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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"We basically let it be known through certain channels that we were open to selling Impulse, and so we then had a number of companies approach us with different offers," says Wardell. "What we were looking for primarily...for us it matters that we'd sell it to someone who'd expand on PC gaming."

Sound logic for an outfit like Stardock--a company that designs and publishes PC games exclusively. You wouldn't navigate a real-time strategy space-battler like Sins of a Solar Empire with a gamepad any more than you'd bounce and bound through a Super Mario game with a keyboard/mouse. It behooves Stardock to find a PC-friendly buyer.

"We had company's ranging from some that saw Impulse as an enterprise solution for handling license management to another that wanted to use it to compete selling movies and music and all kinds of stuff," says Wardell, who it turns out hesitated even when GameStop expressed interest.

"They're a brick and mortar," says Wardell. "I was thinking 'will they understand the difference between digital and retail?' They're not the same thing."

He warmed to GameStop only after the company convinced him they were taking the deal as seriously as he was.

"GameStop basically built a new company, owned by GameStop, but independent, and that answers directly to the president of GameStop," says Wardell. "They've also gone out and attracted all these incredibly talented people to run it. Digital people, not retailers."

"Okay, but GameStop's experimented already with digital downloads," I say. I'm talking about the existing option to purchase digital copies of PC games online and download them directly. It's been active for several years.

"They were just using TryMedia," says Wardell, referring to a company that says it sells technology enabling companies "to manage a game throughout its lifecycle." When I ask how they play into the acquisition, Wardell says he's pretty sure the Impulse sale won't be good news for the company.

"And the Gamers Bill of Right?" I ask. That's the manifesto Stardock published a few years ago talking about your right to return malfunctioning or unsatisfactory games, to expect them to work out of the box, and among other things, to expect that games "not require a third-party download manager [like Valve's Steam] installed in order for the game to function."

"Impulse never had anything to do with the Gamers Bill of Rights," says Wardell. "Our goal was just to raise awareness, to get consumers to stand up for themselves as well as make publishers aware that there are other ways around issues like piracy. You don't have to make your game consumer-unfriendly. Basically we just wanted to get people thinking about this stuff."

In other words: The Gamers Bill of Rights only applies to gamers and their relationship with developers, not retailers. Stardock's a developer first, something its divestment of Impulse only reinforces.

"That'd be really arrogant if we were making a list that we expected Best Buy or Walmart to support," says Wardell. "I mean, talk about having delusions of grandeur."

And with that, our food arrives (the service isn't slow, Brad just talks really fast). I roll out my final few questions.

"Did you see that analyst quote yesterday?" I ask. "The one who basically suggested Impulse wasn't best of breed tech?"

"If Impulse isn't best of breed technology, then what is, Steam?" says Wardell. "Steam is the most popular, to be sure, but technologically? Let me put it this way. The technology difference between Impulse and Steam is such that any objective developer who looked at the two would overwhelmingly...let's just say the gulf is significant enough that it's not really a 'depends on your point of view' thing."

But what I really want to know is whether Wardell thinks GameStop has a chance against a company like Valve with Steam's roughly eight-year head start. That's the million dollar question. So I ask it.

"I think GameStop's going to beat Steam, and I'll tell you why," says Wardell, putting down his sandwich. "One of the things that we do in our surveys is ask, why do you buy from Steam versus Impulse versus whatever. Over 80 percent who respond say 'price'."

"Now I can't speak for GameStop, but I know what I would do. Next time you buy something from GameStop for your Xbox 360, I'd give you some token you could use on Impulse toward a deal or sale on some other title. Pretty soon everything on Impulse is cheaper."

And if GameStop actually does manage to somehow dislodge Steam as the digitally distributed PC games leader? What's to stop them from becoming even more computer-intrusive or edging up prices?

"I don't want there to be only one," says Wardell. "But frankly I'd be surprised if Steam is still... I mean, you look at the technology Impulse adds and the resources GameStop has--well beyond Valve's--and it's really GameStop's fight to lose."

I turn off the recorder and finish my burger. We talk some more about general geek stuff, like what we're watching or reading and why, then go. Before the visit's over, Brad will take me back and show me several white, boxlike beehives he keeps in a meadow behind Stardock's HQ building.

My younger brother's allergic to bee stings. I'm wondering for the umpteenth time if I am, too. I ask if we ought to suit up first. He tells me I have nothing to worry about.

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