Will Gabe Newell Be The Next Videogame Billionaire?

gabe-newell of Valve

Valve founder Gabe Newell may be the next “billionaire of videogames” reports Forbes Magazine.

Through Valve Software, Gabe Newell has done the same thing for the videogames that iTunes, Amazon and Netflix have done for music, books and movies: move customers from brick and mortar stores to the Internet!

Valve’s site, Steam, has 30 million customers downloading video games and upgrades; only Nintendo, Microsoft and Sony have larger footprints in the gamer community says Forbes.

Last year was the first year video games downloaded from the web sold more than boxed games out of stores.

Gabe Newell’s Steam manages 50% to 70% of the $4 billion video game download market, selling titles from other companies like EA and Activision, as well as Valve’s own games, like Half-Life 2 which has sold 12 million copies since 2004 and is the highest-rated PC game on the Web!

Furthermore, Gabe Newell’s operation is “tremendously profitable” with revenue estimates for 2010 in the “high hundreds of millions of dollars.” (Valve’s financials are private)

Newell himself says that, per employee, Valve is more profitable than Google and Apple.

According to Forbes, experts value Valve to be worth $2 to 4 billion dollars, reasonable in light of the $4 to $6 billion valuations being put on Zynga, the maker of Facebook game hits FarmVille and Cafe World.

Gabe Newell owns more than 50% of Valve, making the “Harvard dropout” a near billionaire… if not a billionaire already.

And he does his part to spread the wealth.

Steam helps its customers make money through a virtual goods store where players can sell weapons and accessories.

Some players have made as much as $20,000 a week!

Steam helps video game publishers make more money too by giving them the chance to sell directly to customers by cutting out middle man distributors.

Publishers earn gross margins of 70% on Steam, compared to 30% via brick and mortar retail.

How did Gabe Newell get into the video game business?

After over 10 years of working for Microsoft, Gabe Newell and partner Mike Harrington cashed in their Microsoft stock options and started Valve in 1996.

“Valve has never taken a penny of venture capital” says Forbes.

Newell and Harrington licensed some code from hit game Quake to create a new game called Half-Life, which sold 2.5 million copies in its first year back in 1998.

Newell bought Harrington out in 2000 and Valve launched Steam in 2004, back when most U.S. homes only had dial-up Internet.

Today competitors and traditional retailers “both fear and respect Steam” says Forbes.

Steam has been called “the iTunes of the game industry” with a warning that like iTunes, Steam could become a monopoly.

Source – Forbes

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