Valve Corporation

Valve's logo between 1996 and 2018

Valve was founded in 1996 by former longtime Microsoft employees Gabe Newell and Mike Harrington. Newell had spent the prior 13 years at Microsoft developing Windows.[5] Wanting to move onto a new venture using their shared wealth, they founded Valve, L.L.C.[6] in Kirkland, Washington (about five miles from the Microsoft campus in Redmond), on August 24, 1996, Newell's wedding day.[7][8][5][9] Alternative names considered by Newell and Harrington include "Fruitfly Ensemble" and "Rhino Scar".[10]

Valve's first product was Half-Life, a first-person shooter (FPS) with elements of the horror genre.[11] The development was aided by access to the Quake engine by id Software; Valve modified this engine into their GoldSrc engine.[5] After struggling to find a publisher, Valve eventually signed with Sierra On-Line.[5] Half-Life was released in November 1998,[12] and was a critical and commercial success.[13][14][15] According to IGN in 2014, the history of the FPS genre "breaks down pretty cleanly into pre-Half-Life and post-Half-Life eras."[16]

Valve enlisted Gearbox Software to develop three expansions for Half-Life.[5][17] Valve acquired TF Software in 1998, a group that made a popular Team Fortress mod for Quake, and remade the mod for GoldSrc as Team Fortress Classic, releasing the following year.[18] Valve released the software development kit (SDK) for the GoldSrc engine, facilitating numerous user-created mods. Valve acquired the developers of one popular mod, Counter-Strike, to create a standalone Counter-Strike game.[5] Happy with Valve's success, Harrington left in 2000.[5]

In 2003, Valve moved to Bellevue, Washington, and re-incorporated as Valve Corporation.[5] In 2010, the office moved again to a larger location in Bellevue. In 2016, Valve signed a nine-floor lease in the Lincoln Square complex in downtown Bellevue, doubling the size of their offices.[19]

After the success of Half-Life, the team worked on mods, spin-offs, and sequels, including Half-Life 2, using its new Source engine, improving upon its GoldSrc engine. Team Fortress 2 was a reworked version of Team Fortress Classic developed in the Source engine. To expand on Half-Life 2, Valve had planned on releasing three episodes to extend its story prior to a planned Half-Life 3. With the second episode, Valve also packaged the game for consoles in The Orange Box, which included Half-Life 2 and both episodes, Team Fortress 2, and Portal, an experimental game developed by a student team hired into Valve from their work on Narbacular Drop. Of the Orange Box games, Portal proved a critical success, and later, Valve developed Portal 2, hiring in another student team from the game Tag: The Power of Paint to incorporate those mechanics.

Alongside developing games, Valve developed Steam, a digital storefront and delivery platform. The concept of Steam bore out of Valve trying to maintain patches for games like Counter-Strike so that all players were up-to-date. Failing to gain help from other third-party developers, Valve took it on themselves to build out Steam, which was first introduced in 2002, and eventually became mandatory by the time of Half-Life 2's release.[20][21] Steam initially offered only Valve's games, but they soon allowed third-parties to sell on the service with Valve taking a cut of the revenues for maintaining the storefront and content delivery. Steam eventually became the most significant ways gamers on the personal computer platform acquired digital games, with Steam accounting for up to 70% of all digital sales.[22]

In 2005, Forbes estimated that Valve had grossed $70 million that year. Ed Barton, a Screen Digest analyst, estimated Valve's 2010 revenue to be in the "high hundreds of millions of dollars".[23][19] As of 2011, the company had an estimated worth of $2 to 4 billion, and according to Newell it was the most profitable company per employee in the United States. Most of Valve's revenue comes from Steam, which controlled 50 to 70% of the market for downloaded PC games in 2011.[23]

In January 2008, Valve announced the acquisition of Turtle Rock Studios,[24] which would be renamed Valve South.[25] Turtle Rock developed Left 4 Dead and Left 4 Dead 2 while associated with Valve. Turtle Rock Studios later spun out of Valve again in March 2010.[26]

Valve hired IceFrog, the developer of Defense of the Ancients, a Warcraft III mod in 2010. IceFrog led the development of a sequel not associated with the Warcraft elements, Dota 2.[27]

Portal 2, a standalone sequel to Portal, was released in April 2011. The release was preceded by an alternate reality game called the Potato Sack that Valve arranged with several indie game developers on Steam to advance Portal 2's release by several hours.[28] As with the original Portal, Valve had hired another Digipen student team behind Tag: The Power of Paint to help with the game's new gel substance mechanics.[29]

Valve began closed beta testing of the free-to-play game Dota 2 in 2011,[30] and fully released the game to the public in 2013.[31] Alongside Dota 2 in 2011, Valve started The International, an annual eSports tournament for Dota 2 with a prize pool supported by Valve and funds from microtransactions from battle passes purchased by the game's players.[32]

In December 2012, Valve acquired Star Filled Studios, a two-man gaming company, to open a San Francisco office.[33] However, Valve ended the operation in August 2013 when they decided there was little benefit coming from the arrangement.[34]

At the 2013 D.I.C.E. Summit, Newell announced that he and film director J. J. Abrams were collaborating to produce a Half-Life or Portal film, as well as a possible new game.[35]

Valve's activities as a game developer had slowed down in the 2010s, around the same time that Valve started to reduce its involvement in curation on Steam via Steam Greenlight, allowing for a larger influx of titles and gain its dominate position as the primary digital storefront for PC gaming. After releasing Dota 2 in 2013, Valve's next major release was Artifact in 2018. However, Valve had also looked at other projects, including Steam Machine consoles, and developing virtual reality hardware in association with HTC in the HTC Vive and later in its own Valve Index hardware. It has been argued that the transition from game developer to service provider has been driven by the economics in Steam, which is estimated to bring in more revenue than Valve's own game sales; in 2017, Steam Spy estimated that Valve had received US$4.3 billion in its revenues from Steam sales.[36] In contrast, Valve had estimated to have had only hundreds of millions of dollars in revenue around 2010 and 2011 with a net worth estimated between two and four billion dollars.[37] Many players had been waiting in anticipation of either the final episode of Half-Life 2, or a potential Half-Life 3, and while word of several potential starts on these have been mentioned by former Valve employees or other companies, they remained in limbo as of 2019. Some consider these projects to be canceled due to the departure of some of the lead talent involved in earlier games.[38]

The change in Valve's approach has also been attributed to its use of a flat organization structure that the company adopted in 2012.[39][40] Valve had originally used a hierarchical structure more typical of other development firms, driven by the nature of physical game releases through publishers that required tasks to be completed by given deadlines.[41] However, as Valve became its own publisher via Steam, it transitioned to a looser, flat structure; outside of executive management, Valve does not have bosses, and the company used an open allocation system, allowing employees to move between departments at will.[42][43] This approach allows employees to work on whatever interests them, but requires them to take ownership of their product and mistakes they may make, according to Newell. Newell recognized that this structure works well for some but that "there are plenty of great developers for whom this is a terrible place to work".[41]

Many outside observers believed the lack of organization structure has led to frequent cancellations of potential games as it can be difficult to convince other employees to work on such titles.[44][45][46] Geoff Keighley's documentary The Final Hours of Half-Life: Alyx released in 2020 confirmed that many projects had come and gone during the early 2010s. Valve employees interviewed in the documentary reported that these projects were started and either cancelled or transitioned to other games during this period. Among those including sequels Half-Life 3 and Left 4 Dead 3, a Dark Souls-like combat game called RPG, and a voxel-based game called A.R.T.I.. Additional virtual reality (VR) projects included SimTrek that had been developed by members from the Kerbal Space Program, Borealis based on the Half-Life 2: Episode 2 ship, as well as a new VR hardware Vader that was determined to be too costly compared to the HTC Vive project. One project, Shooter was to become part of The Lab.[47][48]

Sometime in the mid-2010s, after several of these projects had come and gone, the company recognized that something was amiss in how they were approaching their development in the flat structure, as stated in Keighley's documentary. Robin Walker said "We sort of had to collectively admit we were wrong on the premise that you will be happiest if you work on something you personally want to work on the most."[49] Additionally, the varied content of multiple projects pulled the development of the Source 2 engine development, started to support these new projects, in too many different directions, delaying its released and impacting these projects as well.[49] Circa 2015, the company set a goal to create their own VR headset, separate from their current efforts with HTC and the HTC Vive, and a flagship VR game for it, to focus the company's efforts. The VR game ultimately would become Half-Life: Alyx, though it did not start as a planned Half-Life game, but instead grew out from numerous prototype games in what worked and fit in Valve's wheelhouse as a VR game, with the Half-Life universe proving to be a strong fit for VR. Full development for Alyx started around late 2016.[49][50]

Valve announced the Source 2 engine in March 2015 and ported Dota 2 to it that September.[51][52] In 2016, Valve release the HTC Vive VR headset, developed in collaboration with the Taiwanese electronics company HTC, and the Steam VR client.[53][54]

Valve bought Impulsonic, a developer of 3D audio software, in January 2017 and integrated it into its Bellevue offices.[55] In April 2018, Valve acquired the independent developer Campo Santo, known for the 2016 adventure game Firewatch. Campo Santo planned to develop its own games under Valve, though they initially helped develop Half-Life: Alyx.[56][57]

In November 2018, Valve released Artifact, a digital collectible card game based on Dota 2, with design by Richard Garfield, the creator of Magic: The Gathering. Artifact had unusual pay-for mechanics to acquire new cards, and did not draw a large playerbase, losing 95% of players months after release.[58] Valve stated in March 2020 that they were working to reboot the game, eliminating elements such as the pay-for mechanics, to address complaints.[59]

In June 2019, Valve released its second-generation VR hardware, the Valve Index.[60] In the same month, Valve released Dota Underlords into early access, an auto battler based on a Dota 2 community-created mode Dota Auto Chess.[61]

In March 2020, after several failed attempts to develop further Half-Life projects, Valve released Half-Life: Alyx, a VR game.[62] Valve felt there was demand for a large-scale VR game, and found that Half-Life best suited VR. Designer Robin Walker said that Half-Life 3 had been a "terrifyingly daunting prospect", and the team saw VR as a way to return to the series.[63] Alyx entered full production using Source 2 engine in 2016, with the largest team in Valve's history.[63] Half-Life: Alyx received acclaim[64] and was described as VR's first killer app.[65][66][67][68] Newell stated in January 2021 that the success of Alyx created more desire within the company to develop more games, adding that the company had several games under development at the time.[69]

Valve is the main developer and publisher of the single-player Half-Life and Portal games and the multiplayer games Counter-Strike, Team Fortress 2, Dota 2, and Artifact. Valve also published the multiplayer game Left 4 Dead and developed and published Left 4 Dead 2.

Unreleased and canceled Valve games include numerous Half-Life projects and the fantasy role-playing game Prospero.[70] Valve worked with Arkane Studios on The Crossing, which was canceled in May 2009.[71]

Gabe Newell (foreground) and Doug Lombardi (background), 2007

Valve announced Steam, its digital distribution service, at the 2002 Game Developers Conference.[72][73] It was launched in September 2003 and was first used to deliver patches and other updates to Valve's online games.[74][75]

On August 1, 2012, Valve announced revisions to the Steam Subscriber Agreement (SSA) to prohibit class action lawsuits by users against the service provider.[76][77] By July 2014, there were over 3,400 games available on Steam, with over 150 million registered accounts by January 2018.[78][79]

Alongside these changes to the SSA, the company also declared publicly the incorporation of Valve S.a.r.l., a subsidiary based in Luxembourg.[76][77] Valve set up a physical office in Luxembourg Kirchberg. According to Valve's project manager Mike Dunkle, the location was chosen for eCommerce capabilities and infrastructure, talent acquisition, tax advantages and central geographic location – most major partners are accessible, 50% within driving distance.[80]

Valve S.a.r.l. was used to sell games to UK users to avoid paying the full 20% value-added tax (VAT).[81] The tax loophole was expected to close on January 1, 2015.[82] In December 2015, the French consumer group UFC Que Choisir initiated a lawsuit against Valve for several of their Steam policies that conflict or run afoul of French law. One of the reasons was for using the tax loophole.[83] Valve S.a.r.l. ceased business on January 1, 2017, with the main company taking over EU sales again.[84] In August 2017, Valve announced that Steam had reached over 67 million monthly and 33 million daily active users on the platform.[85]

Newell has been critical of the direction that Microsoft has taken with making Windows a closed architecture similar to Apple's products, and has stated that he believes that the changes made in Windows 8 are "a catastrophe for everyone in the PC space".[86] Newell identified the open-source Linux platform as an ideal platform for Steam and said the only thing holding back its adoption is the lack of games.[86]

In 2012, Valve announced that they were working on a console/PC hybrid for the living room, dubbed by media as the "Steam Box".[87][88] A precursor to such a unit is SteamOS, a freely available Linux-based operating system that builds upon the Steam client functionality that includes media services, live streaming across home networks, game sharing within families, and parental controls. SteamOS was officially announced in September 2013 as the first of several announcements related to the Steam Machine platform[89] as well as their unique game controller.[7] In May 2014, Valve announced that the company's own SteamOS-powered Steam Machine would be delayed until 2015 due to problems with the game controller.[90] In 2015, Alienware, ZOTAC, and CyberPowerPC launched their versions of the Steam Machine. By June 2016, fewer than half a million had been sold.[91] While the Steam Machine line has been effectively canceled, Valve continued to manufacture and sell Steam Controllers until late November 2019,[92] and publishes both mobile apps and software for the Steam Link, allowing in-home streaming.

At the Game Developers Conference in March 2015, Valve and Taiwanese electronics company HTC unveiled SteamVR and the HTC Vive—a virtual reality platform and a virtual reality headset. The platform would be distinguished by its "Lighthouse" motion tracking system, where sensors on the headset and its included motion controllers read the position of two base station devices mounted in the play area. This would allow for "room-scale" VR experiences, where the player would not be required to remain in a stationary position in front of a camera, and would be able to freely walk around the space.[93][94]

In November 2017, Microsoft added beta support for the SteamVR service for Windows Mixed Reality headsets.[95][96] In June 2019, Valve released their own VR headset, known as the Index, positioned as a higher-end device with wider field of view and higher refresh rate. They were accompanied by updated motion controllers, which are strapped against the user's palms and have sensors for detecting input pressure and individual fingers.[97][98][99]

PowerPlay was a technological initiative headed by Valve and Cisco Systems to decrease the latency for online computer games.[100] Gabe Newell, the managing director of Valve, announced the project in January 2000 and after 12 months the project was quietly abandoned.

PowerPlay was described as a set of protocols and deployment standards at the router level to improve performance. It was claimed that a player with 1000 ms ping was able to play against another player on a LAN connection with no noticeable disadvantage.[101] Initially the protocol was to be released with PowerPlay 1.0 focusing on Quality of Service (QoS) and later a revision, PowerPlay 2.0 that would focus on functionality. Cisco and Valve intended to deliver a single dial-up service in Q1 2000 in the United States with a 30-day free trial with a bundled copy of Team Fortress modified to support PowerPlay.[102] Despite never deploying the dial-up plan featuring PowerPlay 1.0, Valve announced in January 2001 that the standard had indeed been finalized.[101]

The standard was to involve purchasing PowerPlay approved Cisco hardware and infrastructure that had adequate bandwidth and QoS standards that prioritize PowerPlay gaming packets at all others' expense. Gabe Newell conceded that Internet service providers (ISPs) would bear the brunt of this expense: "The ISPs are going to need to spend a fair amount of money to be compliant with PowerPlay. But how they get that back is up to them. Some will have a tiered service, and some will just try to recoup their investment through reduced customer churn and customer acquisition."[103]

In July 2013, Valve announced Pipeline, an intern project consisting of ten high school students working together to learn how to create video game content.[104] Pipeline serves to discuss and answer questions that teenagers often ask about the video game industry,[105] and see if it is possible to train a group of teenagers with minimal work experience to work for a company like Valve.[105] The latter purpose breaks Valve's tradition of employing experienced developers, as the company is not good at "teaching people straight out of school".[105]

Between 2002 and 2005, Valve was involved in a complex legal dispute with its publisher, Vivendi Universal Games (under Vivendi's brand Sierra Entertainment). Valve had entered into a publishing agreement with Sierra to release Half-Life and subsequent games in 1997, with the contract giving Sierra some intellectual property (IP) rights to Valve's games. After Valve began development of Half-Life 2, it agreed a new contract with Sierra in 2001, removing these rights from Sierra and giving Valve some rights for digital distribution.[106] Internally, Valve started work on Steam as a means to digitally distribute these games, and first revealed this project at the March 2002 Game Developers Conference.[106]

By August 2002, Valve had found that Sierra was distributing copies of their games to Internet cafes against the terms of their contracts and filed a lawsuit against Sierra and Vivendi. In addition to claims of copyright infringement, Valve asserted that Sierra breached contract by withholding royalties and delaying the release of Counter-Strike: Condition Zero until after the holiday season. Vivendi and Sierra countersued, stating that Valve had misrepresented their position in the revised 2001 contract since they had been working on Steam at that point as a means to circumvent the publishing agreement. Vivendi sought intellectual property rights to Half-Life and a ruling preventing Valve from using Steam to distribute Half-Life 2.[106]

On November 29, 2004, Judge Thomas Samuel Zilly of the U.S. District Court for the Western District of Washington ruled in favor of Valve. The ruling stated that Vivendi Universal and its affiliates (including Sierra) were not authorized to distribute Valve games, either directly or indirectly, through cyber cafés to end users for pay-to-play activities pursuant to the parties' publishing agreement. In addition, Judge Zilly ruled that Valve could recover copyright damages for infringements without regard to the publishing agreement's limitation of liability clause.[107] Valve posted on the Steam website that the companies had come to a settlement in court on April 29, 2005.[108] Electronic Arts announced on July 18, 2005, that they would partner with Valve in a multi-year deal to distribute their games, replacing Vivendi Universal.[109] As a result of the trial, the arbitrator also awarded Valve $2,391,932.

In April 2009, Valve sued Activision Blizzard, which acquired Sierra Entertainment after a merger with its parent company, Vivendi Universal Games. Activision had allegedly refused to honor the Valve v. Vivendi arbitration agreement. Activision had only paid Valve $1,967,796 of the $2,391,932 award, refusing to pay the remaining $424,136, claiming it had overpaid that sum in the past years.[110][111]

Defense of the Ancients (DotA) was a landmark mod first released in 2003 that created the basis of the genre of multiplayer online battle arena (MOBA). It was originally developed by Kyle Sommer (who goes by the alias Eul) within Blizzard Entertainment's Warcraft III: Reign of Chaos via its world editor, and spawned several similar efforts, notably DotA-Allstars. While there had been several that contributed to DotA-Allstars, the project was managed primarily by Steve "Guinsoo" Feak, and later by "IceFrog". IceFrog was eventually hired by Valve in 2009, with the rights to the DotA intellectual property being sold to Valve the following year. Eul was also hired into Valve by 2010.[112] Valve then subsequently filed trademarks towards a sequel to DotA, titled Dota 2. DotA-Allstars, LLC, a group of former contributors to the DotA-Allstars project, filed an opposing trademark in August 2010 to contest Valve's claim it owned the property rights.[113]

DotA-Allstars, LLC was eventually acquired by Blizzard to start development of Blizzard All-Stars. Blizzard took over the trademark challenge. The United States Patent & Trademark Office initially ruled in Valve's favor. By this point, Riot Games had hired Guinsoo to help develop their own MOBA, League of Legends. As with IceFrog, Feak transferred his rights to the Dota property to Riot, who in turn sold those to Blizzard. Blizzard filed a lawsuit against Valve to challenge Valve's ownership, pitting the rights assigned through IceFrog to Guinsoo at odds.[114] The case Blizzard Entertainment v. Valve Corporation was settled out of court in May 2012; Valve retained the right to use Dota commercially, while Blizzard reserved the right for fans to use Dota non-commercially.[115] Blizzard changed the names of its own projects to remove the Dota term, and renamed Blizzard All-Stars as Heroes of the Storm. Valve's Dota 2 was released in 2013.[116]

In 2014, mobile developers Lilith and uCool released their games Dota Legends and Heroes Charge, respectively. Both were influenced by Dota and the sequels. In 2017, Valve and Blizzard took joint action against these companies, citing copyright issues related to the Dota names. uCool argued that the Dota games were a collective work and could not be copyrighted by anyone in particular, but the presiding judge, Charles R. Breyer, felt that, due to the trio's actions as maintainers of the Dota mods, they had a rightful copyright claim to this. Separately, Lilith and uCool argued that Eul had, in a forum post dated September 2004, assigned an open-source copyright license to Dota, which would make Valve and Blizzard's copyright claims void. The case was later heard by a jury.[112]

The Australian Competition and Consumer Commission (ACCC) announced it was taking action against Valve in 2014. On March 29, 2016, Valve was found guilty of breaching Australian consumer law because:[117][118]

• Valve claimed consumers were not entitled to a refund for digitally downloaded games purchased from Valve via the Steam website or Steam Client (in any circumstances);
• Valve had excluded statutory guarantees and/or warranties that goods would be of acceptable quality; and
• Valve had restricted or modified statutory guarantees and/or warranties of acceptable quality.

During the prosecution of this case, Valve implemented a refund policy for Steam purchases, but the case still reviewed Valve's actions prior to the onset of the lawsuit. The court overseeing the case sided with the ACCC in assigning a A$3 million (about US$2.1 million ) fine against Valve in December 2016, as well as requiring Valve to inform Australian consumers of their rights when purchasing games from Steam.[119] Valve appealed the court's determination that it "engaged in misleading or deceptive conduct and made false or misleading representations about consumer guarantees", as well as seeking to appeal the fine, but the Australian higher courts rejected the appeals in December 2017.[120] In January 2018, Valve filed for a "special leave" of the court's decision, appealing to the High Court of Australia.[121] The High Court dismissed this claim in April 2018, asserting that Valve still was liable under Australian law since it sold products directly to its citizens.[122]

Consumer rights group UFC Que Choisir, based in France, filed a lawsuit against Valve in December 2015, claiming users should be able to resell their software.[123][124] The High Court of Paris ruled in favor of UFC Que Choisir in September 2019, stating that Valve must allow the resale of Steam games. Valve stated it will appeal the decision.[125]

Valve was named as a defendant in two lawsuits in June and July 2016 related to third-party gambling sites that use the Steamworks API to allow betting with the virtual currency of cosmetic weapon replacement textures, better known as "skins", from Counter-Strike: Global Offensive, which through these sites can be converted from or to real-world money. Both suits assert Valve aiding in underaged gambling.[126] Valve subsequently stated it has no commercial ties with these sites, and that it would demand these sites cease their use of the Steamworks API as they violate the authorized use policies.[127][128] In October 2016, the Washington State Gambling Commission required Valve to stop the use of virtual skins for gambling on Steam, stating they would face legal repercussions if they failed to co-operate.[129] On October 17, 2016, Valve sent a letter to the Washington State Gambling Commission stating that they had "no business relationship with such gambling sites", asserting that they come into existence, operate, and go out of existence without their knowledge and consent, adding that they were not aware of any such law that Steam or any of their games were violating.[130]

In February 2017, the European Commission began investigating Valve and five other publishers—Bandai Namco Entertainment, Capcom, Focus Home Interactive, Koch Media and ZeniMax Media—for anti-competitive practices, specifically the use of geo-blocking through the Steam storefront and Steam product keys to prevent access to software to citizens of certain countries. Such practices would be against the Digital Single Market initiative by the European Union.[131] While the other five companies named are in stages of settling with the EU as of August 2019, Valve has stated it plans to fight the charges, asserting that geo-blocking affects less than 3% of its games, and that it had turned off such geo-blocking within the EU in 2015.[132]

In 2016, a former employee filed a suit against Valve alleging poor working conditions and harassment.[133] The jury ruled in favour of Valve in 2017.[134]