Valve’s Gabe Newell talks wearable computers, why consoles should open up, and game ownership
Steam, and pricing
You’ve had a lot of success with Steam, and the bundles, and the sales, and these kind of experiments, do you think at this point you have pricing figured out?
Oh no, not at all. I think we’re learning. We tend to–pricing is just part of an overall broader question about–we're trying to think of it in terms of how we can create more value for customers that’s not, you know, the traditional way of thinking about pricing actually causes you to sort of segment it off from how you think about lots of things that you’re doing for customers. You should think of pricing almost as a service opportunity and think of ways of doing… it’s like a discovery problem. You wanna figure out how you can connect customers with the right collection of content and services and you need to get away from the sort of one size fits all broadcast mentality. Pricing is one of those things where a lot of people are still approaching it in almost a pre-Internet fashion instead of seeing that there’s actually an opportunity to do a better job of delivering the right stuff to the right customer for the right combination of pieces. So if you look at free-to-play, that should be kind of a wake up call to everybody in our industry that we should have been able to figure that out sooner, that this realization that a lot of customers create more value by being in the world than people were extracting by trying to charge them an upfront fee. That’s just one example of what will probably be many insights that the gaming community comes up with as better ways of thinking about how you maximize value creations in a community. Free-to-play and the community contribution side are both just sort of different ends of the same spectrum, which is thinking about how to create more opportunities for value creation and value consumption, where you’re trying to get the right people connected to the people who are creating value for other people. So if somebody’s a really good team member you need some way of recognizing that and if you just sort of–the simple way of putting it is that person pays less money for the game. That’s sort of a simplistic way of saying they’re creating value, you have to capture that and if you fail to do it you’re being economically inefficient. That’s just a tiny way of rethinking about how everybody in the community is creating value and how you need to connect that to the right consumers and that’s what the value ends up being, not worrying about whether you charge $29.95 or $39.95, which actually causes you to pay attention to all of the wrong things.
How do you sit down and try to extract the data about which players are going to bring value into the game without almost embedding people into vent servers to listen to how they interact?
Well, we all play games all the time. It’s not Valve who will be saying that somebody’s more or less valuable, right? You have to create and design systems where the fact that somebody is valuable to some other group of people is discoverable by somebody else. The fact that you’re fun to play with is just one of many, many different ways that people can potentially create value in this kind of environment. The fact that I found that somebody was fun to play with needs to be efficiently and transparently communicated to other people who like to play with people who are like people I like to play with, which is totally different. You might find that person incredibly annoying and exasperating and not at all interesting to play with, so if you can create a system in which both of us end up getting the greatest amount enjoyment out of our experiences then you created a lot more value collectively, right? Each person is going to have a very different weighting of a bunch of different values, choices, preferences, and getting you connected to the right experiences with the right people with the right content is going to be a characteristic of a more successful systems, and just sort of treating everybody as if they’re exactly the same and only viewing them as opportunities to extract a retail entrance fee is gonna seem very archaic, I think, fairly soon.
Now this all sounds wonderful and it makes sense, but what kind of concrete mechanisms can you put in place that allow people to express who they like to play with and how they’re either giving or gaining value from the system?
Well, one of the things you have to do is start to come up with metrics, so we look at huge amounts of data all the time and then we try to figure which one’s predictive and which ones aren’t. So if you look at – here would be a simple example– so one of the decisions we made with Portal 2 was that we were gonna care a lot about whether or not people actually completed the game. And once you start paying attention to it and start changing stuff, you know, we made a bunch of changes after Portal 2 shipped that significantly increased the number of people who actually were completing the game with, I think it was – we had some window like 30 days, so as soon as you just simply start paying attention to some metric and start making changes based on that metric and then measuring those results, you tend to get somebody somewhere fairly quickly. So if you were looking at people and saying “let’s not really care about who, let’s just take a trait agnostic approach to this and just simply view people as clumping together,” we’re not really sure why, some people would say “oh, I can assign various traits and characteristics to these people and I’ll just start measuring those things directly.” The problem is that if your framework is wrong or if they don’t actually matter, you end up being screwed. So instead you just sort of say “let’s just see – let’s pick some behavior that we can measure and then start to look for correlations that we’ll then try to test for causalities.” So if somebody comes into a server who are the set of people that tend to stay on the server and who are the set of people that tend to leave. And then let’s look and see if that’s random or if it’s correlated, in other words if there are groups of people who tend to stay together and other groups of people who tend to avoid those people or leave or be mad. So then let’s use matchmaking and then say “so we’re going to put these people together,” and in fact what they should do is that they should all be more likely to stay through the entire match, and they also should be more likely to play again within the next week. And then you make those changes and you group those people together and you find out no I was totally wrong, right, none of those people actually did it. Then you go, okay, there’s something about our model here that’s not working and we need to figure it out, and then you tinker with the model until you say “good, now we can actually with a lot of confidence say that there are groups of people and when we cluster them together they tend to play longer and they tend to play more often.” That way we don’t have to interview them, we don’t have to read their chat logs, but we probably made a set of changes that those people would perceive as being fairly valuable, so that’s just like a really simple example of the kind of thing that you would do without being particularly intrusive into the relationships yet would still probably have a pretty positive outcome for people in the community.
Now on a completely different subject, Rock, Paper, Shotgun ran kind of an odd story about a Russian customer who was banned from his Steam account and lost access to his games, and this kind of raised a very basic question that even lawyers couldn’t seem to answer concretely is whether or not we own the games we buy from Steam. I’m curious for your thoughts on this matter.
I think we’re actually checking to find out what was going on with our Russian customer, I got mail from people saying “what’s the deal with this?” So I actually haven’t heard back yet, but on its face it seems kind of broken and those are the sorts of things we’re happy to fix. If you’re asking me to render a legal opinion then I’m just not the super useful person to render a legal opinion. In that specific case people use my email, which is why it’s out there, and said “hey, this doesn’t seem right” and I’m actually waiting to hear what the result of that specific instance was. At first blush it sounded like we were doing something stupid and then we’ll get it fixed.
But even from kind of a more general point of view, you have services like Steam or Origin where these many purchases and micro-transactions and all these transactions we’re making through multiple companies are kind of tied to this overreaching account. Do you have lawyers who kind of look at the legal implication of where exactly you fit into that relationship?
Yeah, we have lawyers who look at stuff all the time, I’m not sure I’m answering your question directly. It’s sort of like this kind of messy issue, and it doesn’t really matter a whole lot what the legal issues are, the real thing is that you have to make your customers happy at the end of the day and if you’re not doing that it doesn’t really matter what you think about various supreme court decisions or EU decisions. If you’re not making your customers happy you’re doing something stupid and we certainly always want to make our customers happy. And I think we have a track record of having done that.
There’s also this huge conversation going, especially now with rumors of the new consoles, about used games and piracy. Do you feel like you’ve kind of successfully sidestepped those issues with Steam as a service provider?
You know, I get fairly frustrated when I hear how the issue is framed in a lot of cases. To us it seems pretty obvious that people always want to treat it as a pricing issue, that people are doing this because they can get it for free and so we just need to create these draconian DRM systems or ani-piracy systems, and that just really doesn’t match up with the data. If you do a good job of providing a great service giving people… as a customer I want to be able to access my stuff wherever I am, and if you put in place a system that makes me wonder if I’ll be able to get it then you’ve significantly decreased the value of it. So, you know, people were worried when we started using Steam initially because, oh my gosh, if I don’t have my discs what happens when I get a new machine? And after they’ve done this a couple times they’re like “oh my god, this is so much better, I’m so much more likely” – you know, this isn’t a legal argument, this is a real world argument – “I’m so much more likely to lose my discs than I am to have any problem with my Steam account, that seems way better than having a physical token that I use to access my content.” A lot of times the systems that are put in place when you’re just trying to punish your evil customers for maybe doing something that’s not in their terms of service end up driving people towards service providers who don’t, right? So, you know, if I have to wait six months to get my Russian language translation and where I can get at this other guy on the street who will give me my Russian translation right away, it seems pretty obvious when you talk about it in those terms how the pirate selling pirated DVDs has a higher product than some of the people who try to DRM their way out of not giving customers what they really want.
Have you ever been tempted to put a set of standards for DRM across games on Steam? Unless you do a lot of research when you buy a game through the service you might not know exactly what you’re getting.
I’m not sure I understood what you’re trying to ask me.
Sure, like if you’re going to sell a game on Steam, has there ever been a temptation by you to kind of create a standardized set of DRM and holding publishers to it, or saying this kind of thing is inadmissible but will allow these certain solutions? Have you ever been tempted to get more hands-on on what kind of DRM is offered through what amounts to your storefront?
We tend to try to avoid being super dictatorial to either customers or partners. Recently I was in a meeting and there’s a company that had a third party DRM solution and we showed them look, this is what happens, at this point in your life cycle your DRM got hacked, right? Now let’s look at the data, did your sales change at all? No, your sales didn’t change one bit. Right? So here’s before and after, here’s where you have DRM that annoys your customers and causing huge numbers of support calls and in theory you would think that you would see a huge drop off in sales after that got hacked, and instead there was absolutely no difference in sales before or after. You know, and then we tell them you actually probably lost a whole bunch of sales as near as we can tell, here’s how much money you lost by bundling that with your product. So we do that all the time, we’re just – you know, I wouldn’t be super happy if some other third party tried to tell me how to have relationships with our customers and I expect other people feel the same way, and I also tend to think that customers don’t really like it when you try to impose rigid rules on them as well, so we tend to think and hope that over time people will move towards doing the things that are in the best interests of both the customers and the content developers. You know, it’s a really bad idea to start off on the assumption that your customers are on the other side of some sort of battle with you. I really don’t think that is either accurate or a really good business strategy, and so we just sort of keep trying to show – you know, I think that we have a lot more credibility now with developers on issues like this simply because there’s so much data that we can show them where we say look, we’ve run all of these experiments, you know, this has been going on for many years now and we all can look at what the outcomes are and there really isn’t – there are lots of compelling instances where making customers – you know, giving customers a great experience and thinking of ways to create value for them is way more important than making it incredibly hard for the customers to move their products from one machine to another.