Valve's Comprehensive Strategy Shows How To Go From Fee To Free… And Increase Revenue Twelve-fold

from the nicely-done dept

We’ve writen about Valve’s approach to the market many times before. The company believes strongly that “piracy” is a service problem not a legal problem. It knows that it can easily compete with piracy by offering a better service, something that it regularly succeeds in doing. However, On The Media calls our attention to an absolutely fantastic case study found on Gamasutra, not (directly) about how Valve competed with infringement, but how it turned Team Fortress 2 from a fee-based game to a free-to-play game and increased revenue twelve-fold.

Of course, over the years, we’ve covered other online games going from fee-based to free and making more money for it, inspiring more and more other games to do the same. But what’s most interesting here is the level of detail. In the case of TF2, it’s clearly not about “give it away and pray,” but a careful strategy that really does seem focused on connecting with fans and being awesome while giving fans a good reason to buy.

For example, the team at Valve connected with fans in a really cool way. It put out “teaser trailers” with product updates, and then scoured feedback to come up with ideas that fans might like in the game:

[Valve’s Joe] Ludwig showed TF2’s Sniper-focused update as an example. Each content update started with a teaser trailer that hinted at several possible new items or features, and Valve developers would monitor the community reaction in the forums to determine which aspects caught the players’ attention. “We found people in the forums talking about how cool it would be if the Pyro could light the sniper’s arrows on fire. To be honest, we hadn’t considered it, but we were able to implement it by the time the update shipped,” Ludwig said.

In another instance, players picked up on a blueprint displayed in passing within the teaser trailer for the Engineer-focused update of a mechanical hand item. Ludwig explained that “[The players] didn’t realize it, but they were indirectly voting on the content of the update. When the update shipped, it included that robot hand.”

Separately, Valve was very careful and deliberate about how they “went free” and moved to offering in-game purchases. Recognizing that there’s an unfortunate incentive to then make in-game purchases make the actual gameplay worse (such as by making it “pay to win”) the team made very strategic choices about how they would have in-game purchases, such that they were never required to play the game how you wanted:

Once Valve rolled out the in-game item system, it needed to get the players used to the idea of paying for them. “This wasn’t a change we made lightly, but it was something we had to do to get our game into the free-to-play business model,” Ludwig said.

“They had never paid for an item in TF2 at any point in the past, and we weren’t sure how willing they’d be to pay now.”

Ludwig outlined the players’ possible objections to the item store, the first of which was TF2 turning into a “pay-to-win” game:

“We dealt with the pay to win concern in a few ways. The first was to make items involve tradeoffs, so there’s no clear winner between two items. But by far the biggest thing we did to change this perception was to make all the items that change the game free. You can get them from item drops, or from the crafting system. It might be a little easier to buy them in the store, but you can get them without paying. The only items we sell exclusive to the store are cosmetic or items optional to gameplay.”

In other words, this was entirely designed around the idea of giving people a good reason to buy rather than a negative reason that makes them feel forced to buy. Too many companies (hello most newspaper paywalls!) seem to think that “forcing” people to pay is a “reason to buy.” It’s not. It may get some people to pay, but it pisses off lots of people. Valve carefully structured its business model here to make people want to buy.

But the real key here is just how much this effort increased revenue. Many people have assumed that taking a fee-based game and going free-to-play is really an “end of life” strategy to try to squeeze the last remnants of revenue out of a game, but Valve is showing it’s not that at all. It was a strategic choice to maximize revenue. This is the same point we’ve made for well over a decade in talking about how to use free as a part of a business model to increase your market. When properly applied (which is not just “give it away and pray”), free becomes a revenue multiplier, and Valve’s example of TF2 is really a perfect case study of how to do it right.

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Comments on “Valve's Comprehensive Strategy Shows How To Go From Fee To Free… And Increase Revenue Twelve-fold”

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tracker1 (profile) says:

Re: Re: Original Team Fortress...

The original Team Fortress plugin for Quake 1 was free. TF/TF2/TFC were add-ons to other games as incentive to buy. It wasn’t an audience that was gained through only heavy marketing. Valve gained a lot of its’ following by understanding the community they serve and offering competative products that work well. Like Apple did with iTunes… A lot of games on Steam just work, and do so well. The problem children are the “A” title games that have their own DRM on top of the steam requirement.

Anonymous Coward says:

Ok, so the comments will be subdued on this article, but have no fear; all the usual complaints that Mike is endorsing piracy and telling creators that their only hope to make money is by touring the country going door to door selling tshirts will be back in service shortly.

That will then be topped with comments that there are literally no meaningful examples of new business models emerging.

The more thoughtful will however just point out that this example doesn’t work in x part of y business and therefore is not worth paying attention to.

Zakida Paul says:

I have the utmost respect for Valve. They have created a product that is well priced, easy to use and all round better than piracy and they have succeeded. I just wish the rest of the creative industry would take note and do the same.

They need to work with technology rather than fighting it and it will work out better for all involved.

Anonymous Coward says:

To pick nits; TF2 was never a fee based game. Yes it had an initial purchase but in your title and the article it sounds like you mean it was a monthly or reoccurring fee. The game was released in 2007 and sold for a 1 time flat rate until the day in went f2p. It both a weirder and more amazing story that this company released content updates and patches for 4 years for free then someone how found a way to both monetize the game AND grow its player base. Valve never ceases to amaze.

Jay (profile) says:

Re: Re:

I’d be what you consider a Valve fanboy.

But I have to keep it real and honest about Valve. They do some things wrong. They quickly make up for it while doing what the community wants.

They have dedicated servers for people to buy at cheeap rates. This means that even if you’re an evil douchebag player, you get to see more ads because you’re a negative externality elsewhere.

If you’re a good player that gives to the community in a number of ways, they give you free weapons.

If you create weapons, you have ways to be supported by the Steam community if you put up a good design that the community enjoys.

If you do things such as the Female Scout update, they love you long time.

Basically, what they’ve done is build a community of people that add value to the game. Sure, it’s four years old. But to the people playing Valve games, they’ve serviced it so that the community continues to support the games, the personalities, and the players who have found tremendous value in keeping the game going.

Of course, there are still downsides… But as a Valve fanboy, let’s ignore those while I gleam the good side of a great company. πŸ™‚

bob (profile) says:

DRM and Paywall!

Once again, what’s old is new again. The trick around here is just to repackage things and pretend that it’s different. Steam is DRM. You can’t pirate their games because the game checks in with the server all of the time.

Why aren’t we hearing the usual complaints about DRM here? Don’t ask me.

Perhaps, you’ll say because it’s free. It’s rather clever for them to bury the winning pieces in some complex maze and assert that all you have to do is find them and you can play for free. Revenue wouldn’t be up that much if that were true.

Sounds to me like they just adopted the old fashioned studio rules. Give them a taste and then make sure to get their money while they’re on the edge of their seat.

Not that I have any problem with that. It’s just a clever ruse to put a new veneer on the old quid-pro-quo.

Ninja (profile) says:

Re: Re: DRM and Paywall!

While I do agree with you, I have many older games that I play every once in a while, some of them do have DRM (hello CD keys!) but they don’t require connections to activate and become playable. This might not matter for a mmo game but let’s think some offline game you need to go through steam to play it. Will it be playable when Steam is not around anymore or will it be lost? It’s culture lost. Some of you will argue that games are not culture but please shut up. I don’t think many stuff considered “art” are actually art but it doesn’t mean it’s not art and that it shouldn’t be treasured for the future.

The mmo games are actually a nice case study. Many were discontinued but you can still play them in ‘private’ servers so even thouse, I think their source codes should be released to the public once the company stops supporting them.

Anonymous Coward says:

Re: DRM and Paywall!

Because Steam adds more value than its DRM features remove. Period. Oh, and steam DRM? It doesn’t work without those features. You can still play any Steam game for free (there are tons of cracks) but you miss out on the value that the Steam client brings if you do so (community, recommendations, sales, instant access to games, etc…etc…etc…)


weneedhelp (profile) says:

Re: DRM and Paywall!

“Steam is DRM.” Nah more like a storage locker.

I was sold on steam when my PC poofed and after a rebuild and install of Steam, it then goes and installs all of my games. That one feature… SOLD!!! When they run sales… ITS A SALE.

“You can’t pirate their games because the game checks in with the server all of the time.” FALSE. Different DRM does different things. Shouldn’t you know that?

“Sounds to me like they just adopted the old fashioned studio rules.” – Sounds to me you really dont have a grasp on what you are talking about, and if they adopted anything it was because they were forced to.

It also appears that they are just implementing DRM out there already to appease the Game producers.

EA Account required to run (requires constant Internet connection even in single player mode)
EA ACCOUNT, has nothing to do with Steam.

Ubisoft DRM
Unless otherwise noted, you must have a constant Internet connection at ALL times to play these games.
Thats UBIsoft

Its nice to see lists like this so we know which games to pirate.

So while you like to sit there and ha ha, it is these DRM schemes that push users to be a swashbuckling pirate. Arrggggggg!!!! Off to the torrents we be!!!!!

I think you need to read this:

weneedhelp (profile) says:

Re: Re: Re: DRM and Paywall!

“I definitely felt the negative side of Valve’s DRM.”
How do you know it was DRM?

Any update can fail. Or be crappy out of the box.

Alice Madness Returns. OOTB one of the ini’s were coded incorrectly. You got to a certain point and the key mapping for a weapon did not work. I spent hours going through forums to find a fix. Nothing to do with DRM, although makes you wonder if the time spent on DRM was spent on QA, if that would have happened.

It still is a good point, that you had to go through BS just to play a game. I didnt see your error but at lease if it was just an exe to update program files there may be an error code & logs to look through to narrow where to look for a fix.

Personally, I have never had any technical issues with Steam.

Jeremy2020 (profile) says:

Re: DRM and Paywall!

You’re not correct. Steam does not ‘check with the server’ all the time. It has an offline mode.

You’re also intentionally misunderstanding the position. No one has a problem with paying for thing we ‘want’. It’s when you we’re told we need to pay for things we don’t want and then don’t pay for them that MPAA/RIAA/etc get crotchety.

John Fenderson (profile) says:

Re: DRM and Paywall!

Steam is DRM. You can’t pirate their games because the game checks in with the server all of the time.

Steam is indeed DRM, but it’s DRM that doesn’t step on legitimate users toes too much. That’s why you don’t hear complaining.

However, you’re 100$ wrong that you can’t pirate their games. You absolutely can. There are fake Steam servers you can run yourself for the games to check in with and let you run them.

And yet, only a tiny fraction of players do this. You know why? Because there is more value in playing to play on Steam’s servers than there is in playing for free on you or your buddy’s.

Like Netflix, Steam is proof that people don’t pirate just because they want stuff for free.

Anonymous Coward says:

Re: DRM and Paywall!

Ahhh paywall bob. The king of uninformed trolls.

Let’s try this, once again, go and ACTUALLY use Steam. I’ll give you a few pointers on it. Steam may be DRM, but it’s non-intrusive DRM. It provides more benefits in it’s use, so as such, it’s seen as ACCEPTABLE DRM by it’s users.

You obviously don’t know this, but you don’t need to be online with Steam. Just long enough to download the games, after that you can switch to offline mode. Where the game DOES NOT check in with the server all the time.

Also, as has already been noted, TF2 is free to play. Period. The special/bonus items are free as well, but if you don’t want to find them yourself, you can purchase them. But they are NOT winning pieces that have to be bought. Either way, finding them is more a bonus than anything else. You DO NOT have to “find them and you can play for free”. You play for free from the get go.

bob, seriously, stop posting about things you don’t understand. It only makes you look like an even bigger idiot. And honestly, up until this latest beauty of yours, I’d have said that was impossible for you to do. I stand corrected in that regard.

Anonymous Coward says:

Re: DRM and Paywall!

>Steam is DRM. You can’t pirate their games because the game checks in with the server all of the time.

Steam is DRM but it’s value added DRM that does not work like you think (at all, it’s offline mode could use some rejigging but once I’ve download a game on steam I do not have to be online to play it) and the idea that it actually stop piracy is laughable. If a game is realised as steam works all it does to prevent piracy is hold back parts of the code until realise day. Once the game is out it will quickly be cracked.

>Why aren’t we hearing the usual complaints about DRM here? Don’t ask me.

I won’t because you are clearly ill informed. If you think that there are not people who dislike steam then you are very wrong. It just happens that most people forgive steam it’s role as DRM and it’s other problems because of the value it adds in other ways.

>Perhaps, you’ll say because it’s free. It’s rather clever for them to bury the winning pieces in some complex maze and assert that all you have to do is find them and you can play for free. Revenue wouldn’t be up that much if that were true.

This is how most good free to play models work, when you buy something that effects game play you should only be paying to save time. Another player who does not pay should be able to with time and effort get the same result.

>Sounds to me like they just adopted the old fashioned studio rules. Give them a taste and then make sure to get their money while they’re on the edge of their seat.

TF2 has been out for a very long time, it’s been on sale for next to nothing more times than I care to remember. How this is meant to be getting people on to the edge of their seats I don’t know. What it is doing is allowing players to get more content for a game they enjoy and for the makers of that content to be paid to do so.

Wally (profile) says:

Re: DRM and Paywall!

“Why aren’t we hearing the usual complaints about DRM here? Don’t ask me.”

I have the answer:
Those who have ever heard of SecuRom DRM would know what I am talking about.
Valve actively removes DRM from titles sold on Steam. A prime example is GTA IV. The Brick and Mortar version used SecuROM DRM….the Steam Version had it removed from it’s release.
Steam works the way a CD check would normally work..and you for all of valve’s single player games, an internet connection is not required to play if your internet goes down.

“Sounds to me like they just adopted the old fashioned studio rules. Give them a taste and then make sure to get their money while they’re on the edge of their seat.”

That is how the likes of DOOM and Quake sold back in the day. Two very successful franchises…oh the memories of my youth πŸ™‚

I have been using Steam since I bought Half-Life 2 (it came on 5 discs πŸ™‚ ) and I could not be happier with Valve and their Distribution Center. They have always treated their users well. It is that business model I wish EA and a few others would adopt that policy.

Anonymous Coward says:

Let’s be clear about the whole strategy here:

1. They effectively bundled TF2 with something else people already wanted to buy, half-life 2. So, step 1 to having a successful free offering: start with a huge audience and leverage it. The first 20 million is always the hardest.

2. The stuff they’re selling (hats, guns) are artificially scarce. They use DRM to enforce the scarcity.

3. They have managed to offload their recurring costs (server operation and maintenance) to the community, yet restrict the sales channel and DRM to themselves. Server operators are left to front their own costs or beg for donations via PayPal.

Anonymous Coward says:

Re: Re:

1) …and?

2) Well, except for the fact that almost all items can be acquired for free, and that server-side mods can grant any items they want to users for that session, and that there is an entire community-based trading economy to acquire items without paying.

3) Aside from the dozens (hundreds?) of official, Valve-hosted servers, you seem to be ignoring the part where online communities *want* the ability to host their own servers.

Jeffrey Nonken (profile) says:

Re: Re:

Over-simplified, but largely true.

HL2 came first. TF2 was a separate purchase later, though you had the option of buying The Orange Box and getting several items at a discount, including HL2. I did that and ended up with an extra copy of HL2 (that I later gifted to my brother-in-law). As for bundling TF2 with something else people wanted to buy, well, I suppose. But there were a lot of TFC players, for example, that were eager to play TF2. You make it sound like they only drummed up interest in TF2 via HL2 sales; that is very much not true. TF2 didn’t just spring up out of nowhere. Team Fortress has been around since the Quake days, and people were hoping for a TFC sequel for years before it happened.

Artificial scarcity: yep. Kind of. But gameplay tends to be like that anyway. In Killing Floor, you earn money by killing zombies, which you can then use to buy more badass weapons as the game progresses. Over many games you level your perks from 0 up to 6, which gives you more power and greater ability. There are other games where you do leveling and accumulating. Well, technically all those items are subject to artificial scarcity. If I had complete control of the server I could give all the players ?1,000,000 and max out their experience points. Put them all into godmode and give them instakills. But that takes away the challenge, doesn’t it? What fun is the gameplay if you don’t actually earn all that stuff? Still, it’s all artificial, isn’t it?

The artificial scarcity you seem so contemptuous of is part of the game, and most people seem to accept that.

Ever play chess? You’re only allowed to move certain pieces certain ways. But if you were allowed unlimited movement, white would capture black’s king on the first move; the game would be won on a coin toss. The movement restriction is an artificial scarcity, but having it is what makes the game a challenge.

The DRM is there, but it’s part of the account. That account gives you access to a community, including voice comms and text messenging with your friends; it also saves your game stats and allows you to play any Steam game you own on any computer. All you need to do is log in and, if it’s a new installation, do an extra verification and download the game. It’s all part of an overall platform; if you focus just on the DRM you’re missing all the good stuff.

Sorry that they’re not paying people to play. Enough people are willing to front money for servers that Valve doesn’t need to. If servers become too scarce to support the community then they will be easy enough to monetize, won’t they? And as long as they’re plentiful, it’s not a problem. Is Valve riding on the backs of the server operators? I suppose you can make that argument, but then you’ll have to explain why they’re worse than any other multiplayer game creator? Back to my Killing Floor example: they’re making a game and selling it; the greedy bastards are taking advantage by not providing server space for free, right?

(Actually, they do provide a free service: there’s a central server that helps you connect to playing servers. They pay for that and maintain it.)

Let’s be clear about the whole strategy here: they’ve created something people want enough that they’re willing to pay for it, and to run their own servers. Then they found a way to have the game pay even more, whilst giving the game itself away for free.

You don’t have to play, and even if you play, you don’t have to pay. Neither does anybody else. But enough like what they see that they’re willing to.

Anonymous Coward says:

Why doesn’t the article give the details on how they calculated the increased revenue? Was the increase based on quarterly sales? What periods were considered? Need more details before I can determine if this is just a propaganda piece.

I applaud their decision to take an old property and inject new opportunities for revenue through in game purchases. Personally I HATE the idea of in-game purchases, but kuddos to them for finding people willing to part with their cash piecemeal.

Anonymous Coward says:

Re: Re: Re:

That doesn’t answer my concern, when you say something increased by x percentage, you need to define what EXACTLY increased. By failing to define the time periods which were compared the entire article loses my interest.

I don’t care if F2P is a billion dollar industry I will not play a game that offers in game purchases. I have deleted dozens of games that offer them. I find them intrusive to gameplay, and many are obstructive to the game objectives. Just let me pay a known dollar amount upfront rather than nickel and diming me to death later – at least I know up front how much it will cost me to complete a game versus investing 20 hours and finding out I need to buy more crap to complete the objectives.

Watchit (profile) says:

Re: Re: Re: Re:

“Just let me pay a known dollar amount upfront rather than nickel and diming me to death later – at least I know up front how much it will cost me to complete a game versus investing 20 hours and finding out I need to buy more crap to complete the objectives.”

Well, like mike said, Valve took great measures to ensure that TF2 would NOT be a pay2win game, all the purchases are OPTIONAL and do not effect gameplay that significantly at all. I think what you have a problem with is not in game purchases but rather a game that makes itself out to be “free” but rather requires some sort of payment to advance a.k.a a “pay2win” game.

“Why doesn’t the article give the details on how they calculated the increased revenue? Was the increase based on quarterly sales? What periods were considered? Need more details before I can determine if this is just a propaganda piece.”

The claim was in the Gamasutra article he linked to. From what I gather the claim was made by Valve’s Joe Ludwig during GDC.

here’s the article if your to lazy to find it up there:

JS says:

Re: Re: Re: Re:

As the article pointed out Valve took very careful steps to make certain free-to-play didn’t mean pay-to-win. Pay-to-win is what you are complaining about and honestly isn’t that what you are doing when paying a set monthly amount for an online game (like WOW) ?

I recently returned to playing Star Trek Online. I bought it when it first came out and I wasn’t impressed with the game play and all the bugs and missing content while paying a monthly fee to basically beta test their game. So I stopped for a long while. Now that it is free-to-play I’m back playing and enjoying it. But it isn’t pay-to-win. All the optional in-game purchase stuff is simply cosmetic (like being able to fly the original Enterprise NCC-1701 rather than the Enterprise A) and has zero impact on your ability to succeed (or fail) in the game.

If they are making money off this business model, great for them. But I laugh at the people that are dropping money on these things (especially those that pay for stupid pets to follow them around).

Rekrul says:

Re: Re: Re:

And I have a pile of boxes of games i blew months worth of allowance on because I only had a few biased magazines and box covers to go off of. If I blew 50$ on a product that was enjoyable for 5 minutes I was just plain fucked.

You know that game demos existed before the miracle of Steam, right? Then there game rental services…

weneedhelp (profile) says:

Re: Re:

“When I was your age, you got the whole game right at the start. You didn’t need to buy extra stuff and you didn’t need to run some online service just to play your games. Your games worked, even if the company dropped support for them, or even if they went out of business.”

Oh they still do. But if you have them you are a dirty stinkin, baby smacking, puppy kicking pirate.

Tim says:

Free games that succeed

League of Legends *cough* multibillion dollar company started and still is free to play cough*

With the accessibility of programs/gmes at our finger tips the gaming industry will need to change in order to keep up. The free to play with optional cosmetic purchases will always keep people interested. The obligation to play the game because you are paying for it goes away completely and I along with others love to look “fancy”. ^_^

Chargone (profile) says:

Re: Free games that succeed

i never did figure out why the hell that thing refused to install. some of my friends were raving about it, but when absolutely nothing will convince the game to actually install in the first place, it’s not like there’s anything you can do about it.

clearly enough people did NOT have that problem for it to be all good for the company anyway πŸ™‚

Anonymous Coward says:

Mike hits it on the head. Valve has always made it a point to listen to their fans/users, not annoy them with BS DRM and rip off marketing schemes. So people have an incentive to buy and willingly support the company. They feel invested in the valve products. I think i’ve bought almost everything Valve has put out over the years, partially because Valve is a company worth supporting, and the product they produce is almost always a top notch product. Too bad more companies are too deaf to listen to their fans.

Watchit (profile) says:

Video Game Renaissance

The video game market is a perfect example of content creators practicing the Reason to Buy and Connect with Fans model, and doing it right! There are so many examples of “free” or “name your price” games out there that even the trolls can’t deny it by saying things like “it doesn’t work for everybody…” or “You can’t compete with free…”

For example the Humble Indie Bundle. Proof that anybody, even indie developers, can offer their product DRM free with a reason to buy (charity) and make a bunch of money off it!

Hats says:


Typical HAT HATER Masnick, writes a whole piece about TF2 and items and not even a single mention of HATS. Completely missing the point as usual – probably your huge EGO (inflated with STOLEN HOT AIR – I HAVE COPYRIGHT IN MY RANTS THANK YOU VERY MUCH) making it impossible to fit GLORIOUS HATS on your ENORMOUS HEAD full of HAT HATE and PIRATE HATS.

Maybe you should put your JEALOUSY at the BEHATTEDNESS of others into CREATING HATS YOURSELF, then you might start to understand how PROTECTING HAT RIGHTS is VITAL for the future of HATS in all areas of life.

And while you’re at it, you might want to look into the BLATANT DISCRIMINATION against HAT CONTENT PRODUCERS that exists in ALL LEVELS OF INTERNET DESIGN. There is absolutely NO LEGISLATION to protect the valuable HAT CONTENT INDUSTRY JOBS – reckless game designers can even make games that feature exactly ZERO HATS, and NO HAT FUNCTIONALITY, BLATANTLY STEALING market opportunities from HARD WORKING, APPLE PIE EATING, FLAG WAVING HAT CONTENT PRODUCERS. How are HAT DEVELOPERS supposed to make an HONEST LIVING without hard currency* earned from HATS?

These developers, exercising their contemptible CHOICE, must be made to USE OUR HATS to PROTECT JOBS from TERRORISTS.



*currency = HATS; alternatively, HAT LINCOLN

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20:13 Flattr Makes It Easier Than Ever To Support Content Creators Just By Favoriting Tweets (61)
16:03 Case Study: Band Embraces Grooveshark And Catapults Its Career (21)
19:39 Amanda Palmer On The True Nature Of Connecting With Fans: It's About Trust (131)
16:03 Kickstarter-Funded Movie Wins Oscar For Best Documentary (89)
13:41 It's Fine For The Rich & Famous To Use Kickstarter; Bjork's Project Failed Because It Was Lame (20)
17:34 Connecting With Fans In Unique Ways: Band Sets Up Treasure Hunt To Find Fan-Submitted Sounds In New Album (10)
07:27 Just As Many Musicians Say File Sharing Helps Them As Those Who Say It Hurts (131)
20:00 Skateboard Legend Stacy Peralta Demonstrates His Latest Trick: Cashing In By Going Direct-To-Fan (13)
23:58 Wallet Maker Shows Everyone How To Make Their Own Awesome Wallet (16)
11:27 $274 Million Raised Via Kickstarter In 2012 (8)
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