Stardock CEO Explains GameStop Impulse Buy, Steam Rivalry

I'm about to grab lunch with Brad Wardell, the President and CEO of Michigan-based indie developer Stardock. They're the guys behind PC games like Galactic Civilizations, Sins of a Solar Empire, and Elemental: War of Magic. I live in Michigan, too. In fact I'm just 20 minutes from Stardock HQ--a red brick two-story office building (that's it up top) nestled discreetly behind a McDonald's in a slightly wooded area. Stardock's gradually swallowing the building whole. When I visited in 2007, they were expanding from one floor to two.

"We're still in transition, still moving things around," says Wardell as we stand beside a wide, crescent-style front desk with a translucent blue overhang backlit by LEDs that matches Stardock's Saturn-like company logo. Stardock's on every floor now--even in the basement. Framed pictures on the walls highlight past triumphs, most of them press awards. I see a few shots of magazines I used to write for--gone now, like so many others. I glance toward a barely day-lit grayish area full of empty cubicles.

"And that area back there?" I ask, pointing.

"Where the Impulse team used to be," says Wardell, referring to Stardock's digital distribution platform.

Well, former platform. Impulse is one of a handful of digital distribution tools squabbling over the roughly 30 percent market space Valve's borg-like Steam hasn't yet assimilated. Wardell just sold Impulse to GameStop, the brick-and-mortar retailer that makes most of its money these days buying and selling used games.

We hop in Brad's car and head into the city, really a Detroit suburb. Everything here looks new and well kept--no signs of the cratered, window-punched buildings you see in documentaries like Requiem for Detroit, and which you'll find if you drive just 10 miles east.

We talk about Origin's Ultima games on the way over. I'm sort of an Ultima fanboy. I still remember pulling the midnight-blue-on-black flier for Ultima VII: The Black Gate from the game box for Martian Dreams, one of the Worlds of Ultima spinoffs designed by Deux Ex lead Warren Spector. Brad had a bad experience with the original Ultima Online (the one Ultima game I barely played). He worked for weeks to make enough money to get his character outfitted, lit out of town, and was summarily killed and his corpse looted by a group of hostile players.

"That's when I realized the game was kind of a mess in terms of the design," he says.

Brad picks a burger joint for lunch--not too noisy, tables in the middle, large wood-backed booths around the edges. We order some food and talk for a bit about where Stardock's going--mostly stuff I can't write about. I pull out my recorder. The food's not here yet.

"So this GameStop deal... How'd it go down?" I ask.

"Stardock Corporation has three wholly owned subsidiaries," says Wardell, referring to Stardock Entertainment (the games unit), Stardock Software (stuff like Windows Blinds and Object Desktop), and Impulse (the digital distribution unit). "We realized by the end of the third quarter, even though the software group had a really good year, because we're pretty much preloaded on every HP and Dell--"

"Wait, I didn't know that," I say. "Every one?"

"Yeah, when you buy a Dell, you have the dock, the Dell dock. We make that. And then on HP, they preload Fences." Fences is Stardock's desktop organization tool.

"So that unit had a pretty good year last year," continues Wardell. "And despite the trouble War of Magic had, it actually broke even because of the pre-orders. That's one of the reasons we felt we had to really come through for our fans. We really wanted to make good on that."

Wardell's talking about Fallen Enchantress, his upcoming turn-based strategy War of Magic "do over." Stardock's giving it away free to War of Magic owners who purchased the game prior to December 31, 2010. And the company's still hammering War of Magic into shape, patch by patch. Back at Stardock HQ, I got to watch someone working on a new shading system for the game's fog-of-war. It looked as complicated as it sounds.

"So the games unit did okay last year as well," says Wardell. "But the Impulse unit nearly tripled its revenue, and it runs a gross profit margin of around 20 to 30 percent, so it's a pretty profitable unit, too."

All of which means Stardock found itself facing a resources problem: Throw everything into Impulse to keep pace with the market, or else.

"There's no such thing as a free lunch," says Wardell. "Any market that's that lucrative is going to attract more and more competitors. We would've had to hire multitudes. Stardock would've become a multi-hundreds-of-employees company where most of that would've been dedicated just to Impulse."

The company currently employs about 50 people.

"So back to GameStop," I ask, shifting back to my first question. "Who approached whom?"

After the jump: Why Wardell initially doubted GameStop, the Gamers Bill of Rights, and how GameStop might beat Steam.

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