties. But let’s use our imaginations a little:

• What about using the “Interactive Compendium”-idea in other major sporting events like the Olympics?
• How about recording stats or high scores at the gym (for those who wish to participate)? These stats don’t even have to be based on working out, they can be as simple as how many times you show up to the gym per week, or how many friends you have recruited.
• Why not make products more “open source”, where anyone can easily submit their designs and get a part of the profits if their designs are accepted? Online T-shirt shop Teefury is already doing this.

I encourage everyone reading this to work a little bit more like a gamer: play with these ideas, see what you learn, and maybe you can make something out of it.

 

Osmund Maheswaran is a mechanical engineer who during the later parts of his studies found a passion for software development and innovation. He now works as a developer for Iterate, where he also enjoys being able to understand and influence the business aspects of his projects. Besides being a developer, Osmund is fond of gaming, playing drums and traveling.

 

Sources:

1: Giantbomb article on Gabe Newell: http://www.giantbomb.com/gabe-newell/3040-4498/

2: Interview with Gabe Newell: https://www.youtube.com/watch?v=t8QEOBgLBQU

3: Steam wikipedia-article: http://en.wikipedia.org/wiki/Steam_(software)

4: Spotify wikipedia-article: http://en.wikipedia.org/wiki/Spotify

5: Netflix wikipedia-article: http://en.wikipedia.org/wiki/Netflix

6: Dota 2 wikipedia article: http://en.wikipedia.org/wiki/Dota_2

7: Escapist magazine article: http://www.escapistmagazine.com/news/view/114391-Valves-Gabe-Newell-Says-Piracy-Is-a-Service-Problem

8: The International wikipedia article: http://en.wikipedia.org/wiki/The_International_(video_gaming)#The_International_2013