Founded 1996 · Kirkland, Washington, USA · Founders: Gabe Newell,Mike Harrington · First game: Half-Life (1998)
Valve was founded by two former Microsoft employees who collectively invested over $1 million of their own savings to build a game development studio that would redefine the first-person shooter and then the entire PC games distribution industry.
Gabe Newell spent thirteen years at Microsoft, reaching the level of executive producer and accumulating sufficient stock options to retire comfortably. Mike Harrington was similarly positioned. In 1996 both resigned to found Valve, operating initially from Newell's house in Kirkland, Washington. The founding investment — reported variously as $1 million to $4 million from the founders' personal Microsoft-era savings — funded four years of development before Half-Life shipped in November 1998. The game sold over nine million copies by 2008 and won over fifty game-of-the-year awards; it demonstrated that a first-person shooter could deliver sustained narrative through environmental storytelling and continuous action without cutscenes. Half-Life 2 (2004) launched alongside Steam — Valve's digital distribution platform — which would grow to become the dominant PC game marketplace, changing how games were sold, distributed, and priced more fundamentally than any single game Valve has produced.
The Valve founding story is unusual among game studio origin narratives in that resource scarcity was not the constraint. Newell and Harrington had money — serious money, accumulated over a decade at one of the most valuable companies in the technology industry — and could fund extended development without external investment or publisher advances. This freedom shaped Half-Life's production profoundly: the game was scrapped and restarted fourteen months before its eventual release because the team concluded that what they had built was not good enough. No publisher-funded studio in 1997 had the financial cushion to make that decision. Valve did.
The team initially assembled in Newell's house before moving to a conventional office space in Kirkland. Many of the founding employees were recruited from the game-development community rather than from Microsoft; the studio did not leverage the Microsoft network for talent so much as Newell's and Harrington's personal judgement about who was making interesting work in game development in the mid-1990s. Ken Birdwell, the engineer who managed Half-Life's production restart, and Ted Backman, who contributed to the design language, both came from game-development backgrounds rather than the technology industry that funded the studio.
Half-Life 2's development coincided with Valve's recognition that PC game distribution was a problem they were positioned to solve. Physical retail for PC games in 2003 involved long supply chains, physical media, and retail margins that reduced developer revenue substantially; digital distribution was nascent and fragmented. Steam launched in September 2003 as a system for automatically updating Valve's own games; by the time Half-Life 2 shipped in November 2004, it had expanded to include third-party games and anti-piracy authentication. The requirement that Half-Life 2 purchasers activate through Steam — controversial at launch, when internet connectivity was far from universal — established the platform's user base at scale on the day of release.
The subsequent growth of Steam transformed Valve's business model more fundamentally than any game the studio could have produced. By 2012 Steam held an estimated 70 percent of the PC digital distribution market; by 2019 it was processing approximately $4.3 billion in annual sales, of which Valve retained a 30 percent commission. The two former Microsoft employees who invested their savings in a game studio in Kirkland had, by the second decade of the 2000s, built a platform business that generated more revenue than most publishers. Half-Life remains the founding myth; Steam is the actual commercial legacy.