Valve Corporation

• 1. Introduction

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  Valve Corporation was founded on the 24th of August 1996, the same day its co-founder Gabe Newell got married. Decades later, that company makes Half-Life, Counter-Strike, Portal and Dota, runs the storefront Steam, and sells handheld hardware. Several of its games appear on lists of the greatest ever made. Yet most of its money comes from a store rather than from games. How did two former Microsoft employees end up here? Why would a studio with such acclaimed shooters and puzzle games release fewer of them as the years went on? And why has the company spent so much time in courtrooms around the world, as both plaintiff and defendant?

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• 2. A Break From Microsoft

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  Gabe Newell spent 13 years at Microsoft working on Windows before he decided to start a game company. One of his tasks there was the Windows 95 port of Doom, made by id Software. The experience irritated him. Game developers kept building their own custom interfaces to drive graphics acceleration. He also noticed that id Software, through a different way of distributing Doom, was outselling Windows itself.

  Newell and his former colleague Mike Harrington registered Valve, L.L.C. in Kirkland, Washington. The office sat about five miles from the Microsoft campus in Redmond.

  Hollow Box, Fruitfly Ensemble and Rhino Scar were all candidates for the company's name. Newell broke with the industry style of the time and wanted nothing that suggested "testosterone-gorged muscles and the 'extreme' of anything".

  Half-Life, the company's first game, was a first-person shooter with elements of horror. Valve built it on the Quake engine from id Software and modified that engine into its own GoldSrc engine. After struggling to find a publisher, the team signed with Sierra On-Line. The game reached players in November 1998 and succeeded with both critics and buyers. Its realism, scripted sequences and seamless narrative proved influential. In 2014, IGN wrote that the history of the genre "breaks down pretty cleanly into pre-Half-Life and post-Half-Life eras".

  Gearbox Software built three expansions for the game: Opposing Force in 1999, Blue Shift in 2001 and Decay in 2001. Valve also bought TF Software in 1998, the group behind the popular Team Fortress mod for Quake, and remade it as Team Fortress Classic in 1999. It released the software development kit for GoldSrc, which encouraged many user-made mods. It then acquired the makers of one popular mod, Counter-Strike, so they could build a standalone game.

  Harrington, pleased with how well the company was doing, sold his stake in Valve to Newell in 2000.

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• 3. The Storefront Gamble

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  In 2001, Valve threatened to stop making games altogether. Under its 1997 publishing agreement, Sierra owned the Half-Life intellectual property and held exclusive rights to publish every future Valve game. Valve used an offer from Amazon, to build a digital storefront together, as a bargaining chip. Once the agreement was amended, Valve held the Half-Life intellectual property and the right to distribute its games online.

  By August 2002, Valve had discovered that Sierra was supplying copies of its games to Internet cafes, which the contracts did not allow. Valve sued Sierra and its parent Vivendi. It claimed copyright infringement, withheld royalties, and a delay to Counter-Strike: Condition Zero until after the holiday season. Vivendi countersued. It argued that Valve had misrepresented its position in the 2001 contract, because the company was already building Steam to get around the publishing agreement. Vivendi wanted the Half-Life rights and a ban on using Steam to sell Half-Life 2. According to Valve's COO Scott Lynch, those countersuits would likely have bankrupted the company.

  During discovery, Valve received a number of documents in Korean. A new intern translated them, and they appeared to show that Vivendi had ordered evidence destroyed. After the court saw them, the judge acted to block Vivendi's countersuits, and the case turned in Valve's favour.

  On the 29th of November 2004, Judge Thomas Samuel Zilly of the U.S. District Court for the Western District of Washington ruled for Valve. He found that Vivendi Universal and its affiliates, including Sierra, had no authority to distribute Valve games through cyber cafes for pay-to-play use. The companies settled on the 29th of April 2005, and the arbitrator awarded Valve $2,391,932.

  In April 2009, Valve sued Activision Blizzard, which had acquired Sierra Entertainment after merging with Vivendi Universal Games. Activision had paid $1,967,796 of the award but refused the remaining $424,136, saying it had already overpaid that sum in earlier years.

  Steam was announced at the Game Developers Conference in 2002 and launched in September 2003. At first it delivered patches and other updates to Valve's online games. Early on it sold only Valve titles, and Half-Life 2 required it. Later it became a publisher of third-party games. In that same year of 2003, Valve moved to Bellevue, Washington and reincorporated as Valve Corporation.

  By 2011, Steam controlled between 50 and 70 percent of the market for downloaded PC games. In July 2014 it offered over 3,400 games, and by January 2018 it had over 150 million registered accounts. In August 2017, Valve reported 67 million monthly and 33 million daily active users. The service generated an estimated $3.4 billion in 2017. A Forbes Australia report in December 2024 put Valve's annual revenue at $5 billion by 2023, with a 40% profit margin. Steam supplied around 60% of that total.

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• 4. Engines And Franchises

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  Six months after Half-Life reached players, Valve began work on Half-Life 2. It used a new in-house engine called Source, built from scratch to replace GoldSrc. The sequel brought advanced physics systems and a stronger focus on story and characters. It received critical acclaim on release in 2004 and had sold 12 million copies by 2011. Source also powered Team Fortress 2 and the Portal series. In March 2015, Valve announced a refinement called Source 2, and it later powered Dota 2, Counter-Strike 2, The Lab and Half-Life: Alyx.

  Half-Life 2 took five years to make, and Valve responded by switching to episodic development. The plan was shorter games released more often. Half-Life 2: Episode One, the first of a planned trilogy, arrived in 2006. Episode Two followed in 2007, alongside Team Fortress 2 and Portal. Portal grew out of a student project called Narbacular Drop. In February 2007, Valve announced The Black Box and The Orange Box, bundles of several games and expansions that Electronic Arts would distribute for Windows, PlayStation 3 and Xbox 360. The third episode was never released.

  Turtle Rock Studios joined Valve in January 2008 and was renamed Valve South. While associated with Valve it developed Left 4 Dead and Left 4 Dead 2, and it spun out again in March 2010. By 2011, Valve had dropped the episodic plan. Games such as Left 4 Dead 2 and Team Fortress 2 now received continual updates through Steam. Portal 2 arrived in April 2011. As with the first Portal, Valve brought in a Digipen student team, and the group behind Tag: The Power of Paint implemented the new gel gameplay.

  In 2009, Valve hired IceFrog, the developer of Defense of the Ancients, a mod for Warcraft III. He led a sequel free of Warcraft elements, which became Dota 2 in 2013. In 2011, Valve started The International, an annual Dota 2 esports tournament. Its prize pool comes from Valve plus microtransaction funds from battle passes that players buy.

  Artifact, a Dota 2 card game designed with Richard Garfield, creator of Magic: The Gathering, launched in November 2018. Its unusual pay-for mechanics for acquiring cards kept the audience small, and it lost 95% of its players within months. In April 2021, Valve abandoned efforts to reboot it. Counter-Strike 2 arrived in September 2023 to generally favorable reviews, though players responded with mixed feelings. In 2024, Valve began beta-testing Deadlock, a mix of hero shooter and MOBA. That September, staff from Hopoo Games, the developers of Risk of Rain, announced that they had joined Valve.

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• 5. A Company Without Bosses

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  "Nobody writes a design doc and hands it to somebody and says, 'you go build this'." That was how Valve's marketing manager Doug Lombardi described the company's approach. "It's the teams that are coming up with the ideas and pushing in the directions that they want to take the product."

  Valve began with a conventional hierarchy. Physical releases through publishers demanded tasks finished by fixed deadlines. Once Valve became its own publisher through Steam, that structure slowed it down. After finishing Half-Life 2, the company went flat. Outside executive management it has no bosses, and an open allocation system lets employees move between departments at will. Newell said the arrangement demands that people own their product and their mistakes. He also admitted that "there are plenty of great developers for whom this is a terrible place to work". After the hard development of Half-Life 2, Newell said he became "obsessed" with improving the company's work-life balance.

  Still, some employees carry more influence through seniority or relationships. De facto project leads became "centralized conduits" for organizing and sharing information, while decisions stay collective. A process called Overwatch gathers feedback from senior members, which teams may use or ignore.

  Steam means Valve does not depend on the success of its games. The lack of structure has also led to cancellations, since it can be hard to persuade colleagues to join a project. The casualties include several Half-Life projects, among them Episode Three, as well as Left 4 Dead 3, a Soulslike game and a voxel-based game called A.R.T.I. Virtual reality projects fell by the wayside too. SimTrek came from members of the Kerbal Space Program team, and a new headset called Vader proved too costly for consumers. According to the designer Robin Walker, many projects failed to gain traction, no shared vision existed, and morale suffered. In 2020, Valve acknowledged that this had slowed its output in the 2010s. Its virtual reality work and Half-Life: Alyx became a turning point, setting short-term goals for the whole studio. Walker put it this way: "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."

  The phrase "Valve time" is an industry joke about the gap between a promised release date and the real one. It covers delays, but also content that shipped earlier than expected. Valve has embraced the term and tracks known discrepancies on its public development wiki. It blames delays on its preference for team-driven initiatives over corporate deadlines.

  Court documents from Wolfire Games' lawsuit over Steam policies revealed that Valve had 60 employees in 2003 and about 350 between 2012 and 2021. Staff fall into administration, game development, Steam development and, from 2011, hardware development. In 2011, Newell said the company, then worth an estimated $2-4 billion with 250 employees, was more profitable per employee than Google or Apple. In January 2023, the video channel People Make Games published a report based on interviews with current and former staff. It found that the flat structure and a stack-ranking compensation system had produced a poor release record and a lack of employee diversity. In 2016, Valve signed a nine-floor lease in the Lincoln Square complex in downtown Bellevue, doubling the size of its offices. In 2024, Forbes estimated that Newell owned 50.1% of the company, with employees holding the rest.

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• 6. Playtesting Everything

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  Chet Faliszek, a writer at Valve, first blamed testers whenever they failed to engage with a design the way the team expected. Then the same problem kept recurring. "By the third or fourth time, all of a sudden you're realizing, 'I'm an idiot. This is pretty obvious this doesn't work. It's not their fault, it's our fault.'" His example came from Left 4 Dead, where a texture change caused every tester to miss a ladder and get stuck.

  Valve tests its games extensively from the start of development and iterates on the results. The company believes that "all game designers are, in a sense, experimental psychologists".

  Robin Walker said the testing helps the team maximize the experience for players. When something exciting happens by chance in a playtest, the developers try to make it happen for every player. Newell contrasted this with Warren Spector, whose open-ended games are built to be replayed with different outcomes. "You spend all of this time to build stuff that most players will never ever ever see.... If only one per cent of your customers see this cool thing that takes five per cent of your development budget, that's not a good use of resources."

  In June 2012, Valve hired the economist Yanis Varoufakis to study the online economies of its games.

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• 7. Hardware And Virtual Reality

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  "A catastrophe for everyone in the personal computer space." That was Gabe Newell's verdict on the changes Microsoft made in Windows 8. He criticized the company for moving toward a closed architecture like Apple's. He saw the open-source Linux platform as an ideal home for Steam and said only a shortage of games was holding it back. He also wanted Valve to become more like Nintendo, which develops games alongside hardware and produced innovations such as Super Mario 64. In the 2010s, Valve released fewer games and invested in hardware.

  In 2012, Valve announced a console-PC hybrid for the living room that media called the Steam Box. SteamOS, a free Linux-based operating system, was officially announced in September 2013 as the first of several Steam Machine announcements. In May 2014, Valve delayed its own Steam Machine until 2015 because of problems with the controller. When 2015 arrived, Alienware, ZOTAC and CyberPowerPC launched their own versions. By June 2016, fewer than half a million had sold, and the line was effectively canceled. The first Steam Controller arrived in November 2015. It used two small trackpads with haptic feedback, which could act like a joystick or like a computer mouse. Commentators speculated that Valve's shift to being a service provider through Steam had pulled it away from making games.

  At the Game Developers Conference in March 2015, Valve and the Taiwanese company HTC unveiled SteamVR and the HTC Vive. Its Lighthouse system used two base stations mounted in the play area. Sensors on the headset and controllers read their positions, which allowed room-scale experiences where players could walk freely. Valve had first focused on augmented reality, but in 2013 Newell laid off many staff to concentrate on virtual reality. After the Vive's release in 2016, Valve released The Lab, a collection of VR minigames. Many players wanted a bigger, more ambitious VR game, so Valve built several prototypes, with three more VR projects under way by 2017. The portal systems of its Portal puzzle series proved disorienting in VR, so the team settled on Half-Life. Walker called Half-Life 3 a "terrifyingly daunting prospect", and VR offered a way back to the series.

  Full development began around late 2016 with the largest team in Valve's history. In January 2017, Valve acquired Impulsonic, a developer of 3D audio software. In April 2018 it bought Campo Santo, known for the 2016 adventure game Firewatch. The Valve Index headset followed in June 2019 as a higher-end device with a wider field of view and higher refresh rate. Its controllers strap against the palms and sense pressure and individual fingers. Half-Life: Alyx arrived in March 2020 to acclaim, and it was described as VR's first killer app. In January 2021, Newell said its success had created a desire within the company to make more games.

  The Steam Deck, announced in July 2021, is a handheld hybrid console similar to the Nintendo Switch. A separate dock lets it connect to an external monitor, power and USB accessories. It runs on customized AMD Zen 2 and RDNA 2 chipsets, and units started shipping in February 2022. Its Linux-based SteamOS uses the Proton compatibility layer, so most Windows games on Steam run without modification. An OLED version in November 2023 added a better display, longer battery life, improved audio and more storage.

  In November 2025, Valve announced a redesigned Steam Controller, a redesigned Steam Machine, and Steam Frame, a standalone VR headset. All three were scheduled for early 2026, but the RAM crisis delayed them. The second-generation Steam Controller shipped on the 4th of May, with no release date set for the other two.

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• 8. Courts And Regulators

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  Defense of the Ancients, first released in 2003, was a landmark mod that laid the basis of the multiplayer online battle arena genre. Kyle Sommer, who goes by the alias Eul, created it inside Warcraft III. Steve "Guinsoo" Feak and later IceFrog managed the spin-off DotA-Allstars. Valve hired IceFrog in 2009 and bought the rights to the Dota property the following year. It filed trademarks for Dota 2, and in August 2010 DotA-Allstars, LLC opposed them. Blizzard Entertainment acquired that group and took over the challenge. Meanwhile Riot Games had hired Guinsoo, who transferred his rights to Riot, and Riot sold them to Blizzard. Blizzard v. Valve settled out of court in May 2012. Valve kept the right to use Dota commercially, and Blizzard reserved fans' non-commercial use. Blizzard renamed its Blizzard All-Stars project Heroes of the Storm.

  In 2017, Valve and Blizzard took joint action against mobile developers, including Lilith, over their use of Dota names. The defendants argued that the Dota games were a collective work no one could copyright. Judge Charles R. Breyer felt that those who maintained the mods had a rightful claim. They also argued that Eul had assigned an open-source license to Dota in a forum post in September 2004. A jury heard the case.

  The Australian Competition and Consumer Commission announced action against Valve in 2014. On the 29th of March 2016, Valve was found to have breached Australian consumer law. It had claimed buyers of downloaded games were never entitled to a refund, and it had excluded or restricted statutory guarantees of acceptable quality. Valve introduced a refund policy during the case, but the court still fined it in December 2016 and required it to inform Australian consumers of their rights. Appeals failed in December 2017. The High Court of Australia dismissed Valve's request for special leave in April 2018, since Valve sold directly to Australians.

  In December 2015, the French group UFC Que Choisir sued over several Steam policies, including a claim that users should be able to resell their software. The High Court of Paris sided with the group in September 2019. In 2022, the Court of Appeal of Paris overturned that ruling in Valve's favour. In 2024, the French Supreme Court confirmed it, citing the EU Copyright and Information Society Directive 2001. Another of the group's complaints concerned Valve S.a.r.l., a Luxembourg subsidiary with an office in Kirchberg. It sold games to UK users and avoided the full 20% value-added tax. Valve S.a.r.l. ceased business on the 1st of January 2017, and the main company took over sales in Europe again.

  In June and July 2016, two lawsuits named Valve over third-party sites that used the Steamworks API for betting with cosmetic weapon skins from Counter-Strike: Global Offensive. Both suits said Valve aided underage gambling. In October 2016, the Washington State Gambling Commission ordered Valve to stop skins gambling on Steam. On the 17th of October 2016, Valve wrote back that it had "no business relationship with such gambling sites". In February 2017, the European Commission began investigating Valve and five other publishers for geo-blocking through Steam product keys. Valve said geo-blocking affected less than 3% of its games and that it had switched it off within the EU in 2015.

  In January 2021, five gamers filed a proposed antitrust class action in California over Valve's "most favored nation" agreements with publishers. In May 2021, Wolfire Games filed another, alleging monopoly power over PC gaming and an "extraordinarily high cut" from sales. In May 2022, Judge John C. Coughenour let it proceed, and in November 2024 it was affirmed as a class action open to any developer affected by Valve's revenue cut. In June 2024, the children's digital rights activist Vicki Shotbolt filed a case with the UK's Competition Appeal Tribunal. She accused Valve of overcharging 14 million people and sought between £22 and £44 each, or £656 million in total.

  In 2023, Valve sued the law firm Zaiger, alleging it tried to extort settlements by threatening a flood of arbitration cases, a tactic called mass arbitration. A court in the Western District of Washington dismissed the suit without prejudice in 2024 over personal jurisdiction. In September 2024, Valve changed its Steam Subscriber Agreement so that disputes go to court in King County, Washington, with no option of arbitration.

  In 2015, Display Technologies LLC, one of several companies owned by Leigh Rothschild, sued Valve for patent infringement. The suit was dismissed by January 2016, and Valve then licensed twenty patents from Rothschild's firms. Around 2022, another of his companies, Patent Asset Management, demanded new licenses on two of those patents. Valve sued in 2023 under Washington's Patent Troll Protection and Consumer Protection Acts. At least three Texas lawsuits followed from Rothschild's companies, which Valve called retaliatory. In February 2026, a jury found in Valve's favor on all counts.

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