The Most 'Based' Company in Tech? - A Dive into Valve
Hint: They can't count to 3
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Every now and then, we take a break from our usual explainers to go deep - and we mean really deep. Our ‘Deep Dives’ are longform pieces built to unpack the full story: the context, the tradeoffs, the weird details most people skip over.
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Let’s get into today’s deep dive.
Steam wasn’t built to sell games. It was built to fix a broken update system.
Twenty years later, it earns billions of dollars in annual game sales and powers 70% of all PC game downloads globally.
What if one of the most important tech companies in the world...barely talks to the press, never went public, and lets employees choose their own projects by literally wheeling their desks across the office?
If you’ve ever launched a game on PC, chances are you’ve used Steam. It’s practically the backbone of modern PC gaming. But behind that blue logo is a company that’s done far more than just build a digital storefront - it quietly shaped the way we buy, play, and even think about games.
Valve is weird. And brilliant.
What started as a patch delivery tool for Counter-Strike has become the backbone of PC gaming - with over 132 million monthly active users, a library of over 100,000 games, and one of the most loyal user bases in tech.
Founded by two ex-Microsoft engineers who got obsessed with Doom, it’s the company that turned a mod into Counter-Strike, a Half-Life sequel into a platform, and a Linux experiment into the Steam Deck.
While most tech giants chase quarterly earnings, Valve just builds.
This article is a deep dive into Valve’s past, present, and future. We’ll explore how Gabe Newell went from Harvard dropout to the most beloved billionaire in gaming, how Steam became the money-printer of PC gaming, and how Valve is betting on Linux to avoid a digital distribution monopoly.
You’ll also learn why Valve’s office desks have wheels, why they’ve never had managers, and why that freedom might be both their superpower and their biggest risk.
Let’s unpack one of the most unconventional companies in tech - and why its success might be a blueprint worth studying.
Explaining Gabe Newell
We can't talk about Valve without first talking about the lord himself - Gabe Newell.
Gabe who's also sometimes referred to as Gaben (that's his Steam username) is the co-founder and CEO of Valve Corporation. He's one of the legends of the gaming industry and also one of the richest personalities in the scene.
Gabe is probably one of the most loved or least hated billionaires in the world. The gaming community has been memeing about it for decades now and still they haven’t stopped. Some people literally see him as the savior of PC gaming.
Here’s a visual description through a fan art:
While being a student at Harvard University back in the 1980s, Gabe once went to meet his brother who was working at Microsoft at the time. He'd occasionally visit his brother at the Microsoft office. After a couple of months, Steve Ballmer convinced him to work at Microsoft and in 1983, Gabe officially dropped out to work at Microsoft simply because he liked computers.
Gabe spent around 13 years of his life working at Microsoft. He worked as a tech executive, and a programmer on the first 3 versions of Microsoft Windows. With an interest in gaming, Gabe took a note of Doom, a popular shooter game developed by id Software - a 12 member team including the likes of John Carmack.
While working at Microsoft, taking a deep interest in Doom, Gabe led the Windows port of Doom which is widely credited as a pivotal moment that made Windows games a reality going forward.
Gabe started to take an interest in games and after being disillusioned with Microsoft for their increased interest in marketing and seeing what a 12 member company like id Software could make, Gabe, along with his co-founder Mike Harrington left the company and founded Valve back in 1996.
Half-Life & Steam
After founding Valve, the two co-founders, Gabe and Mike self-funded their first project: Half-Life 1, which was a first-person shooter game. The game was an instant success both in the reviews and in sales.
Being among the early members at Microsoft meant that both colleagues were wealthy enough to fund their own projects. After Half-Life 1, Gabe gave a virtually unlimited budget and deadline for Half-Life 2.
Applying game updates back in the early 2003 was a tedious task. Users would have to go to developer websites and manually download the necessary files and copy them over the game’s installation directory.
This was more of an issue in multiplayer games where a group of people had their games updated and the other would take a couple of days. This meant that the former group of players who were running the latest version of games would have to wait for their peers.
During the development of Half-Life 2, Valve started working on Steam, which was initially a solution to this same problem of delivering game updates over the internet from a centralized system to everyone, all at once.
Steam and its Evolution
Now, more than 20 years old, Steam is still by far the most popular digital marketplace to buy, play and update games on a PC. Looking at it today, it seems that Steam came off as an outright success but it would be wrong to assume that.
Originally, Steam started off as a platform to ease up the process of issuing game updates. It was initially made for games like Counter Strike (a game developed by Valve) so any new content by the developer could be shared with the player.
In addition to timely release of any new content by the game developer, Steam also introduced one of the earliest anti-cheat software built into it to make cheating in games like Counter Strike harder. But the launch of Steam wasn't a bed of roses and initially Steam had a rough start.
Early issues with Steam
Steam launched back in 2003 and back then most households even in the US didn't have reliable access to broadband internet. Steam requiring constant internet access to play games was an issue for gamers. Some people saw it as a threat to PC gaming.
When Steam launched, it had a lot of issues all the way from their servers not being able to balance the load of requests by gamers to their authentication servers being buggy at times.
Steam wasn’t born with a good user interface like it has now. Back then, it had a really clunky user interface. The rock-solid download speeds that we experience these days were also not available at that time, it was common to experience delays because of servers being overloaded.
The Landmark Moment
The release of Half-Life 2 is credited to being the moment that made Steam what it is today. For context, the development of Steam had already begun during Half-Life 2's development but it wasn't until the release of the game that Steam blew up.
Half-Life 2 was a revolutionary game. It instantly became a fan-favorite and this game changed the way games would be consumed for the years to come. Half-Life 2 was the first game that was available to purchase entirely digitally through Steam instead of buying physical copies.
But even if someone bought a physical copy of Half-Life 2, they would need to sign-up to a Steam account to be able to play the game on PC. This initially upset some but most of the people were willing to sign-up to Steam just because the game was such a success.
Valve also started offering free games like Counter Strike: Source if people bought Half-Life 2 digitally through Steam. Half-Life 2 sold millions of copies. The big success of Half-Life 2 wasn't just a win for the game but also for Steam.
Because of Half-Life 2, Since a large amount of people had Steam installed on their PCs, now Valve would just have to cook up the platform to be the popular platform that it is today. And that's what they did.
After the release of Half-Life 2, Steam started evolving into a digital marketplace and quickly grabbed 50-70% market share of all PC game sales. Steam also became a large source of Valve's revenue going forward. Some call Steam the money-printer for Valve.
The Gradual Evolution
With a rocky start of Steam with their load-balancing issues, authentication issues and always-online criticism, Valve still won by slowly improving the flaws and gradually adding in new features. Below I'm discussing some of the major features that we saw as Steam evolved with time.
The Games Library
Steam started off as a response to Valve's content distribution problem for their own games but after the success of Half-Life 2, Valve started listing games from other manufacturers to be bought and played through Steam.
Valve started adding publishers like EA, id Software, Activision and the likes to Steam. This meant that the Steam games library started expanding from just the Valve games to games from many of the major publishers.
Starting in 2005, Valve spent their efforts improving the Steam storefront and expanding the collection of games that they offer. For the next 3 years, Vale focused on adding more games to the library and improving the store.
Cloud Saves and the Holiday sale
Around 2008, Valve introduced Steam Cloud which was a service that automatically backed up your game progress and tied it to your steam account. This service was ahead of its time because there was no alternative to it back then.
In 2009, Steam's user-base grew significantly and it was also the year Steam launched its first Holiday sale even though it wasn't as big of an event as the current Summer Sale is.
Steam Workshop & Steam Guard
2011 introduced us to Steam Guard, Valve's own two-step verification system to authenticate Steam users. This was also the year Steam released the Steam Workshop for the modding community.
Steam Marketplace, User Reviews, Big-Picture Mode
Around the release of Counter Strike: Global Offensive, Steam Marketplace was released which was a place to buy and sell in-game items. Trading was also allowed on Steam Marketplace.
In 2013, we saw the release of user-reviews on Steam games. Also around this time Valve released a Big-Picture mode for the Steam client that was made so the client is accessible through a controller just like a console.
Valve's Leaning Towards Linux
By 2012, Steam was enjoying the best time of its life. It had many of the major game publishers in its library. It was the de-facto platform to purchase and play games at that time. Life was going good for people at Valve.
Well, the moment of peace that Valve was enjoying started to feel threatened as Microsoft released their plans for the introduction of Microsoft Store in Windows 8. The store was to be a similar platform to the Apple’s App store where Microsoft would solely own the complete software distribution supply chain.
What this meant for Steam is that Microsoft would start listing games on the Microsoft store too and the 30% cut on game sales that Steam enjoyed would go to Microsoft. Basically, the move to Microsoft store was an existential threat to Steam.
Because of this threat of Microsoft taking over, it was around this time that we started to see some fundamental strategy shift in Valve going forward with people like Gabe Newell openly exploring options like the free Linux-based Operating Systems.
Windows 8 and the Microsoft Store
Microsoft introduced Windows 8 in 2012 and it was the first time that Microsoft introduced Windows Store with the hopes of making it a centralized software distribution platform for the next iterations of Windows to come.
This sparked a concern among people like Gabe who openly said that this would hurt publishers like Steam when monopolies like Apple and Microsoft would control the user-flow of purchasing games while taking their cuts.
This was one of the major reasons why Valve started looking for alternatives to Windows and it's around the same time we see Gabe experimenting with Linux. In 2013, at a Linux conference, Gabe openly said that "Linux is the future of gaming".
Valve's open embrace of Linux led to them working on a number of projects. The first of which was a native Steam client port to Linux. Valve also released the first version of SteamOS around this time.
The Failure of SteamOS 1.0 & Steam Machines
The first version of SteamOS was a customized flavor of Linux-based OS called Debian. SteamOS 1.0 was aimed to be a general operating system which means that it was made to be installed on any computer just like you install Windows.
The SteamOS 1.0 wasn't a success for gamers because of a number of factors. The first thing was that the library of compatible games on SteamOS 1.0 was a fraction of the overall Steam catalogue. Back then, SteamOS 1.0 only supported native Linux games and most of the games were straight-out not compatible and this meant that most players simply ignored it.
SteamOS 1.0 had a unique feature which allowed streaming games from Windows PC to any PC running SteamOS. The streaming feature doesn't sound that exciting right now but back then it was unparalleled as no other OS had this feature.
In 2015, Valve introduced Steam machines which were Valve's first try of their own console. Steam machines were made by multiple manufacturers but they never picked up because of a number of reasons.
Steam machines were overpriced and under-powered and since they used the first version of SteamOS this meant that they were only limited to running Linux-native games which reduced the games catalogue to a really tiny one that gamers were not happy with.
There were promises of AAA titles like The Witcher and Street Fighter V releasing with their Linux-native ports for the Steam machine but the ports never materialized.
Valve's Second Try at Linux
Through its Store, Microsoft wanted more control over the supply-chain of software distribution across their Operating System. This remained an existential threat to Steam and they had to look for an alternative.
The Microsoft Store never took off as the single point for software purchase but In Steam's view, it was just a matter of time when Microsoft Store became like Apple store and became the only way to purchase software on PC.
Valve already experimented with the first iteration of SteamOS and the release of the Steam machine but they were not a success.
The Linux Problem
Linux-based operating systems being open-source software meant that Linux doesn't have any incentive like Microsoft to capitalize on the software distribution inside its OS to generate revenue. There is no for-profit entity controlling Linux as a company unlike Microsoft that controls Windows.
Anyone can get the Linux source code, build their version of it and release it to the public and that's what Valve did with their first iteration of SteamOS. They bundled a flavor of Linux called Debian and pre-configured it with their native Steam client and optimizations.
Linux has always been widely used in servers and enterprise applications but Linux has always had a non-existent market share in Gaming. It never touched the 5% mark, compared to the 90%+ share of Microsoft.
Historically, Linux has not been a platform that developers make games for because of the sheer size of its users. It doesn't make financial sense to port games to Linux for less than 5% of the sales demographics.
The major problem with SteamOS 1.0 was that it only supported Linux-native games and the Linux-native catalogue of Steam just wasn’t big enough. Valve's first iteration of SteamOS relied on developers releasing native linux ports but they hesitated to put in the effort.
Development of Proton
Valve failed to make SteamOS 1.0 a reality the first time they released it. It was a major setback and they understood that it's not feasible to convince game developers to port their games to Linux.
Porting Windows games over to Linux is a time-consuming and resource-intensive process. And almost no big developer was ready to spend that much time for less than even 5% of their sales.
So, Valve had to shift their approach. Instead of requesting game developers to support the Linux platform they started working on something that didn't need developers porting their game for Linux and here comes the Proton Compatibility Layer.
Traditionally, if you had software that was developed for Windows, it wasn't possible to run it directly on Linux. Both are entirely different Operating Systems and developers specifically need to release a Linux version of the game to ensure compatibility with Linux.
If you wanted to run Windows apps or games on Linux, you could use Virtual Machines, which are specialized software that are designed to use the host PC's resources to virtualize an environment like Windows in isolation.
Virtualization technology in-theory does allow for programs made for a different architecture like Windows games to run on other architectures like Linux but it comes at a big cost to performance requiring beefy hardware.
Valve couldn’t just use Virtual Machines because that was too big of a performance hit for Windows games to smoothly run on Linux on modest computers. So, Valve started working on the Proton Compatibility Layer.
The Proton Compatibility Layer as the name suggests is a software layer that Valve developed on top of an open-source software called Wine which is a compatibility layer that allows one to use Windows apps on Linux.
Wine isn't a virtualization or emulation layer but instead it's a translation layer which translates instructions in a Windows program to Linux instructions as the program runs. This means that Wine achieves the same goal of running programs on an unsupported architecture.
Valve understood that Wine could theoretically be used to run Windows games on Linux but the state of stock version of Wine wasn't that it was just a plug and play experience. Valve had to put significant developer time to make it possible through patches and optimizations.
So, Valve forked the Wine source code that was available freely because it's also an open-source program and released the Proton Compatibility Layer which simply explained, is just Wine but specifically fine-tuned to run Windows games on Linux.
Video games are really complex programs and for Linux to accurately run Windows games, Valve had to put a lot of time and effort not just into the Proton but in building an entire ecosystem from scratch, all the way from open-source graphics drivers, shared libraries and a lot more.
The Proton Compatibility layer took years to get to a working level and Valve released it back in 2018 with a list of 27 games that were compatible with it at that time. The games including the likes of Doom were reported to perform as native games perform on Windows PC.
Valve kept the Proton Compatibility Layer open-source and this meant that the open-source community was also involved in the development and success of the Proton Compatibility Layer. A win for Valve was a win for open-source gaming.
Although the Proton Compatibility Layer itself is open-source the official way to use it is through the Steam Client which is not open-source. It is directly integrated with the Steam Client and can be enabled in settings. Although one can manually install and use the Proton Compatibility Layer too.
The Newer SteamOS
Back in 2018, even though the Proton Compatibility Layer was a revolutionary technology it was far from perfect. But the open-source nature allowed it to improve by the day and steadily the initial number of compatible games rose from just 27 to several hundreds.
The open-source community also played its part by helping in all stages of development of the Proton Compatibility Layer. The community still maintains the ProtonDB, a site which has crowdsourced data on game compatibility through Proton.
ProtonDB also has fixes and optimization guides for games that don't perfectly work through Proton. Direct integration of Proton Compatibility Layer with Linux-native Steam client made it possible for Valve to work on a newer SteamOS again.
And that's what Valve did. It created the newer SteamOS titled SteamOS 3.0, based on another flavor of Linux (Arch Linux) which already had Steam and the Proton Compatibility layer pre-configured with the OS.
The things that were different this time was that the SteamOS now had a way to run Windows games on Linux even if the developer made no effort to support that specific game on Linux.
SteamOS 3.0 didn't just come as a general OS that you could burn on a USB and install to your computer. It was specifically made to run on specialized hardware like the Steam Deck and other valve-approved hardware.
Valve has already started partnering up with other console manufacturers like Lenovo enabling their devices like the Legion Go S to run the newer SteamOS. There are also rumors that we may see a general release of SteamOS too.
The Steam Deck
After working for years trying to find a way to run Windows games on Linux, Valve now had an ecosystem that worked. They had the Proton Compatibility Layer. They had the SteamOS 3.0 and they had the support of the open-source community.
While Valve was working on the Proton Compatibility Layer and SteamOS 3.0, It was also working on another new console, but this time it'd be a portable console called the Steam Deck.
The Steam Deck, which was released back in 2022 came with hardware that was custom designed to make it compatible with SteamOS 3.0. The newer SteamOS was based on Arch Linux.
The Steam Deck was an instant hit, not just because of the newer SteamOS but because Steam Deck was also the most powerful out of all the mainstream handhelds available at that time. One could also emulate other consoles like Nintendo and PlayStation on a Steam Deck, how cool is that?
Running some of the most demanding AAA titles like Cyberpunk on a battery and a 7-inch display that fits in your palms was unprecedented. Also, the price was also pretty catchy for a device that packed in this much power.
Initially, the Steam Deck released with just a couple hundred Windows games that were compatible with it but as time went by and the ecosystem matured this number grew significantly and today more than 19,000 games are playable on the Steam Deck.
If you are more interested in learning about the Steam Deck, I recently wrote about it in a previous article. You can access it from the link below:
Steam Deck vs Windows: A Quiet Revolution in Gaming
Imagine running a AAA PC game on a tiny device - in your backpack…and it just works.
Why is the Steam Deck Special?
Handheld consoles aren't a new thing. Consoles like the PlayStation Portable and Nintendo Switch have existed long before the Steam Deck but in its approach to Steam Deck, Valve has made a revolutionary product.
Before Steam Deck, the approach for most console manufacturers was to first create their own locked-up, proprietary operating systems and then partner with game studios to create ports for their games available for their consoles.
This means that the games catalogue is limited to just the games made available for that platform. PC having the biggest catalogue out of all consoles simply meant more games.
Steam Deck is the first mainstream console that showed that Linux can be a viable platform to play games even if all the odds are stacked against it like developers not creating linux-native games or trying to make their games compatible with Linux.
In the PC space, Before Steam Deck there was no alternative to Microsoft. If you have to play a game it is the platform to play it. It was simple: Users used it and developers made it.
But the popularity of Steam Deck has started a conversation that maybe we had an alternative to Microsoft Windows all this time. With Microsoft Windows locking people in and making questionable choices for their newer operating systems, SteamOS was a much needed alternative.
The newer SteamOS is built on top of already open-source software like Arch Linux, Wine. This is why SteamOS is also free to implement which in-turn means cheaper devices for the end-users because console manufacturers don't have to pay huge sums of money to license the Operating System.
The Weird Company
Valve, the company is not your average tech company. As can be seen in their approach to products, Valve itself is a big risk-taker and it has an unusual company structure that appears like a reaction to many of the things that are wrong with the current gaming industry and the modern corporate corporations.
Why Valve Never Went Public
Many times, Gabe has publicly shared his views on external capital. He believes that going for external capital in the form of Venture Capital or Public Offerings is a "great way of destroying money and wasting people’s time".
Valve's ownership structure has been concentrated with most of the ownership between the co-founders and the employees. This belief lets it avoid quarterly earnings pressure or meddling from public shareholders. The second co-founder, Mike Harrington, sold their shares to Gabe in 2000.
As per Forbes, Steam has been "tremendously profitable" for Valve and this removed the need to look for external capital. The company with a small workforce of a couple hundred people is more profitable than many of the Wall Street Firms.
This removes the need for Valve looking out for external capital because it would add unnecessary external constraints for the company and their vision.
The Flat Hierarchy Model
From the very start, Valve has been a "weird" company and they take pride in this by claiming that in its infamous New Employee Handbook. The work environment at Valve is like no other company in the gaming industry and it has been that way for quite some time.
The Flatland
Normally, companies have people working in teams, these teams report to managers, managers then report to middle managers and that's how the chain goes to the executives.
The employee hierarchy model at Valve starts with the basic concept of Flatland which explains that Valve doesn't have the usual structural hierarchy among employees.
No Job Titles
Yes, Valve doesn't have job titles for employees. This means that each employee is treated as part of the flatland as an equal member. Employees choose which tasks they want to work on and they are free to switch teams or create their own teams if a team of their interest doesn't exist.
Valve's New Employee Handbook also has a special guide to changing teams. Each desk has literal wheels and employees are free to take their desk to any other team they want and start working right away.
Below is a visual representation of this concept taken from the handbook:
No Mass Layoffs
Especially after Covid-19, we've seen mass layoffs from many of the big tech companies which included giants like Microsoft and the likes cutting down tens of thousands of jobs in a span of 2-3 years.
For Valve, the company hasn't done a mass layoff. There have been occasional trims of a handful of people but the company hasn't experienced a mass layoff, not even remotely close to the trend that has been around big companies generally.
R&D over ROI
Because of the ownership structure of the company, a large part of which is owned by the employees, Valve doesn't have to chase short-term ROI goals. Instead it can take risks that might not even play out right now but would pay in the long run.
This is what has led Valve to experiment with new products like their VR headset called Valve Index and their development of Source 2 engine. Valve was able to put big bets on Linux with their Steam Deck precisely because they didn't have to worry about external shareholders.
Why Players and Devs Trust Valve
Valve as a company has roots in the modding community. Some of the earliest members who joined in as engineers were modders. For Steam, there has always been a sweet spot for the modding community.
The Steam Workshop is a great example of how Valve supports the modding community. The Workshop is a whole marketplace where users can not only trade but also rate and auto-update mods.
For someone who wants to publish their game on Steam, the barrier to entry is pretty basic. Valve asks for a $100 refundable fee along with 30% of the total sales up to the first $10M. Valve reduces its cut to 25% after the first $10M in sales and to 20% after the first $50M in sales.
Steam is known for their user-friendly refund policy. Ever since 2015, buyers can get a refund without any reason instantly if they bought the game within the last 14 days and played less than 2 hours of it.
What's Next for Valve?
Valve is not just a game company anymore and it now builds its own hardware like the VR headset, Steam Deck and a few others. But with the new experiments the initial idea is the same and it is largely believed that as long as Gabe steers the ship, Valve will be fine.
But some also believe that there is a succession plan to carry the company forward with the same mission once Gabe is incapable of leading the charge but nothing concrete could be said about the plan because it is yet to surface publicly if it exists in the first place.
Some Potential Risks
The company was made by nerds and the original leadership is aging. The company has an unusual operating model that is completely different to how other companies in the gaming industry operate.
The company's flatbed model is loved by the employees and appreciated by many but there have been concerns around the general productivity and some criticize the flatbed model for Valve cancelling and delaying various of its game releases. “Valve can’t count to 3” is a literal meme.
The No-Managers approach has worked and has its benefits but it isn't perfect and the critics even in the company raise attention to the flaws that seep in when developers are entirely free to work on whatever they want to.
With the original leadership aging we may see a shift in the company's trajectory going forward coupled with new challenges like increased regulation around digital platforms.
Although no one has yet succeeded like Valve but, competitors like Epic games and Tencent also have deep pockets and they are a threat to lookout for in the future.
Can Steam Stay Based Forever?
This is an interesting question and the only definite answer is that time will tell. Steam has been the undisputed king of the PC gaming world and it still enjoys the same reputation. A simple company that started off with a hit video game turned into a billion dollar empire in just a couple of years thanks to their innovative solutions.
Gabe Newell's leadership and openness to experiments is what made Valve into what it is today. The company rakes in billions of dollars in revenue a year and yet it feels like a bunch of nerds and hackers working at things they find interesting. It still smells like some 90s hacker collective.
Every other games company like EA, Rockstar Games, Epic - basically companies that are 10x or more in size of Valve have tried to compete with it by releasing their own launchers and some even giving AAA titles for free just to attract some attention.
New platforms come and go. The instant flash gets some attention but things settle after some time. The features, the history, the reputation of Steam is still unmatched by any other digital platform in the PC world.
It is true that the PC gaming world has been better off with Valve steering the ship. Their user-friendly refund policies, their embrace of open-source, their discounts, their support of modding communities, these are some of the ways Valve has blessed PC gamers in the past.
As things stand today, I believe it is safe to say that the crown hasn't yet slipped away from the valve's head.
What the future holds: Only time will tell.
If only more companies were like Valve, more focused on their mission instead of quarterly earnings, the internet would have been a much better and fun place.