
Valve Makes More Money Per Employee Than Google Or Apple - bjonathan
http://techcrunch.com/2011/02/15/valve-makes-more-money-per-employee-than-google-or-apple/
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bjonathan
Forbes article on the subject:
[http://www.forbes.com/forbes/2011/0228/technology-gabe-
newel...](http://www.forbes.com/forbes/2011/0228/technology-gabe-newell-
videogames-valve-online-mayhem.html)

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sosuke
That was strange indeed, this link to Techcrunch was a teaser for an article
that was on Crunchgear that was a snippet of the actual full article on
Forbes. It was a good read though.

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jamesjyu
My friends and I have actually been noticing this. There's been a deluge of TC
links to articles with barely any content, and/or content that simply links to
another article.

This is _not_ a good trend. People: please submit original sources.

~~~
raquo
An opportunity to make a techcrunch url unshortener!

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icey
Revenue per employee is one of my favorite metrics. I work on B2B software &
services and when we ask our customers for testimonials we ask them to figure
out what their revenue per employee was prior to using our system and then
compare it with current numbers.

Since part of our value proposition is that we teach companies how to do more
with less, it becomes a very powerful marketing tool. (We usually see an
increase of 200% to 300% revenue per employee after 5 years; ordinary growth
in our industry is 10% to 20% growth over 5 years.)

~~~
klbarry
Wow, may I ask what kind of software creates such an astounding change?

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icey
Heh, it's a boring industry - Insurance sales. But other than a few small
players that are focused on the wrong things, we mostly compete with home-
grown systems and excel worksheets over email.

We made a choice to focus on this metric a few years ago and it's been a
tremendous boon for us (and our customers). Now we consider every change with
the lens of "Will this help our customers do their jobs better?"

~~~
muhfuhkuh
When I used to sign up for insurance face to face through a local broker,
their system was logging into a ISDN line, then connecting to a VMWare session
that opened up a hosted desktop that they then used to open a TN3270 emulator
to the insurance (in this case, Allstate) text-based interface.

I have a feeling independent resellers of services, brokers of any kind, and
management companies of all verticals are seeing this type of abysmal
computing and are crying out for someone building that next Quora knock-off to
give their industry some love, likely at _any_ price (because they're probably
paying a fortune for their kludge solutions anyway).

~~~
icey
Rating systems are part of our offering ;)

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mjfern
Aside from the Valve's revenues per employee, what I find interesting about
Valve is their Steam platform.

Steam (and other platforms for downloading and streaming videogame content)
are a disruptive threat to Gamestop and the videogame sales of other
retailers, such as Wal-Mart.

Given that online distribution has now disrupted music, newspapers, books,
movies/video, and now tv/broadcast, I'm surprised that investors think
Gamestop is worth $3b.

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georgemcbay
One thing Gamestop still has going for it is used game buyback and resell,
which IIRC is where they make the vast majority of their money. Considering
this market is completely unserved by Steam and other online delivery
platforms, I can see why Gamestop would still be valued pretty highly, for
now.

Of course, over time I suspect console makers will move more and more towards
digital distribution for all games, but that won't happen overnight or even
any time soon.

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r00fus
>Of course, over time I suspect console makers will move more and more towards
digital distribution for all games, but that won't happen overnight or even
any time soon.

This is why Gamestop should be finding support (ie, EFF, ACLU, legislators) to
safeguard First Sale doctrine for digital purchases:
<http://en.wikipedia.org/wiki/First-sale_doctrine>

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ianferrel
Is there any reason to believe that Gamestop will get any of the business from
digital resale?

I could see eBay trying to find that support, but Gamestop's just a dinosaur.

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iwwr
Showing up is 90% of winning a battle. Other companies didn't bother with
digital distribution and left the field wide open to Valve. All for the
better, perhaps, it would be terrible if EA or Activision had the market all
to themselves.

But even though they are not purely a game company, Valve are among the
dwindling developers that actually embrace modders and giving players choice.
In the console-centered world, the idea of free custom maps or player-run
servers is fading from memory.

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Aaronontheweb
I'm not surprised - Valve's business model with Steam is really smart and it's
a great way to PC game publishers to sell older inventory (like my beloved
Lucas Arts classics) without having to take any real risks. They're going to
become the Amazon of PC games if they aren't already.

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allwein
Measuring any "Random Tech Company" versus Apple on the metric of Revenue Per
Employee is always going to be skewed in Apple's disfavor. Everyone always
forgets the thousands of retail employees at Apple Stores which are obviously
going to generate much less revenue than say Johnny Ive or the programmer's
writing the next version of OSX.

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_delirium
Valve is also really small compared to Apple (250 employees versus 50,000). If
we're willing to compare among that level of size difference, then Mojang (of
Minecraft fame) has better revenue per employee than Valve.

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ZachPruckowski
Does it? "High Hundreds of Millions"/250 could be greater than or equal to
$10M-$15M/7 employees.

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dorkitude
True, but Mojang grew 7x after most of that revenue ;)

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Tiktaalik
Even aside from their Steam distribution system I think Valve probably does
better than most game companies at producing hit games while keeping their
teams small. If you look at titles such as Left 4 Dead and Portal it's clear
that there's not a whole lot of feature bullet points. These hit games are
short, well crafted, tight experiences. In contrast many other AAA titles out
there offer a massive array of features and options to the player. Grand Theft
Auto, Mass Effect, Fallout, and Halo are all massive games that require
massive teams to create.

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bugsy
This is not a news story, it's a marketing story promoting the company. The
reason is that the claims are not remarkable at all, but the story promotes
them as if they were, which is misleading.

Per-employee profit and revenue is larger in general at small successful tech
companies than big successful ones.

For example, I make far more per employee than Valve, Microsoft, Google or
Apple and you don't see Forbes writing about me, nor should they.

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MLR
So their profit is somewhere north of $70 million if I did my maths right and
Wikipedia is reliable.

Not at Activison level yet I think.

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DevX101
Didn't know Newell was a Harvard dropout. What's it with Harvard C.S. students
dropping out and making it rich?

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kirubakaran
Survivorship bias, selection bias etc

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DevX101
I agree with the survivorship bias, maybe there are other dropouts who I never
heard of.

But on the selection bias, I can't really think off the top of my head many
other major founders from top C.S. schools that dropped out and were
successful. Is Harvard even a "top" C.S. school?

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mdwrigh2
According to US News [1], it's ranked 17th which is decent, but not great. On
the other hand that ranking is for graduate schools though, which takes into
account things like citations of research published, which is less important
at the undergraduate level.

I'd say at the undergraduate level, Harvard is a top CS school if only because
the competition is so fierce to get into it at that level, the students will
be among the top. And, in my opinion, the quality of the students is of more
importance than the quality of the teaching at the undergraduate level, when
you start talking about the top 20 schools anyways.

[1]: [http://grad-schools.usnews.rankingsandreviews.com/best-
gradu...](http://grad-schools.usnews.rankingsandreviews.com/best-graduate-
schools/top-science-schools/computer-science-rankings/page+1)

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joh6nn
that's a fun metric, but is it useful? i ask in seriousness. granted i'm no
economist, but i'm not sure it's actually telling us much. Google and Apple,
unless i'm mistaken, have way more product diversity in much larger markets;
that Valve should have lower overhead per employee doesn't come as a surprise
to me.

is there some non-obvious (or perhaps it is obvious, but not to the lay-
person) reason why this is an impressive or telling metric?

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yesimahuman
Don't forget engine licenses.

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CrazedGeek
Does Valve make much off of those? Looking at
<http://en.wikipedia.org/wiki/Template:Source_engine_games>, there don't seem
to be too many "other" games.

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andreaja
Valve don't release pricing information for the Source Engine, but they say
it's competitive[1]. One of their competitors is id, who charge $250k plus 5%
of wholesale[2] for id Tech 3. I'd say it's probably nice side income. Epic
charge $350k plus 3% of wholesale[3].

For 18 games (if I counted that wikipedia list correctly), that should be a
fair take, but it would seem like more of a side income when compared with
Steam :)

[1] <http://source.valvesoftware.com/SourceBrochure.pdf>

[2] <http://www.idsoftware.com/business/technology/printdoc.html>

[3] <http://udn.epicgames.com/Main/Licensing.html>

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psykotic
Well, $350k is UE2's price but that's an outdated engine. A license for the
current generation engine, UE3, will cost you around $1MM for a flat deal,
less with back-end royalties.

Epic makes significantly more from their games than from their licensing.
Here's the math. The Gears of War games had sold 12 million copies as of April
last year. Most were sold close to release at $60 but some sold later at a
discounted price. Let's say the average sales price across the 12 million
copies was $50. A top-tier developer like Epic can command a 40% or higher
royalty of wholesale minus cost of goods. GameStop's profit margin on a new
game is 20% and cost of goods is a few bucks. That's around $15 per copy into
Epic's pockets. Multiply by 12 million and you get $180MM. When Gears of War 3
lands in half a year, it will sell more than 7 million copies and make Epic
another $100MM.

That's a fuckton of money.

Valve's revenue from sales of their own games and cuts from Steam is
stratospheric compared to Epic's. If Gabe snapped his fleshy fingers and
instantly absorbed all of UE3's marketshare with Source, it would still
constitute a small portion of Valve's revenues. That's probably why Valve
hasn't been more aggressive about engine licensing. They already have a
massive and diversified revenue stream.

~~~
andreaja
At what margin? There's more revenue in gaming than engine licensing, but once
you have the engine, I can't imagine it costing much to license it.

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psykotic
> At what margin? There's more revenue in gaming than engine licensing, but
> once you have the engine, I can't imagine it costing much to license it.

When you license UE3, you receive technical support from the programmers who
implemented the engine. That's part of the sales pitch. Epic's marginal
expense cannot be covered by just hiring more random hackers; it's mainly an
opportunity cost. The engine is also in continual development, so you can't
think of marginal revenue after the initial R&D investment as pure profit.

An alternative licensing model was followed by id Software back when they were
still in that business. You sign the contract, pay the license fee, get a full
day of face-time with Carmack, and then you're all on your own. There were
other reasons that id's licensing business collapsed but the non-support was a
contributing factor.

But there are also strategic technical issues that discourage Valve from
chasing Epic's engine marketshare. Building an engine that's fit for many
genres and platforms takes longer and is fraught with compromises compared to
catering solely to your own needs.

It's a good business but there are reasons Valve focuses their attention
elsewhere.

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masklinn
And still no Episode 3.

