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.
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.
You actually missed a step, which to me is what really makes this situation amazing: the TechCrunch page is a teaser for an article on CrunchGear that was actually syndicated from "gamrfeed" (note the via link! ;P) which itself is a snippet of a full article on Forbes.
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.)
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?"
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).
It just worked out that way. This company used to be one of my consulting clients, and they talked me in to staying full time to fix some quality and process issues as well as tweak their sales process. It's been very satisfying to see the progress for sure.
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.
IMHO it's more than just disruption - Valve has some of the most die-hard fans and supporters I've ever seen for any company in the game industry (myself included). They've done this by being relentlessly customer-focused.
Where EA will release a game, and then sell you unlock codes for content already on the disc as "downloadable content", Valve has ceaselessly offered perks for new and existing customers: years worth of updates to Team Fortress 2, all for free. Left 4 Dead too. Hell, when they introduced Steam Achievements they went back and added support for it in most of their back catalog! That's dedication to the customer.
And no small surprise, people flock to Valve, even when it comes to buying 3rd party games.
Indeed. Valve seems to legitimately care about the quality of their games and about the enjoyment of players. They spend more time refining their games rather than just putting out what they think will make money for a few weeks. And then they continue updating them and adding new content. This shows through in their Steam platform as well.
They've built an enormous amount of customer trust and goodwill, and this has been paying off immensely as more and more people use steam as a go-to platform for game purchases.
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.
>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.
> 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.
Yes but they will do that without Steam. Sony, Nintendo and Microsoft already have infrastructure in place for it and already digitally distribute small games. They just need to make it scale to full releases.
Yes but thus far Steam has had no real impact on consoles. In fact Valve recently opened pre-orders for Portal 2, but only for the console versions leaving the PC/Steam version out. Until Valve can figure out what to do about consoles, Steam will remain valuable but stuck on the fringes. I have no hard data but I'm willing to bet console games outsell PC games by quite a bit.
That's just completely untrue. PC gaming worldwide is much bigger than console gaming, and even in the US traditional PC games are bigger than any single console.
One reason is that AFAIK in Europe and most of the developing world, retail PC games are much cheaper than console games. (Here it's US $15 vs $55-60)
Also, Portal 2 is now up for preorder on Steam.
edit: of course, with digital distribution you also get a much larger cut [1] (so you don't need to sell as many copies as you do on a console to get the same amount of money).
For me, the biggest plus with digital distribution is that you get access to niche genres. I'd never imagine finding games like Reccetear or Super Meat Boy in a local store, but they're available on Steam. It's the same deal with music: outside of popular bands like Massive Attack and The Beatles, I've never been able to find any music I like in a local store. More generally, this is one of the reasons I fervently believe the Internet is the most important human invention since fire: if you take the time to explore your options, you need no longer be tied down to mainstream preferences.
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.
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.
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.
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.
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.
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.
You mean, what's with people smart enough to get into Harvard, studying one of the fields most conducive to tech entrepreneurship, who then see a business opportunity with so much potential that they are willing to leave Harvard for it, being successful?
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?
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.
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?
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 :)
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.
> 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.
