How to Compete with a Tech Giant (When You Have 350 Staff and a Lot of Money)

December 29, 2025

When the Steam Deck launched in February 2022, it shouldn't have worked. A $400 handheld PC running Linux, playing Windows games through a translation layer, competing against Microsoft (Xbox), Sony (PlayStation), and Nintendo (Switch) - companies with decades of console experience and thousands of engineers dedicated to their gaming platforms. Valve, by contrast, employs approximately 350 people total across its entire business. The Steam Deck wasn't merely competent; it was genuinely excellent. So good that it's now catalyzed an entire wave of PC gaming handhelds from ASUS, Lenovo, and MSI. So threatening that Microsoft partnered with ASUS to release the Xbox ROG Ally - effectively validating Valve's vision of PC gaming handhelds. The question isn't whether Valve succeeded - the Steam Deck's success is obvious. The question is: how did 350 people compete with giants? And more importantly, what does their strategy reveal about the changing economics of platform competition?

The Puzzle

The traditional economics of platform development don't support what Valve accomplished. Building a gaming platform from scratch traditionally requires:

A complete operating system
Graphics driver stack optimized for gaming
Compatibility layer for existing game libraries
Hardware integration and firmware
Development tools and SDKs
System-level services (networking, audio, input)
Testing infrastructure
Documentation and support

Microsoft's Xbox division employs thousands. Sony's PlayStation organization is similarly massive. These aren't just engineers - these are engineers with decades of institutional knowledge about console development, hardware-software integration, and the peculiar demands of gaming workloads. The conventional wisdom says you need this scale to compete. You need the institutional knowledge. You need the massive teams to tackle every layer of the stack simultaneously.

Valve proved this conventional wisdom wrong. But they didn't do it through exceptional execution alone, or by some miraculous 10x productivity multiplier for their engineers. They did it by fundamentally changing the economics of platform development through a strategic use of open source software. What I'll call the Open Source Leverage Model.

The Framework: Four Archetypes of Labor

A note on methodology: The analysis that follows is based on observable behavior in open source repositories and public information about Valve's approach. We don't have insider knowledge of the specific commercial relationships, employment contracts, or instructions between Valve and the individuals and companies mentioned. The specific details of any individual's working arrangement may be different from what we infer here. However, the strategic insight remains valid: these archetypes represent distinct types of labor relationships that open source development enables, and the competitive advantages they create exist regardless of the precise contractual details of any specific example.

Valve's competitive advantage rests on accessing four distinct archetypes of labor that proprietary development simply cannot match:

Archetype 1: The Focused Specialist Archetype 2: The Roving Fixer Archetype 3: The Consultancy Engagement Archetype 4: The Community Force Multiplier

Each archetype provides different economic advantages, and together they create a cost structure and capability profile that large proprietary competitors cannot replicate. Let's examine each in detail.

Archetype 1: The Focused Specialist

Philip Rebohle, known in the open source community as "doitsujin," maintains DXVK - the DirectX-to-Vulkan translation layer that's absolutely critical for running Windows games on Linux. For years, Rebohle has worked almost exclusively on this one component. This isn't a side project or one responsibility among many. It's sustained, deep focus on a single technical domain.

The economic advantages are substantial:

Pure focus on problem domain: Rebohle doesn't attend Valve's company meetings, navigate office politics, or get pulled into competing priorities. He works on DXVK. That's it. The productivity multiplier from eliminating organizational overhead is real. Where an employee at a large organization might spend 50% of their time on actual technical work (the rest consumed by meetings, coordination, internal processes), a focused specialist might achieve 90%+ time in the problem domain.

Immunity to reallocation: When Valve funds Rebohle's work on DXVK, they face a binary decision: continue funding or stop. There's no option to "borrow him for a sprint" on another project, or move him to the new urgent initiative. This organizational insulation is a feature, not a bug. The components that matter most get sustained attention from highly skilled individuals who cannot be diluted by competing demands.

Specialist remains specialist: Rebohle doesn't need to learn Valve's internal codebases, proprietary tools, or organizational processes. He stays firmly within his domain of expertise - graphics APIs, Vulkan, DirectX translation. This is far more efficient than the typical proprietary approach where engineers must learn extensive internal systems before becoming fully productive.

The hiring advantage is equally compelling. Valve didn't hire Rebohle on the strength of his resume or interview performance. They hired him after watching him build DXVK in public. Every commit, every design decision, every bug fix was observable. In how many other professions can you assess years of actual work product before making a hiring decision? This is perhaps the most reliable hiring strategy in existence - you're not predicting future performance, you're observing demonstrated excellence.

Archetype 2: The Roving Fixer

autumn (known as "misyltoad", formerly Joshua Ashton) represents a different model. Where Rebohle maintains sustained focus on one component, autumn moves between projects as hard problems emerge. They've worked on DXVK, moved to HDR support across the kernel and full graphics stack, contribute to Gamescope (Valve's compositor), and tackle various graphics challenges as they arise.

This "point and shoot" capability is valuable precisely because it's flexible. Some technical problems don't require sustained long-term maintenance - they require deep expertise applied intensively to novel challenges. autumn provides this without the overhead of internal employment. They work remotely, don't relocate to Seattle, and operate with high autonomy. Valve points them at hard problems; they dive in and solve them.

The key insight is that in traditional organizations, "moving between projects" is often seen as inefficient context switching. But Valve has created a deliberate role for technical polymaths who thrive on tackling new domains. This works because the underlying architecture is modular and open source - the interfaces between components are public, the codebases are accessible, and autumn doesn't need special permission to dive into any layer of the stack.

Archetype 3: The Consultancy Engagement

Valve contracts with specialized open source consultancies like CodeWeavers, Collabora, Igalia, and KDE. These engagements range from specific bounded projects to ongoing relationships for continuous improvement. These companies bring institutional expertise in Windows compatibility, Linux kernel development, graphics drivers, desktop environments, and system-level engineering.

Ongoing relationships: CodeWeavers maintains Wine and Proton with an ongoing brief to improve Windows compatibility for gaming workloads, including ARM support. Valve funds KDE development through contractors like Techpaladin (a consultancy founded by prominent KDE contributors) to improve Plasma and KWin - the desktop environment used in Steam Deck's desktop mode. Critically, Valve funds upstream KDE code, not Steam Deck-specific patches, ensuring improvements benefit the entire Linux ecosystem. This strategic funding addresses areas that might not be priorities for volunteers or commercial interests, like media handling (GStreamer/Media Foundation) and desktop gaming integration. These aren't bounded projects - they're sustained partnerships for incremental improvement.

Bounded projects: When Valve needs specific deliverables, they contract for targeted work. Collabora built the A/B partition system for atomic updates on SteamOS 3 and implemented kernel audio support for the CS35L41 amplifier (Steam Deck speakers). Igalia's Melissa Wen developed AMD color management and HDR kernel support for Steam Deck, while Igalia also created the Mesa3D Turnip Vulkan driver for Qualcomm Adreno GPUs (Steam Frame) and contributes to the Vulkan Conformance Test Suite.

The consultancy model provides flexibility: bounded projects when you need specific deliverables, ongoing relationships when you need continuous improvement. These consultancies already have talent pools, institutional knowledge, and project management experience. They specialize in open source development - it's their entire business model. They maintain expertise that would be expensive to build internally.

Archetype 4: The Community Force Multiplier

Here's where the economics become truly asymmetric. Every open source project Valve funds attracts unpaid community contributors who add real value. K0bin (Robin Kertels) and Blisto91 (developer and tester respectively) contribute to DXVK but aren't on Valve's payroll. They're enthusiasts who benefit from better Linux gaming and contribute because they can.

The multiplier effect is substantial. Philip Rebohle's work on DXVK is amplified by community members who file bug reports, test patches, contribute fixes, write documentation, and help with debugging. Projects move faster, cover more ground, and find more edge cases. The effective output of each paid engineer is significantly amplified by community support - though the precise multiplier is hard to quantify, the leverage is real and substantial.

Proprietary development cannot access this labor pool. Microsoft's DirectX team doesn't get volunteer contributions from enthusiasts. They must pay for every line of code, every bug report, every test case. Valve, by building on open source, gets this community amplification at zero marginal cost. It's pure upside.

The community also serves as a talent pipeline. When a community contributor demonstrates exceptional skill, Valve can hire them - transitioning them from Archetype 4 to Archetype 1 or 2. Timothy Arceri's path is illustrative: he started contributing to Mesa through crowdfunding in 2013, was hired by Collabora based on his contributions, then Valve hired him in 2018 to work on AMD Linux drivers. At each step, employers observed years of production-quality work before hiring. They're hiring someone whose work they've already assessed at production quality over months or years.

Strategic Flexibility: Three Options for Every Component

The modular nature of open source software gives Valve strategic flexibility that proprietary development cannot match. For any component they need, Valve faces three options:

Option 1: Contribute to existing project

Wine (the Windows API compatibility layer) has existed since 1993. It's mature, battle-tested, and handles the incredibly complex task of translating Windows system calls to POSIX equivalents. Valve doesn't need to rebuild this. Instead, Proton (Valve's Windows compatibility layer) is built on top of Wine. Valve contributes improvements upstream, benefits from Wine's ongoing community development, and focuses their resources on gaming-specific enhancements. Here we see the archetypes and strategic options working together: Valve contracts with CodeWeavers (Archetype 3: consultancy) to contribute to Wine (Option 1: existing project).

Option 2: Fork an existing project

VKD3D is Wine's DirectX 12 to Vulkan translation layer. It's designed for compatibility and correctness across all Wine use cases. Valve needs DirectX 12 translation optimized specifically for gaming workloads. So they forked it to create VKD3D-Proton, adding gaming-specific optimizations that upstream Wine wouldn't accept or prioritize. They still leverage the existing codebase - they didn't start from scratch - but can diverge where their requirements differ.

Option 3: Start a new project

When Valve needed x86/x64 to ARM translation for gaming (for devices like the ARM-based Steam Frame), nothing adequate existed. So they commissioned FEX-Emu, a new project purpose-built for this requirement. Similarly, existing Linux compositors (like GNOME's Mutter or KDE's KWin) are designed for general desktop use. Valve needed gaming-specific features: frame limiting, HDR support, seamless switching between games, and tight integration with Steam. So they created Gamescope, a compositor optimized for gaming workloads.

The strategic flexibility is profound. For each component, Valve can evaluate: - Does something exist that mostly works? → Contribute - Does something exist but need significant divergence? → Fork - Does nothing adequate exist? → Commission new project

Contrast this with proprietary development, where you must build everything yourself. Microsoft and Sony don't have these options. They can't leverage Wine's decades of development. They can't fork a graphics driver and add their optimizations. Every component requires paid internal development from scratch.

Notice how the strategic options and labor archetypes work together: For Options 2 and 3 (fork or start new), Valve typically engages Archetype 1 specialists to drive the project forward. Hans-Kristian Arntzen leads VKD3D-Proton development (the fork), maintaining sustained focus on DirectX 12 translation. Ryan Houdek leads FEX-Emu (the new project), focusing exclusively on x86-to-ARM translation. In both cases, Valve identifies the strategic need (fork this, build that), then engages a focused specialist who can dedicate years to the problem without organizational overhead. The flexibility isn't just in choosing which option to pursue - it's in having the labor models to execute each option effectively.

Strategic Leverage: Don't Start From Scratch

This brings us to perhaps the most significant economic advantage: Valve rarely starts from zero. Wine represents 32 years of development by thousands of contributors. The Linux kernel represents decades of work by hundreds of companies and tens of thousands of developers. Mesa (the open source graphics driver stack) has similar depth and maturity.

Valve surveyed the landscape and identified mature projects that solved most of what they needed. Then they invested surgically in the gaps:

FEX-Emu didn't exist, so they funded Ryan Houdek to create it from scratch (x86-to-ARM translation for gaming)
DXVK showed promise, so they funded Philip Rebohle to mature it into a production-grade component
HDR support was incomplete, so they contracted for kernel and compositor work
Proton needed gaming-specific Wine enhancements, so they contracted with CodeWeavers
System updates needed to be atomic, so they contracted Collabora for A/B partitions

Every dollar Valve spends goes directly to differentiated value creation. They're not reinventing Windows API translation (Wine exists). They're not building a kernel from scratch (Linux exists). They're not writing graphics drivers from zero (Mesa exists). They fund the missing pieces, the performance optimizations, and the gaming-specific features.

Microsoft and Sony had to build entire console stacks from scratch. Operating systems, graphics APIs, driver frameworks, development tools - everything. The capital expenditure and time to market were necessarily enormous. Valve picked and chose: leverage mature projects, fund gaps, commission new components only when truly necessary.

To be fair, Xbox could leverage substantial components from Windows - Microsoft isn't truly starting from zero. But this actually reinforces the core insight: to compete in this space today, you need either (1) a near-complete proprietary OS already in your back pocket from decades of prior investment, or (2) you must join the open source ecosystem Valve is building on. The only companies with option (1) are Microsoft (Windows), Apple (macOS/iOS), and perhaps Samsung (Tizen) or Google (Android/Chrome OS). Everyone else - Epic, Meta, Tencent, any other gaming titan - has no choice but option (2). And even the tech giants with existing OS investments must weigh whether their proprietary stacks can keep pace with the collaborative flywheel of multiple companies funding Linux gaming. Starting from zero with a new proprietary stack? That's simply impossible now.

Consider Google's choice with Stadia. Google had massive resources, Android, Chrome OS, and could have built a proprietary gaming stack. Instead, when they launched their cloud gaming service in 2019, they chose Debian Linux, Vulkan graphics API, and custom AMD Vega GPUs with open source tooling. They explicitly emphasized their "platform foundations of Linux and Vulkan" and their use of "GPUs that have open-source drivers and tools." They even open-sourced their custom kernel on GitHub. Google - a company we just identified as having proprietary stack option (1) - chose option (2) instead. Yes, Stadia failed and shut down in January 2023, but the failure was business model and game library, not technical foundation. The technical choice vindicated the thesis: when entering gaming, even Google saw Linux + Vulkan + open source as the obvious path forward.

This is capital efficiency at its most fundamental. Money goes to value creation, not reinventing solved problems.

The Economics

Let's consider the comparative cost structures:

Traditional proprietary platform: - Must pay for every engineer, tester, documentation writer, support staff - Must build every layer of the stack internally - Coordination overhead increases with team size (Brook's Law) - Engineers spend significant time on internal processes, meetings, organizational overhead - Cannot access community contributions - Must maintain entire stack in perpetuity with paid staff

Valve's open source leverage model: - Pays for ~350 internal staff (though most work on Steam store, not SteamOS/Steam Deck) - Funds external contractors and consultancies (Archetypes 1-3) - difficult to estimate precisely, but likely dozens to over a hundred across all projects - Leverages mature open source projects for base functionality (free) - Gets community contributions and amplification (Archetype 4, free) - Contractors work with minimal organizational overhead (90%+ time in problem domain) - Strategic flexibility to choose contribute/fork/start new for each component - Community helps maintain shared components

The effective output is radically different from the input costs. Pierre-Loup Griffais, Steam Deck's designer, revealed in 2022 that Valve pays more than 100 open source developers working on Proton, Mesa, Vulkan, and Linux gaming support.[1][2] The core Steam Deck team itself is 20-30 people.[2] Add to that Valve's internal Linux gaming staff and hundreds of community contributors, and you have a force far larger than the headcount suggests. The core insight: a small paid team achieves the effective output of an organization many times larger through strategic leverage of open source, community amplification, and organizational efficiency.

Microsoft and Sony pay for thousands of staff and get only those thousands of staff. No community multiplier on proprietary code. Every feature requires paid development. The cost structure is simply worse.

The Endgame: Network Effects and the Collaborative Flywheel

But here's where the strategy becomes truly powerful - and where it mirrors historical precedents that should terrify Microsoft.

Historical Precedent: The Linux Kernel

In the early 2000s, something remarkable happened with the Linux kernel. Multiple deep-pocketed enterprises began hiring kernel developers, each for their own strategic reasons:

IBM needed mainframe support (they wanted Linux on System z)
Red Hat needed enterprise features (they were selling RHEL)
Intel needed driver support (they wanted Linux on their chips)
Many others with different agendas

Here's what made it powerful: the side effect of all these separate investments was that the kernel improved for everyone. IBM's mainframe work improved Linux's I/O scheduler. Intel's driver work improved hardware support. Red Hat's enterprise features improved stability and scalability. More contributors led to faster improvement, which attracted more adoption, which attracted more commercial investment, which attracted more contributors. A flywheel.

The result? Windows Server market share collapsed. By the late 2000s, Linux dominated web servers, became the standard for cloud infrastructure, and pushed Windows Server into a steadily shrinking niche. Microsoft lost an entire market category to this dynamic.

The Epic Hypothetical

Now consider a thought experiment: What if Epic Games wanted to create its own gaming operating system for the Epic Games Store? What would be the obvious choice?

The answer is clearly: build on SteamOS and the broader Linux gaming stack. They could leverage all of Valve's work - Proton, DXVK, Gamescope, the kernel improvements, the Mesa driver work. They can't practically start from scratch and catch up. The gap is too large, the complexity too high, the time to market too long.

But here's the crucial insight: if Epic did this, they would have to collaborate on the underlying components even while competing at the platform layer. Both Valve and Epic would want better DirectX translation. Both would want better graphics drivers. Both would want HDR support, better audio, improved performance. They would fund improvements to the same open source base.

And those improvements benefit all users of the Linux gaming stack. Including Valve, Epic, and any other platform that builds on Linux.

Collaborate to Compete

Once this flywheel starts spinning, you can't compete from outside. You must join the ecosystem to compete within it. No single enterprise - no matter how large - can start from scratch and catch up to the collective investment of multiple companies funding the same open source base.

This is the strategic endgame:

Valve creates a credible gaming platform with 350 staff + open source leverage
Other titans see the opportunity and join (Epic, Meta, Google, Samsung, Tencent)
All contribute to the same underlying open source components (Linux, Mesa, Proton)
The gaming Linux stack improves faster than any single company could achieve
More adoption → more contributors → faster improvement → more adoption
Proprietary offerings (Windows gaming, console OSes) struggle to keep pace
Network effects create unstoppable momentum

Multiple competitors funding the same base makes it improve faster. This is collaborate-to-compete dynamics at its finest.

The Microsoft Irony

And here's the delicious irony: Microsoft already lost one major market to exactly this mechanism. They watched it happen with Linux and servers in the 2000s. Multiple companies (IBM, Red Hat, Intel, Oracle) funded Linux kernel development for their own strategic reasons, the kernel improved for everyone, network effects kicked in, and Windows Server market share collapsed.

Now it's happening again in gaming. Valve seeds the gaming Linux stack. Others will likely join. Together they'll improve it faster than Microsoft can respond with Windows. Microsoft is on the wrong side of platform dynamics twice - and apparently learned nothing from their own history.

The collaborative flywheel, once spinning, is nearly impossible to stop. The only viable response is to join it - to become a contributor to the shared open source base while competing at the platform layer. But that requires abandoning the proprietary control that defines Microsoft's and Sony's console strategies.

Broader Implications

What makes this analysis broadly applicable is that the Open Source Leverage Model isn't specific to gaming. The same dynamics could play out in any domain where:

Mature open source projects exist - you can build on existing foundations
Modularity is possible - components can be developed independently
Capital is available - you can fund focused specialists and consultancies
Community can contribute - enthusiasts can participate meaningfully

AI development is showing similar patterns. Companies building on open models (Llama, Mistral, RWKV) can iterate faster than those building entirely proprietary stacks. Automotive companies collaborating on Automotive Grade Linux avoid duplicating foundational work. The same dynamics apply.

The limits exist where: - Integration is more important than modularity (tightly coupled systems) - Proprietary data or algorithms provide the key advantage - Community contribution is impractical (highly specialized domains) - Speed to market matters more than long-term efficiency

But for complex systems where modularity is possible and mature projects exist, the Open Source Leverage Model changes the competitive dynamics fundamentally. Small teams with capital and strategic focus can compete with giants. The traditional advantages of scale and institutional knowledge become less decisive. The new advantage is strategic flexibility, capital efficiency, and the ability to orchestrate a distributed ecosystem of specialists, contractors, consultancies, and community contributors.

Valve didn't just build a better gaming platform with 350 people. They demonstrated a new model for platform competition - one that Microsoft and Sony are ill-equipped to counter precisely because it undermines the core assumptions on which their strategies are built.

The question isn't whether this model works. The Steam Deck's success answers that definitively. The question is: how many other industries will see small, well-funded teams outmaneuver giants using these same dynamics?

Addendum: Stories We Didn't Tell

This analysis focused on the labor archetypes and strategic framework, but Valve's open source strategy has depth we couldn't fully explore here. Consider:

Vulkan: Valve's heavy investment in Vulkan as an open graphics API alternative to DirectX deserves its own analysis. This wasn't just adopting an existing standard - Valve was instrumental in Vulkan's development and continues funding its evolution. Vulkan is the foundational layer that makes the entire SteamOS Windows compatibility strategy work: DXVK translates DirectX 11 to Vulkan, VKD3D-Proton translates DirectX 12 to Vulkan. Without Vulkan being open and cross-platform, Proton couldn't exist in its current form.

The RADV Decision: Perhaps most illustrative of Valve's strategic sophistication was their choice regarding AMD Vulkan drivers. AMD provided AMDVLK - a proprietary driver that was initially superior in performance and features. Valve deliberately chose instead to fund RADV, the open source Mesa-based AMD Vulkan driver. Why choose the inferior option? Because Valve understood the strategic benefits outlined in this piece. A proprietary driver locks you into AMD's priorities and timeline. An open source driver means you can fund improvements yourself (Archetype 1 specialists), benefit from community contributions (Archetype 4), and ensure other companies building on Linux gaming improve the same driver. RADV is now the superior choice, and it benefits everyone in the ecosystem. The ultimate validation: AMD discontinued AMDVLK entirely in September 2025 and now officially supports RADV as their primary open-source Vulkan driver. Even the hardware manufacturer - who knows their hardware best - couldn't compete with the collaborative open source model and abandoned their proprietary driver in favor of the community/Valve-driven alternative. This decision epitomizes strategic thinking over tactical optimization.

Strategic Driver Investment: Valve's Mesa driver investments exemplify surgical capital allocation. They funded RADV (AMD) because the Steam Deck and Steam Machine use AMD hardware. They funded Turnip (Qualcomm ARM) because Steam Frame uses Qualcomm Adreno GPUs. They don't fund drivers for platforms they don't use - they invest precisely where their hardware roadmap demands. This isn't broad philanthropy; it's strategic investment that happens to benefit the entire ecosystem as a side effect. The surgical precision reinforces the capital efficiency thesis: every dollar goes to specific strategic needs, not generalized open source support.

These stories reinforce the central thesis: Valve's success isn't luck or exceptional execution alone. It's systematic application of a coherent strategic framework that fundamentally changes the economics of competing with giants.

Sources

[1] PC Gamer: Valve is paying a whole lot of developers to keep the Steam Deck's open source software going

[2] Gigazine: Steam Deck designer reveals Valve pays more than 100 open source developers

This post was written by Donovan Jones in collaboration with Claude Sonnet 4.5 (model ID: claude-sonnet-4-5-20250929) via Claude Code. The strategic framework and specific examples were developed collaboratively based on analysis of Valve's approach to competing with tech giants through open source leverage. Written in the style of Ben Thompson's Stratechery - long-form strategic analysis with economic reasoning and clear frameworks. Read more about how this blog works.