(or, How a Near-Anarchic Company Killed My Desire to Pirate, Provided Me Countless Hours of Entertainment, and Made a Killing in the Process)

My first thought when I woke up yesterday was the Steam Summer Sale. What would the new Flash Sales be? What won the Community Pick? It’s infectious! Even Liberty.me live chat was abuzz all day Thursday with talk of the sale. A thought hit me – the Steam Summer Summer Sale is a festival of innovation and competition. Steam is a triumph of the market over piracy, outdated sales models, and rigid internal management hierarchies.
[Note: For the uninitiated, Steam is a gaming platform and digital rights management system for PC gaming. You can download games, interact with other players, compare trophies for the games you have, and more.]


As I thought about it, I realized how different my gaming habits are now from what they were even a few years ago. You see, I have a confession to make. Fifteen years ago, I became a pirate (ARGHH!). A decade before I even had a real concept of intellectual property, I was plundering every Weird Al song I could find on Napster. Calico JackAs I sat there at the tender age of ten with my father’s headphones, rocking out to Amish Paradise, I hadn’t the slightest inkling that some people thought of what I was doing as “stealing” – I just didn’t want to be marooned without fresh music.
All I knew was that I only got enough allowance in exchange for doing various chores that I could buy an album once every 6 weeks, and my penchant for polka parody could not so easily be sated. Finding Napster was nothing short of a miracle. While downloading each track took ages at a few kilobytes per second and blocked up the phone line, each one was a little triumph, and I bought my favorite songs on CD so I could carry them with me. I later carried on the habit through BitTorrent and KaZaA throughout middle school.
Then I found game piracy. Now, if you didn’t know, game piracy isn’t like music piracy, where you just download what you want and play it. Game piracy is hard. Getting programs cracked and setup with the right drivers without the support of the company who made the game wasn’t always even possible, and viruses often threatened to send your computer to Davy Jones’ Locker. Nevertheless, as I still didn’t have money to buy the games I wanted (most of which were $40 or more – quite a bit for a young lad), I put in the effort.

 “Competition and innovation in game distribution had brought quality gaming down to a price point at which it cost me less to buy a game than to spend time pirating it.”

By that time, I had heard that piracy was stealing, but that didn’t make sense! I didn’t pirate games that I could afford, and I sometimes bought games later that I had already pirated. I wasn’t robbing anyone; I had taken nothing from the games’ creators – it was either pirating the games or not having them at all. It was intuition, even if I didn’t learnthe philosophy behind it until later. I continued as a broke undergrad, despite getting a few cease and desist letters (the modern day Black Spot).
And then, Steam happened. By the time I found Steam around 2010 (a bit late to the party), it was already a thriving community – yes, a community – that made buying games easier than any experience I’d ever had. I still remember my first Steam Summer Sale fondly (though I suspect my wife’s memories of it are less warm). I still have games from that sale that I haven’t yet played (and, as it turns out, I’m not alone – 37% of games activated in Steam have never been played once).
Suddenly, there was no reason to pirate; the price competition between developers on the Steam platform was so fierce that I could often find dozens of hours of entertainment with only a few dollars. Competition and innovation in game distribution had brought quality gaming down to a price point at which it cost me less to buy a game than to spend time pirating it. Thanks to Steam’s revolutionary new distribution model, I hung up my cutlass and am now able to support my favorite game developers. Spotify and Netflix did the same for music and movies, transforming me from a sea-hardened buccaneer to a veritable landlubber.

Rejecting Tradition

Without a monopoly on their creations, how could creators make money? DOTA 2This is the constant refrain heard by those of us who reject intellectual monopoly. But as the digital age has reduced companies who clung to the old copyright-dependent models of game distribution to dust, Valve (the creator of Steam) has stood strong. Indeed, much of the company’s profit comes from games that they give out for free.
How could that be? DOTA 2one of Valve’s Free-to-Play (F2P) offerings through Steam, will have its annual “International” tournament this July in Seattle… and the prize pool is currently at $9.7 million dollars and rising daily. That’s bigger than the prize pool for the 2014 Masters Tournament; the biggest tournament in golf. That prize pool represents ¼ of the total digital ticket sales (the right to watch the games online) for the International, meaning that just on tickets to watch digital games (which costs almost nothing to provide), Valve has cleared nearly $30 million dollars. I bought my ticket on the second day they were available, and found myself shelling out $10 more for bonus items shortly afterward.
DOTA 2 and Team Fortress 2, Valve’s premiere F2P games, are tremendously profitable, but they aren’t “pay-to-win” – buying things gives you no special advantages. The majority of the revenue comes from cosmetic items to dress up characters. I’ll admit; at first when I started playing DOTA, I thought that was silly… but I’ve spent more than a few dollars on the latest badass-looking armor for my favorite heroes. Team Fortress 2 alone made more than $139 million dollars in 2013 in microtransactions, which have nearly no cost for Valve!
What Valve is really selling is the network itself. Yes, you can play DOTA offline against the computer, but it’s not all that fun. The fun is in getting a bunch of people together and doing battle as if your life depends on it. Competition, both in the game and on the market, is exhilarating, and Valve has mastered it by eschewing custom and embracing the creative spirit. No, they didn’t invent F2P, but they had the courage to jump into it headfirst. This cutting-edge approach has radically altered the landscape of PC gaming, but as it turns out, Valve’s innovation isn’t confined to its distribution or even to its publishing.

Spontaneous Order

Valve is nearly unique in that it is one of the only companies, and certainly the largest, to have a “flat” corporate structure. That means there are no managers; no one reports to anyone. Employees find like-minded coworkers to work with, and create their own projects. Valve Employee HandbookThe Valve employee handbook states, “This company is yours to steer – toward opportunities and away from risks. You have the power to green-light projects. You have the power to ship products.” That’s a lot to lay at the feet of a new employee.
Flat doesn’t work for everything. In some tasks you need hierarchy. Valve, however, understands that creativity thrives best when it is squashed least. That’s not really something you want in potato chip manufacturing, but for video games, it’s everything.
Even within Valve, the lack of hierarchy doesn’t work for everyone. One ex-employee complains of cliques and scalability issues, and if your coworkers think you suck, you get paid less. But isn’t that a bit of a market test? If you can’t play well with others, shouldn’t that affect your income? Money is a powerful incentive, and if your workplace rankings alter your compensation, you’ll likely work harder.
The thing about the Summer Sale that I find so beautiful is this: People I’ve never met in places I’ll never visit spend thousands of hours crafting products for which they have a vision – products that I could never have begun to imagine until they existed – and I, from my cozy spot at my desk, can buy them for less than the cost of a Big Mac combo and spend dozens of hours enjoying them. Or I can activate them and never play them once. That’s exquisite. Never in history has there been anything like what Valve has brought us with Steam. Valve has certainly profited for its contributions to human happiness, and I think that I’m better off as well.
Is “flat” the best way to go? I can’t really say, and neither can you. The important thing is the market test. Each of us votes with our dollar. For this eleven day period each Summer, I, along with gamers everywhere, will be voting for Valve.
Now if you’ll excuse me, I’m off to find a new game.