A milestone is a release build of software and other materials which is intended to be evaluated by parties external to the studio, usually publishers or the public. Milestones usually follow a path of prototype, pre-alpha, alpha, beta, release candidate and gold master. Sometimes others include release-to-manufacturing, vertical slice, gamma or delta.
Payments to development studios are often tied to the delivery of milestones, so they are usually treated seriously and often lead to crunch times at certain periods to get the milestone finished on time. In situations where the relationship between developer and publisher becomes fractious, milestones can even become a kind of political bargaining chip: The publisher starts rejecting milestones on small pretexts as a way to avoid paying the developer, or even cancel the contract on the grounds of failure to deliver.
Milestones, and the waterfall development culture that spawned them, are thought of as archaic in modern development. In online and lean-based studios especially, they are considered counter-productive. Those kinds of studio prefer to release to the public as often as possible to gain real feedback, not to wait and polish first.
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