Valve's Gabe Newell talks sales, experimentation

10:00 PM on 02.18.2011   |   Jordan Devore

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Here's something you don't see every day. It's a 40-minute-or-so video conference between Valve co-founder Gabe Newell and a high school sports/entertainment marketing class.

The video is going to be too lengthy for some of you, but the content is excellent. Valve as a company is doing so many things right -- both in terms of game development and digital distribution. Thankfully for us, Newell was willing to divulge where the success, at least part of it, stems from.

[Thanks, Mark]

"Almost everything that we learned from selling products through retail stores ends up leading you in the wrong direction when it comes to how you want to do things when you're directly connected to customers."

"When we work on sales, we try to encourage people -- our partners and ourselves -- to knock as much off the price as you can," Newell explains. "So traditionally if you did that in the retail channel all you'd be doing is sort of cannibalizing yourself."

"When you're selling a product directly online, though, and you drop the price by 75 percent, you'll actually increase your total gross revenue by a factor of 40. You're actually generating 40 times as much gross revenue. After you return to the sort of baseline price, sales will actually be higher ... You're actually somehow increasing the demand for your product by running the sale."

Newell admitted that much of what they now know about the digital distribution market had to be figured out -- or otherwise discovered -- by themselves. This willingness to experiment also applies to the company's philosophy for online games like Team Fortress 2:

"We're trying to change enough variables so that our customers can show us what matters to them and what doesn't matter to them. Everything we're doing really with Team Fortress 2 is designed to teach us more about what they like and what they don't like."

He also briefly touched upon what Valve looks for in an employee, and it was easily my favorite part of the video conference Q&A. Newell says his company -- and other studios as well -- are looking for:

"The ability to create something, develop an audience around it, measure their reactions to something you've created, and then change what you built to reflect that, and measure again how much of a difference you made. That iteration cycle with customer feedback is the most important characteristic for somebody to be successful right now."