Valve's Steam Box Is an Assault on Microsoft's Windows, Not Xbox

When it comes to the Steam Box, it seems a lot of people are confused. While it is, as many would tell you, Valve's upcoming competitor to Microsoft's (MSFT 0.21%) Xbox One, it runs much deeper than that.

The Steam Box itself is sort of a faulty idea; the hardware is hardly relevant -- I have at least three potential "Steam Boxes" in my house right now, and there's good chance you're reading this on what could one day become a Steam Box of your own. What's far more important than the Steam Box is the operating system that powers it -- Valve's SteamOS, which can be loaded on nearly any PC.

SteamOS is Valve's attempt at rebellion -- fighting back against a Microsoft ecosystem which is increasingly adopting a closed, Apple (AAPL 0.76%) like structure. But Valve isn't the only company that's been alienated by Microsoft's new strategy -- Hewlett-Packard (HPQ 2.31%) has also shown signs of resentment.

What is the Steam Box?
The Guardian describes the Steam Box as a video game console -- it is, in the sense that's it meant to play video games; but at the same time, it isn't a console at all. Traditional video game consoles are manufactured by one company and run proprietary software -- Microsoft makes the Xbox One, the operating system that powers it, and unless you do a lot of tinkering, you can only use it in ways Microsoft intended it to be used.

In contrast, nearly any PC can be a Steam Box. The official "Steam Boxes" that will show up on the market in the coming months will be no different than the desktop PC you might be using to read this very article. Of course, there will be one major difference between those machines and most desktop PCs: they'll be running SteamOS, not Microsoft's Windows. But you won't need to buy one to use SteamOS -- Valve plans to give it away for free.

That makes SteamOS a competitor to Microsoft's Windows, and one with a huge advantage (the price). Certainly, SteamOS is designed for gaming -- not productivity or office work -- meaning that, even if it was wildly successful, it would be unlikely to steal the bulk of Microsoft's Windows sales.

Adopting Apple's iTunes model
But Valve's decision is in response to some of the changes Microsoft made to Windows, most notably, the introduction of an app store. For a company like Valve that sells hundreds of millions of dollars worth of software, having to work within the confines of an app store model could be highly detrimental.

Apple defends its controlled app store as a way to ensure a better user experience. That may be the case (consider the recent Android flashlight debacle), but it also leaves the door open for Apple to stymie or even block software from a major competitor. More important is that Apple takes a cut of the revenue -- a full 30%.

While that was once a paltry figure, as Apple's total user-base has grown, it's ballooned into something substantial, and continues to grow rapidly. Last quarter, Apple's iTunes brought in a total of $4.3 billion, up from less than $2 billion in the second quarter of 2012.

Microsoft introduced its own app store in Windows 8, and while Valve continues to operate outside its boundaries, as Microsoft continues to update and tweak Windows, that could eventually become impossible.

Hewlett-Packard sees Microsoft as a competitor
Like the app store alienating Valve, Microsoft's first true PC -- the Surface Pro, unveiled alongside Windows 8 -- may have alienated some of Microsoft's hardware partners, notably Hewlett-Packard.

Hewlett-Packard's CEO Meg Whitman characterized Microsoft as a "competitor" earlier this year, and it's hard to disagree. Every sale of one of Microsoft's Surface Pro tablets is potentially a lost sale for Hewlett-Packard. And while Microsoft robs it of sales, HP still has to pay Microsoft for the privilege of using its operating system.

Perhaps that's why Hewlett-Packard has embraced alternative operating systems to such a great extent this year. Hewlett-Packard still makes and sells Windows PCs, and likely will for the foreseeable future, but alongside its Windows devices, Hewlett-Packard has launched half a dozen Android tablets and Chromebooks just this year.

Devices and services
Valve isn't embracing alternative operating systems like Hewlett-Packard -- instead it's creating its own. More than Valve's entrance into the living room, the Steam Box and SteamOS is Valve's response to Microsoft's new strategy.

By pushing its own devices, and moving toward a more walled garden similar to Apple, Microsoft has scared the entire PC space, and the long-term consequences are only starting to play out.