Valve began developing Half-Life 2 six months after the release of the first Half-Life, using its new in-house engine, Source. With advanced physics systems and an increased focus on story and characters, it received critical acclaim upon its release in 2004. By 2011, it had sold 12 million copies. In 2002, Valve launched Steam, a digital storefront and delivery platform. Steam initially offered only Valve games, and was mandatory to install Half-Life 2, but became a publisher of third-party games. As Valve became its own publisher via Steam, it transitioned to a flat organization; outside of executive management, Valve does not have bosses, and the company uses an open allocation system, allowing employees to move between departments at will.
After having taken years to develop Half-Life 2, Valve moved to episodic development, planning to release shorter games more frequently. Half-Life 2: Episode One, the first in a planned trilogy of episodic Half-Life 2 sequels, was released in 2006. Episode Two followed in 2007, alongside the multiplayer game Team Fortress 2 and the puzzle game Portal, developed from the student project Narbacular Drop. In January 2008, Valve announced the acquisition of Turtle Rock Studios, which was renamed Valve South. Turtle Rock developed Left 4 Dead and Left 4 Dead 2 while associated with Valve. Turtle Rock Studios later spun out of Valve again in March 2010.
Forbes estimated that Valve had grossed $70 million in 2005. Screen Digest analyst Ed Barton estimated Valve's 2010 revenue to be in the "high hundreds of millions of dollars". As of 2011, Valve had an estimated worth of $2 to 4 billion and employed 250 people; according to Newell, this made it more profitable per employee than Google or Apple. Most of Valve's revenue comes from Steam, which controlled 50 to 70% of the market for downloaded PC games in 2011.
In 2010, Valve hired IceFrog, the developer of Defense of the Ancients, a Warcraft III mod. IceFrog led the development of a sequel not associated with the Warcraft elements, Dota 2, released in 2013. Alongside Dota 2 in 2011, Valve started The International, an annual esports tournament for Dota 2 with a prize pool supported by Valve and funds from microtransactions from battle passes purchased by players. Valve released Portal 2 in April 2011. As with the original Portal, Valve employed a Digipen student team to help develop it; the team behind Tag: The Power of Paint implemented the new gel gameplay.
In December 2012, Valve acquired Star Filled Studios, a two-person studio, to open a San Francisco office. Valve ended the operation in August 2013 when they decided it had little benefit. At the 2013 D.I.C.E. Summit, Newell announced that he and the film director J. J. Abrams were collaborating to produce a Half-Life or Portal film, as well as a possible game.
Valve released fewer games in the 2010s. Instead, it explored hardware. Newell intended to make Valve more like Nintendo, which develops games in tandem with hardware, allowing them to create innovative games such as Super Mario 64. Valve initially focused on augmented reality, but in 2013 Newell laid off many staff to focus on virtual reality (VR). In 2015, Valve released the Steam Machine, a line of gaming computers, which sold poorly.
Media commentators speculated that Valve's transition to service provider with Steam, which generated an estimated $3.4 billion in 2017, had driven it away from game development. Valve canceled games including numerous Half-Life projects (including Episode Three), Left 4 Dead 3, a Soulslike game, and a voxel-based game, A.R.T.I. Additional VR projects included SimTrek, developed by members of the Kerbal Space Program development team, and a new VR device, Vader, that was determined to be too costly for consumers. According to the designer Robin Walker, the abundance of projects that failed to gain traction, with no shared vision, damaged morale. Many players grew frustrated in anticipation of a new Half-Life game.
Valve announced the Source 2 engine in March 2015 and ported Dota 2 to it that September. That year, Valve collaborated with the electronics company HTC to develop the HTC Vive, a VR headset released in 2016. Valve experimented with VR games, and in 2016 released The Lab, a collection of VR minigames.
Valve recognized that many players wanted a more ambitious VR AAA game, and began exploring the development of a major VR game. They developed several prototypes, with three further VR projects under development by 2017. Finding that the portal systems of their puzzle series Portal were disorienting in VR, they settled on Half-Life. Walker said that Half-Life 3 had been a "terrifyingly daunting prospect", and the team saw VR as a way to return to the series.
Full development of a VR Half-Life game started around late 2016, with the largest team in Valve's history. Valve acquired the 3D audio software developer Impulsonic in January 2017. In April 2018, Valve acquired the independent developer Campo Santo, known for the 2016 adventure game Firewatch. Campo Santo planned to develop its own games under Valve, though they initially helped develop Half-Life: Alyx.
In November 2018, Valve released Artifact, a digital collectible card game based on Dota 2, with design by Richard Garfield, the creator of Magic: The Gathering. Artifact had unusual pay-for mechanics to acquire new cards, and did not draw a large playerbase, losing 95% of players months after release. In April 2021, Valve abandoned efforts to reboot the project, saying they had not found enough interested players to justify development. In June 2019, Valve released its second-generation VR hardware, the Valve Index. They also released Dota Underlords into early access, an auto battler based on a Dota 2 community-created mode Dota Auto Chess.
In March 2020, Valve released Half-Life: Alyx, a VR game. It received acclaim and was described as VR's first killer app. Newell said in January 2021 that the success of Alyx created desire within the company to develop more games, and that several were under development. Valve collaborated with Netflix for Dota: Dragon's Blood, an animated television series based on Dota, which premiered in March 2021. In February 2022, Valve released the Steam Deck, a portable game system that runs on SteamOS. In March 2023, Valve announced Counter-Strike 2. It is expected to feature major technical improvements.
