Gabe Newell sits proudly inside Valve's Gamescom booth knowing his company's latest game, Dota 2, has a fantastic chance of being a huge hit. Outside, hundreds are watching it being played live in a tournament with a huge $1 million grand prize. Online, thousands are poring over every detail. Things are going well.

Valve's ability to produce multi-million selling, critically acclaimed games shows no sign of slowing down. This year saw the launch of Portal 2 and the transition to free-to-play of Team Fortress 2. Next year sees the launch of Counter-Strike: Global Offensive and Dota 2. And then there's Steam, one of the most popular, if not the most popular, download platforms on the internet. Yes, things are going well.

Here, in an interview with Eurogamer, Newell goes in depth on all Valve's games, explains exactly what the company is about and where it's going, and reveals how he decided what games to make. Oh, and there's even some Half-Life talk. Well, what did you expect?

Eurogamer: You recently announced Counter-Strike: Global Offensive. What was the driving force behind this project?

Gabe Newell: We'd been doing updates to Counter-Strike: Source, but we needed a bigger investment to push that forward on the PC side. We also needed a way of giving it to console players, since the only console version is a 2003 Xbox game. It's not Counter-Strike 2. It's just keeping it refreshed and updating it for the players who've been playing it for so long, and giving the opportunity to a bunch of console players who don't have a good version to play on.

Eurogamer: Have you decided how to monetise that?

Gabe Newell: We're still trying to figure that out. The stage we're at with that is, we had a bunch of pro players come out, and right now we're going through all the feedback they gave us to make sure we're going to be a good platform for what they're doing, and to think through how to have both a good competitive platform and at the same time maintain a popular game as well.

Eurogamer: Is it your hope that the console versions will have Steamworks integration like Portal 2 on PS3 did?

Gabe Newell: We certainly can deliver a lot of value to customers to the degree to which we have those capabilities. With the PS3 obviously we made a lot more progress with that. The PS3 customers of Portal 2 are going to start to see the benefits of that with Portal 2 DLC coming out in September. So we'd really like to be able to do that for Xbox customers as well.

Eurogamer: What are the challenges around bringing Steamworks to Xbox?

Gabe Newell: The main thing is having Microsoft get comfortable with it and let us do it. Right now, there's a huge amount of updates and free content we've been able to deliver to people who have The Orange Box that we haven't been able to deliver to the Xbox because of the restrictions that have been placed on us on Xbox Live.

We'd love to see those relaxed. Other developers on the PS3 are starting to benefit from Sony's more open approach. Hopefully that will help Microsoft see that's a good strategy for making customers happy, that the barbarians won't tear down the walls of Xbox and turn it into some chaotic wasteland.

Eurogamer: Dust 514 from CCP looks like one of the early PS3 games that trail-blazes that concept.

Gabe Newell: Yeah. It's up to developers who are taking advantage of Sony's openness to prove that was a good choice by Sony. They said, OK, we're going to trust you guys and take this different approach. But now it's up to us and other developers to prove out that was a good decision, to show that, yeah, we can create a lot more value for gamers this way. I'm pretty confident that's going to happen.

Eurogamer: Is there a faction within Valve that's passionate about making a fully-fledged Counter-Strike sequel as opposed to CS: GO, which you've said isn't Counter-Strike 2?

Gabe Newell: Yeah. You have to understand though we have too many opportunities and not enough time in the day. There's even a group who want to do Ricochet 2. It's just a question of getting enough people all headed in the same direction.

Eurogamer: How would you describe Valve? It's much more than a game developer these days, isn't it?

Gabe Newell: I don't know about that. Where did Valve get its start? We got our start because the guys at id Software were building stuff that's not only cool for gamers, they're also saying, how can these be tools for other people? If id hadn't done that, then Valve wouldn't exist.

We just think we're following in that same tradition that goes back to the earliest days of the PC gaming environment. You're not just building a game, you're also building tools for other game developers. We look at Steam the same way. We're building value for our customers, but we're also building, hopefully, useful tools for other developers. We think like a developer, so when we think about building a service or a feature, we think it is often times going to be really useful to other people.

If you look at the tournament software here, it involves a bunch of code that runs inside of the game. It involves a bunch of back end services. It involves a bunch of web development. We think it's really useful in Dota 2. We're going to try putting it in some of our other games to make sure we can generalise it. And then we put it into Steamworks and all of our Steamworks partners can look at that and say, that's super useful to us, or it's completely irrelevant to us.

One of the characteristics we've always loved about the PC gaming environment is how much collaboration there is and how much everybody is thinking about how they can build tools and technologies. We're really following in those footsteps. Tim Sweeney [founder of Epic Games] embraces that. John Carmack [co-founder of id Software] has embraced that. It's always been there and it's part of why the PC gaming industry has been as vibrant for as long as it's been.

Eurogamer: So what is Valve?

Gabe Newell: Valve is a company that tries to build value for customers and its partners. We're trying to do the same thing today we did when we were working on Half-Life 1. We try to bring together the best, smartest people in the world and build an environment in which they can get more done and deliver more stuff to customers than they could some place else. I think we do a pretty good job of bringing those people together and helping them get more work done rather than dealing with a bunch of bullshit or worrying about quarterly reports or what some banker or producer is telling them ought to be in the game, rather than what they know should be in the game.

Eurogamer: What's the grand ambition with Steam? How do you perceive its evolution in the coming years?

Gabe Newell: I don't think grand ambitions really help us make our decisions. Everything just has to be grounded in whether it's going to make a gamer's life better or not. Is it going to be making other game developers' life better or not? Once you start having grand ambitions you start to lose sight of the basic usefulness you can do.

As a blue collar worker, you pick up your lunch bucket and your hammer and you go into the mine and you get to work - but that sort of attitude helps a game company make better decisions as to be not thinking in terms of grand ambitions, but what have we done today to make gamers happier? What have we done today to make something easier or better for one of the partners who want to work with us? It's hard to go very wrong if that's your attitude. It doesn't make a great headline.

Eurogamer: You recently decided to make Team Fortress 2 free to play. How's that working out?

Gabe Newell: When we try to think about how do we evaluate that, we look at a couple of metrics. One of the most important things at the end of the day that determines peoples' experiences is just the size of the active audience that's playing. Almost everything for a multiplayer game is going to get better the more people who are playing it. You get more servers. You get better matchmaking because there are more people to matchmake with and so on. Team Fortress 2, the community has got much larger than we expected when we went to free-to-play. So using that as probably our most important metric, we're really happy with how things have gone, because that means all the Team Fortress 2 players are going to benefit from this influx of new players.

Eurogamer: You launched Steam Trading in beta form. What do you hope to achieve with this?

Gabe Newell: We just see it as a useful and logical extension of in-game trading as to start looking at cross-game trading, and trying to think of how the activity of playing one game is beneficial to the widest possible. You're looking for network effects. You can design a game so nobody benefits from your playing it. That's probably closer to the traditional way of thinking about it. What we're trying to do is ask ourselves, how can we design stuff so everybody benefits from other people playing the game?

You start off saying, how in the world could somebody playing CS: GO benefit somebody who's playing TF2? Then you say, well, if there's economy and crafting and things like that that are going across games, then everybody's going to benefit. So, that's where we're headed with that, to try to understand better what sort of cross-game network effects we can create, in the same way with the social networking features, there's scale value for doing that. But you'd also like to see the trading benefits of having multiple games participating in a trading system.

Eurogamer: Will it eventually lead to players being able to trade in games on Steam?

Gabe Newell: We need to hire an economist, because we keep bumping up into these issues. You're starting to look at weird issues like currency and inflation and productivity and asset values and liquidity of asset categories. We just wish we were smarter about this stuff. We're reading frantically. We're brushing up, and all we're doing is convincing ourselves that we're more stupid. Half the time people are saying, oh, well, illiquid assets inherently have a penalty, so this argues for trade-ability, that we're essentially becoming a Russian currency model in the 1970s. Everybody races off to try to read papers on the implications of that.

We think we want to move in the direction where everything is an item of exchange. We just aren't totally sure how to do that right. We're sure there are economists out there who understand this really well. We feel like we're this third-world developing country. We've discovered rocks! And we've discovered sticks! And there's this other thing out there and we should move our economy in that direction. There must be somebody at the World Bank who can tell us what we ought to be doing. We just don't know what that is yet.

Eurogamer: CCP has a team of economists working on Eve Online.

Gabe Newell: We totally understand why that's a smart thing to do, because we feel very naive. We do have a psychologist on staff, and he's been insanely valuable in a bunch of different ways to make us smarter. There are all these things we sort of knew that we ought to know about behavioural science, about the perceptual system. Just having Mike [Ambinder] talk about how the eye works, it's like you could feel everybody in the company getting smarter as he explained, no, that's not how eyes work. This is how eyes actually work. Everybody goes, oh, so that explains a whole bunch of things.

Eurogamer: Can that filter down to game design?

Gabe Newell: Oh absolutely. The game designers would monopolise all of Mike's time if they could. So Mike has to balance his time between educating people and building systems. He's been building all these bio-feedback devices so he can directly measure player state and to get us out of anecdotal metrics of the impact our game is having on a gamer, and instead get to directly measure quantitative metrics. He's like, just let me finish these things and all of a sudden a whole bunch of stuff will be a lot clearer.

The other thing, as always when we hire smart people, just his knowledge of statistics has been invaluable. We have these incredibly complicated experiments we're running all the time. And then we get all this data and we're all like, OK, how do we look at 27 different variables at the same time and understand how we can exclude variation with respect to this variable, and instead only extract the information about this? He's like, oh well, this is what I would have told my postdocs when I was running them through their postdoc stuff.

Eurogamer: He sounds like a smart guy.

Gabe Newell: Oh he's incredibly smart. That's the fun thing about working at Valve. Everybody at the company has abilities and passions that make everybody else better. Sometimes I feel like I'm the biggest fanboy for the company because I get to see what everybody does behind the curtain.

Eurogamer: And put 800 hours into Dota 2.

Gabe Newell: Yeah. I get to play Dota 2 before the public does. And I get to complain about specific features I want changed.

Eurogamer: Are you that guy on the internet?

Gabe Newell: Yeah, I'm that guy on the internet, and the team ignores me as well, god dammit.

Eurogamer: Do you get sick and tired of being asked about Half-Life 3?

Gabe Newell: I understand why people ask about it. I'm not sick and tired of it. But I don't have anything to say.

Eurogamer: When Valve announces a new game, one of the first things we see is a comment like, that's great, but what about Half-Life 3? Does that have an impact on the company? Does it grind you down?

Gabe Newell: No. We know our customers really well. We talk to them all the time. They show up outside our office with cardboard signs. We like being part of the gaming community and we understand what they're telling us. We think they understand where we're coming from. They get mad at us, and they let us know. Other times they're really happy with us and they let us know that as well. Gamers are passionate and they're smart and they're effective communicators. And they have our email addresses. So we know what they think. It's good. It helps us be a better company.

Eurogamer: Better people care than they don't care at all.

Gabe Newell: Absolutely. I would not trade the enthusiasm and straightforwardness of our fans for a quieter inbox.

Eurogamer: Did the episodic experiment work? Was it successful?

Gabe Newell: We are forced even further down that road. It's more and more about how we can design something so we can very steadily give our customers value every single day. The episodic model was a milestone along a pathway.

Team Fortress 2 is probably the furthest down that road, and it's the model we think is the best, which is, build products that make it possible for us to ship updates as fast and as regularly as possible, and also make room for our customers to participate in the creation of those entertainment experiences. The community contribution site on TF2 has been a huge success. I'd say right now the community is generating 10 times as much content as the TF2 team is, and it's great stuff. Now, when a gamer does that they get money in their PayPal account. It's a great way for the community to be telling the contributing members who's doing the best job in a really clear way.

It's one thing to go and do like Robin [Walker] and John [Cook] did in the original Quake TF days, where you read the forums and hope you understand whether or not you're doing the right thing. It's really different when you're a 14 year-old kid in Kansas and you build something and $8000 shows up in your PayPal account. You're like, oh, really? OK. This is a good idea. I'm doing something valuable, right? It's not hypothetical. I'm not guessing. If I do the next thing and I make $200 they're sending me a pretty clear message. If I do the right stuff and I get $50,000 like some people are getting, then I know I'm on the right track to building useful stuff that's being valued by the rest of the community.

Eurogamer: What's your assessment of Portal 2?

Gabe Newell: We didn't blow anybody up on the team, which is important. Nobody got divorced. A bunch of people took on more responsibility. I was super happy. I wish there could have been more music in the game, but that's a pretty trivial complaint. That's a, yes it's a great game, but... But I was super happy with how the game turned out, and everything about it. It was a great project. I'm really proud of everybody who worked on it. I'm glad for the company. It was a good project.

Eurogamer: What can we expect from Portal 2 in terms of downloadable content?

Gabe Newell: The first thing we're going to do is give them more of the same. That'll be out in September, free on all platforms.

Eurogamer: That's not something we're used to with Xbox.

Gabe Newell: They have complicated rules about how that works, unfortunately. You can do it sometimes and you can't do it others. In this case, we can.

Eurogamer: And further down the road?

Gabe Newell: With all our products we continue to release more. I don't think Portal 2 will be any different in that regard.