About the CompanyValve Corporation is an US video game development and digital distribution company founded in 1996 by former Microsoft employees: Gabe Newell and Mike Harrington. Valve has developed well acknowledged video game series: Half-Life, Portal, Left 4 Dead and DotA1 2. It has also developed and maintains the Source engine. Valve’s Steam digital distribution service is the major source of revenue while its new released RTS2 game, DotA 2 (stable release, 2013) is the current star product of the company.

Notable Products DotA 2 – Real Time Strategy game, multi-player (MOBA). The unmatched success

story of DotA 2 is the clear depiction of Valve’s effective development and utilization of “community” at its best. Within a year of stable release (May, 2013) of DotA 2, it became the most played RTS game (IGN.com, 2013 RTS list). The success grew when its international tournament (The International) became the biggest e-sports event in history with prize pool over $10 million (TI4, July-August, 2014). The Star product of Valve.

Steam – Online media distribution system. Launched in year 2002, serves as a replacement for much of the framework of the World Opponent Network service and also as a distribution/digital rights management system for games, DLCs, items/cosmetics etc. Steam provided trade volume of ~$38.9 million and Valve earned 15% of trade ($6 million), just by selling the digital products on Steam market. Termed as the Cash Cow of Valve.

Source Engine – Game engine. Debuted in June 2004 with Counter-Strike: Source, followed by Half-Life 2. It is being used professionally to create role-playing, puzzle, MMORPG, and real-time strategy games. DotA 2 was built using Source Engine.

1 DotA – Defense of the Ancients, strategy game mod developed by IceFrog for Warcraft III.2 RTS – Real Time Strategy, a game genre especially for multiplayer online plays.

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Porter's Generic StrategiesMichael Porter argued that an enterprise’s strengths fall into one of the following: cost advantage and differentiation. By applying these, three generic strategies come into picture and we would be applying the same in the success study of Valve corp.

Courtesy: Generic Strategies, QuickMBA.com

1. Cost Leadership StrategyThis strategy states that one should be the low cost producer in an industry for a given level of quality. The firm then sells its products either at average industry price to earn a profit higher than that of rivals, or below the average industry prices to gain market share.

Valve has developed its own game engine, namely Source Engine to develop the games. Thus, it saved huge amount of money (~10% of gross revenue and monthly rental fees) which would have been paid to the game engine license provider. This strategy was well applied by Valve in “cosmetics/item” sales in the DotA 2 world via Steam market. Third party developers are authorized to sell their items via Steam network and 40% of net worth goes to Valve corp. Thus, without hiring developers Valve delivers the best item sets to its consumers, which grants a huge cost advantage to Valve.

Due to the aforementioned reasons, Valve is able to stay in profit and provide an acclaimed RTS game like DotA 2 for FREE to the Steam users. Provision for online play is

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non-chargeable as well. Thus, leading to more market share and popularity of the Steam Market and attracting game sellers as well as buyers at the same time.

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2. Differentiation StrategyA differentiation strategy calls for the development of a product that offers unique properties that are valued by customers. Customers perceive the unique attributes of the product to be better than or different from the products of the competitors.

Valve gives a prime focus to make its product (DotA 2) stand apart from other RTS competitors (LoL3, HoN4 etc.) by indulging in constant game patches, addition of heroes, re-work of abilities etc. The frequency of updates provided by Valve is far more than Riot Games (developer of LoL), 31 by Valve (Jan-Jul, 2014) and 12 by Riot Games (Jan-Jul, 2014). Due to the continuous evaluation and gameplay fixes, DotA 2 attracts more players and offers them more space to explore, unlike LoL which is frowned upon for offering “unbalanced” heroes to play for some fees.

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DotA v/s LoL (Y: Number of patches X: Month)

DotA 2 makes every Hero playable to every player, thus, not compromising on the gameplay. To the contrast, LoL offers only limited (91 of 122) Heroes/characters to be played without fee. Hence, the gameplay becomes imbalanced for “free” players and is regarded as “unethical means of micro-transaction” by many. This point of differentiation in gameplay helped DotA 2 to gain momentum and “Dota 2 s success will′ continue in 2014." (SuperData analyst Joost van Dreunen).

3 LoL – League of Legends, RTS based multiplyer.4 HoN – Heroes of Newerth.

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The SuccessThe success of Valve resides in successfully pushing its Star product (DotA 2) by organizing the world’s biggest e-sports event in history: The International (TI4’s prize pool: $10.8M) and continuing to attract more players because of its “balanced gameplay” for free players.

Courtesy: TI4 prize pool tracker, CyborgMatt.com

The prize pool tracker vividly shows the rise of TI4 event as the prize pool surpassed previous year’s pool by triple the amount, within 10 days of compendium release. Finally, the prize pool froze at $10.8M which is more than 5 times the previous year’s amount. As the prize money was primarily funded by “compendium” buyers, the graph clearly depicts the fan following of RTS e-sports and DotA 2 overall.

Within a year of its launch, DotA 2 became the most played game on Steam (7 million users), thus, attracting huge number of players to the Steam Market. Since, this is uplifting the popularity of Steam Market more companies are selling digital media on the market as there as more users on Steam Market who are willing to buy. Hence, creating a win-win situation for Valve from all aspects.

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