Valve’s Gabe Newell on the Future of Games, Wearable Computers, Windows 8 and More

Gabe Newell, the co-founder and managing director of Valve, the videogame development and online distribution company, made a rare appearance last night at Casual Connect, an annual videogame conference in Seattle.

Newell, who spent 13 years at Microsoft working on Windows, is not well-known outside of the videogame industry, but the company he has built in Bellevue, Wash., cannot be overlooked.

Valve is not only a game developer, producing megahits like Portal 2, it owns and operates Steam, which is the largest consumer-focused digital games distribution platform in the industry. By some measures, it may be valued at $3 billion.

Last night, at a dinner sponsored by Covert & Co., Google Ventures and Perkins Coie, Newell unveiled some of his most quirky and secretive projects in an interview onstage with Ed Fries, former VP of game publishing at Microsoft.

Newell, who has a desk on wheels so he can quickly roll over to his favorite projects within the company, struggled at times to put into words how he sees the industry shaking out as companies like Microsoft and Apple move toward closed ecosystems. At one point, he even lamented that his presentation skills aren’t up to speed because Valve isn’t a public company.

Here are excerpts from the conversation that took place in a packed and noisy room with an under-powered speaker system:

On the future of videogame distribution

“Everything we are doing is not going to matter in the future. … We think about knitting together a platform for productivity, which sounds kind of weird, but what we are interested in is bringing together a platform where people’s actions create value for other people when they play. That’s the reason we hired an economist.

“We think the future is very different [from] successes we’ve had in the past. When you are playing a game, you are trying to think about creating value for other players, so the line between content player and creator is really fuzzy. We have a kid in Kansas making $150,000 a year making [virtual] hats. But that’s just a starting point.

“That causes us to have conversations with Adobe, and we say the next version of Photoshop should look like a free-to-play game, and they say, ‘We have absolutely no idea what you are talking about, but it sounds really bad.’ And, then we say, ‘No, no, no. We think you are going to increase the value being created to your users, and you will create a market for their goods on a worldwide basis.’ But that takes a longer sell.

“This isn’t about videogames; it’s about thinking about goods and services in a digital world.”

On closed versus open platforms

“In order for innovation to happen, a bunch of things that aren’t happening on closed platforms need to occur. Valve wouldn’t exist today without the PC, or Epic, or Zynga, or Google. They all wouldn’t have existed without the openness of the platform. There’s a strong tempation to close the platform, because they look at what they can accomplish when they limit the competitors’ access to the platform, and they say ‘That’s really exciting.'”

“We are looking at the platform and saying, ‘We’ve been a free rider, and we’ve been able to benefit from everything that went into PCs and the Internet, and we have to continue to figure out how there will be open platforms.'”

On Valve’s interest in Linux

“The big problem that is holding back Linux is games. People don’t realize how critical games are in driving consumer purchasing behavior.

“We want to make it as easy as possible for the 2,500 games on Steam to run on Linux as well. It’s a hedging strategy. I think Windows 8 is a catastrophe for everyone in the PC space. I think we’ll lose some of the top-tier PC/OEMs, who will exit the market. I think margins will be destroyed for a bunch of people. If that’s true, then it will be good to have alternatives to hedge against that eventuality.

On the evolution of touch

“We think touch is short-term. The mouse and keyboard were stable for 25 years, but I think touch will be stable for 10 years. Post-touch will be stable for a really long time, longer than 25 years.

“Post touch, depending on how sci-fi you want to get, is a couple of different technologies combined together. The two problems are input and output. I haven’t had to do any presentations on this because I’m not a public company, so I don’t have any pretty slides.

“There’s some crazy speculative stuff. This is super nerdy, and you can tease us years from now, but as it turns out, your tongue is one of the best mechanical systems to your brain, but it’s disconcerting to have the person sitting next you go blah, blah, blah, blah.

“I don’t think tongue input will happen, but I do think we will have bands on our wrists, and you’ll be doing something with your hands, which are really expressive.”

On wearable computers

“I can go into the room and put on the $70,000 system we’ve built, and I look around the room with the software they’ve written, and they can overlay information on objects regardless of what my head or eyes are doing. Your eyes are troublesome buggers.”