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Valve's Gabe Newell Takes Video Gaming to the Next Level

Chris Morris, Special to CNBC.com
Monday, 2 Apr 2012 | 1:03 PM ET
Gabe Newell, co-founder and managing director of video game development and online distribution company Valve Corporation.
Source: Wikipedia
Gabe Newell, co-founder and managing director of video game development and online distribution company Valve Corporation.

If you ever find yourself sitting across from Gabe Newell at a poker table, do yourself a favor. Walk away.

Forbes magazine recently added Newell, co-founder and managing director of the video-game superpower Valve Software, to its list of the world's billionaires, estimating his net worth at $1.5 billion. That figure will likely only grow thanks to his latest gamble, called Steam, which is rapidly becoming for gaming what ITunes is to music.

As video games increasingly compete with the movies for America’s entertainment dollars, gaming kingpins like Newell have become equivalent to the Samuel Goldwyns and Irving Thalbergs of last century. Xbox chief Don Mattrick has a Vancouver home that was valued at more than $20 million in 2009, and developer Richard Garriott paid a reported $30 million to visit the International Space Station. Forbes’ estimate probably puts Newell near or at the top of the money list.

More impressively, he's managed to earn the respect of gamers, whose ethos runs more to the renegade than the One Percent.



Newell made his bet on digital delivery of video games a decade ago. At that time, Valve’s production team was working on a long-awaited sequel to "Half-Life," the company's 1998 breakthrough hit about the alien takeover of Earth. Deeply steeped in nearly every aspect of the new game, Newell felt he needed some distance on the process to remain objective on its progress. He began working on Steam, a digital delivery platform that Valve hoped would revolutionize how games are sold by shifting distribution online.

It was a risky move that demanded significant investment and forced Newell to be an industry evangelist about the potential of online sales. By 2005 though, the service was profitable, and today, Steam sells over 1,800 games and boasts 40 million active user accounts. Major game publishers, including Activision , Take-Two Interactive Software and Bethesda Softworks are among its partners. ElectronicArts has become such a believer in the concept that it has launched a competing service, while keeping many of its games on Steam.

"Gabe is an incredibly long-term thinker," says Tim Sweeney, founder of Epic Games. "Gabe had the audacity to invest in a technology that purported to put Valve, as a little game developer, in the position of digitally distributing huge publishers' games and taking a cut. … But now Steam is leading the PC game industry forward in the western world."

Valve has never released specific revenue numbers for Steam, but in January, Newell announced sales had doubled in 2011 and the number of simultaneous users had topped 5 million.

Newell didn’t look like a gambler when he started out. He started designing games at Microsoft in 1983 and stayed for 13 years. He was instrumental in convincing developers to embrace Windows as a gaming platform, rather than the familiar DOS operating system. Encouraged by id Software co-founder John Carmack, Newell and fellow Microsoft employee Mike Harrington cashed in their options to start Valve.

Their hopes weren't high. Newell has said he expected to make a single "mediocre" game then be forced to return to Microsoft. Instead, their first game — "Half-Life" — launched a franchise that has sold well over 20 million copies. (Harrington left Valve in 2000.)

Now 49, Newell is one of the most widely admired figures in gaming. In 2011, hackers accessed the Steam database. Valve immediately alerted users, but months later — in February 2012 — Newell sent a follow-up note to users saying the company had determined those intruders had obtained a copy of a backup file containing user names, email addresses — and more importantly, encrypted billing addresses and encrypted credit card information. Rather than crying foul as they did when Sony suffered a similar intrusion, most gamers shrugged it off.

Part of Newell's goodwill comes from his openness to the gaming community. He regularly responds to gamer emails, discussing everything from game theory to his fondness for Singha beer to his knife collection, and has playful interactions with Valve's player base. In 2009, he flew to Australia to play a fan-made map for Valve's "Left 4 Dead" game.

In return, he expects gamers to be on his team. In 2003, when a hacker stole the source code for Half-Life 2 and posted it online long before the game's release, Newell took the company's fan forums to ask for the community's help in tracking down the thief.

This relationship allowed Newell to weather difficulties like his recent database breach. "A lot of our love and attention ends up getting directed towards Gabe because he has not only has led such an amazing company, but he not infrequently puts himself out there via various means of public commentary and he tends to do so very candidly — it helps us feel as if we can get to know him," says Randy Pitchford, CEO and co-founder of Gearbox Software, which has worked with Valve on several games in the "Half-Life" franchise.

While he might be a kindly uncle figure to fans, Newell is hardly afraid to go toe-to-toe with industry giants like Sony and Microsoft.

In a 2007 interview with Game Informer magazine, he called the PlayStation 3 "a total disaster on so many levels." Three years later, though, he was on stage at Sony's E3 press conference noting the company's improvements — though not without a little humor. "I'd really like to thank everyone at Sony for their gracious hospitality, and for not repeatedly punching me in the face," he said onstage.

"Gabe is one of the rare industry luminaries who speaks his mind openly, and out of a genuine desire to improve the industry's state of the art," says Sweeney. "He has no qualms about sparring with Sony, Microsoft, and other industry leaders. Thus, when Gabe speaks, people listen. We know he's talking sense to us, which is a rare occurrence in the increasingly PR-driven world of large publishers."

A gambler who doesn't bluff? That a rarity in any field.

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