Valve Corporation, a major player in the video game industry, has several revenue streams contributing to its financial success. In 2022, Valve was valued at $7.7 billion and generated approximately $13 billion in total revenue, with about $10 billion coming specifically from its Steam store.
In this article, we’ll help you understand how Valve makes money by assessing its business model.
History of Valve Corporation
Valve Corporation’s journey began in 1996, founded by Gabe Newell and Mike Harrington, both former Microsoft employees.
Their vision to create and release video games led to the development of their first game, “Half-Life,” which was released in 1998. This game, acclaimed for its realism and creativity, significantly influenced the first-person shooter genre.
After Harrington left in 2000, Valve continued to innovate, launching the Steam platform in 2003 and releasing “Half-Life 2” in 2004.
Valve’s success continued with the Source and Steam Era, where they launched the Steam gaming platform, combining a comprehensive library, stat tracker, and storefront. This allowed Valve to publish their own games, granting them greater creative control. Initially exclusive to Valve games, Steam later expanded to include third-party titles.
The development of “Half-Life 2,” beginning just six months after the first game’s release, marked a significant advancement in game design. However, the complex development led to a shift towards an episodic storytelling approach.
“Half-Life 2: Episode One” and “Episode Two,” along with other successful games like “Team Fortress 2” and “Portal,” were released in this era.
Entering the 2010s, Valve shifted focus to service provision and hardware development. They acquired IceFrog, the developer behind “Defense of the Ancients,” and released “Defense of the Ancients 2.”
Despite a reduced number of game releases, Valve pursued hardware ventures like the Steam Machine, although it struggled in the market.
In recent years, Valve has embraced virtual reality, collaborating with HTC to develop the HTC Vive headset and releasing “The Lab,” a collection of VR mini-games.
The critically acclaimed “Half-Life: Alyx” represented a significant step in VR gaming. During this time, Valve also released other titles like “Artifact” and “Dota Underlords” and announced a sequel to “Counter-Strike: Global Offensive”.
This rich history highlights Valve’s evolution from a game developer to a multifaceted corporation with significant influences in game development, digital distribution, and hardware innovation.
How Does Valve Make Money?
Steam Platform Revenue
Steam, Valve’s digital distribution service, plays a crucial role in its financial model. The platform saw a significant revenue increase, particularly during the 2020 pandemic, as more people turned to video games while confined at home.
Product Offerings
Valve’s revenue is not solely dependent on Steam. The company offers a variety of products including:
- Video Game Sales: Valve develops and publishes popular games like Half-Life, Portal, Counter-Strike, Dota 2, and Left 4 Dead.
- Game Space on Steam: Valve profits from hosting numerous games on its Steam platform.
- Hardware: This includes the Steam Machine, a console/PC hybrid, the Steam Deck handheld game console, and VR gaming consoles developed in partnership with HTC.
Game Development:
Valve owns a range of successful games, such as Half-Life, Counter-Strike, and Dota 2. These games have become iconic in the gaming world and contribute significantly to Valve’s revenue through sales and in-game purchases.
Related // How Does Pokemon Go Make Money?
How Does Steam Work?
Steam, developed by Valve Corporation, is a digital distribution service and storefront for video games. Launched in September 2003, it began as a means to provide automatic updates for Valve’s games and later expanded to include third-party titles.
The platform offers a variety of features, such as game server matchmaking with anti-cheat measures, social networking, game streaming services, game update automation, cloud storage for game progress, and a virtual marketplace for collectibles.
Key Functionalities:
- Game Purchases and Software Integration: Users can purchase games and software, adding them to a virtual library for unlimited download and installation. The introduction of the Steamworks software development kit (SDK) in May 2008 allowed developers to integrate Steam into their games without Valve’s direct involvement. Steam also employs anti-piracy measures, including a unique, encrypted copy of the game’s executable files for each user, which can be installed multiple times on different devices.
- Cloud Services and Library Management: Steam Cloud, introduced in September 2008, automatically stores saved game data and custom files on Valve’s servers, accessible from any machine running the Steam client. Users can manage their game libraries remotely, including from mobile devices. Steam also supports redemption of product keys sold through third-party retailers.
- Game Sharing and Family Settings: Steam allows users to share games with family and friends by authorizing other machines to access one’s library. This feature, introduced in September 2013, lets authorized users play games separately from the owning account. Family View, introduced in January 2014, enables parents to adjust settings for their children’s accounts, limiting their access to the Steam client and purchased games.
- Content Delivery and Storefront Features: The Steam client includes a digital storefront where users can purchase games. Once bought, a software license is permanently attached to the user’s Steam account, enabling download on any compatible device. The content is delivered from an international network of servers using a proprietary file transfer protocol. The Steam storefront validates the user’s region, with game purchases sometimes restricted due to release dates, classifications, or agreements with publishers.
In summary, Steam operates as a comprehensive gaming platform, offering a wide range of services from game distribution and cloud storage to social networking and marketplace features. Its expansive library, user-friendly interface, and various integrations with game developers have made it a cornerstone in the digital distribution of video games.
Valve Funding, Revenue, and Valuation
Valve Corporation, the powerhouse behind the Steam platform, has seen significant financial success over the years. As of 2022, Valve’s valuation stood at approximately $7.7 billion. In terms of funding, the company secured total funding of around $10.6 million in 2018.
Valve’s revenue has been on a consistent upward trajectory. In 2022, the company generated around $13 billion in total revenue. This marked a steady increase from previous years, with $12.61 billion in 2020 and $5.85 billion in 2019.
A significant portion of Valve’s revenue comes from the Steam store. In 2021, the revenue generated from Steam alone was about $10 billion. This impressive figure was partly attributed to the 2020 pandemic, which saw an increase in gaming activity as people spent more time at home. Valve’s revenue from Steam has shown remarkable growth over the years, with $9.7 billion in 2020, $4.5 billion in 2019, $3.8 billion in 2018, and $3.4 billion in 2017.
Valve’s financial success is a testament to its strong presence in the gaming and digital distribution industries, driven by the popularity of its Steam platform and a diverse range of popular games and hardware products.
User Base and Game Sales:
The platform’s success is also reflected in its user base, with projections indicating over 1 billion unique registered players by 2022. Moreover, Steam reached a peak of over 26.09 million concurrent users in September 2021. In 2022, Steam sold over 400 million game units, with the highest sales recorded in 2021 at 439 million units.
Market Share:
Steam holds a substantial share of the global video game market, estimated at approximately 75%. The platform’s market share saw an 11% growth in 2021, outpacing industry competitors.
Through a combination of its popular gaming platform, Steam, game development and sales, hardware offerings, and a vast user base, Valve Corporation has established a robust and diverse revenue model in the video game industry.