Between Nintendo's (NTDOY +0.89%) forthcoming OLED Switch model and Valve's newly announced Steam Deck, the handheld gaming console market is heating up again. But there's a big difference between these two consoles and their respective impacts on the market.
While the Switch's hardware is locked down to its pre-installed operating system, the Steam Deck is welcoming customization, including installation of alternative operating systems, on its new console. This opens up the opportunity for Microsoft's (MSFT 1.57%) popular game streaming service, Xbox Game Pass, to indirectly benefit from the launch of the Steam Deck, and consumers are already building hype about it.
Image source: Xbox.
Why the Steam Deck is a new breed of handheld
At first glance, you may have categorized the Steam Deck as a direct threat to the Nintendo Switch. However, the two devices are fundamentally different in their functionality and target markets.
The Switch keeps its intellectual property (IP) close to the chest, with no option to play games from outside the Nintendo app store on the Switch (without hacking it, that is). Moreover, you can't play your Nintendo games on PC or other non-Nintendo hardware. For a company with such powerful first-party games, this integrated hardware-software strategy makes sense -- gamers who love Nintendo for its exclusive games won't be very tempted by the Steam Deck, which can't play them.
Alternatively, the Steam Deck will serve as a powerful portable PC that can access and play any game that a traditional PC gamer can. Nintendo completely eclipses Valve in terms of first-party games and IP, so taking a more broad approach for the Steam Deck makes sense for Valve.
This makes the Steam Deck more attractive to a different subset of the gaming market (i.e., PC gamers and gamers who use streaming services). This includes many gamers who may want to install Microsoft Windows on the Steam Deck to access Xbox Game Pass games.
Xbox Game Pass just gained a valuable use case
Now that Xbox is pushing gaming to be more mobile through streaming, a handheld console feels like a natural next step -- even if it doesn't make it itself. In fact, Xbox is not too focused on selling its own hardware anymore. Selling consoles is a particularly unprofitable business, and the company is much more interested in gaining subscribers for its Xbox Game Pass and Xbox Cloud Gaming services.
Xbox Game Pass is just getting started on its mission to make gaming mobile and convenient for all gamers in countless ways. Microsoft plans to partner with TV manufacturers to include Xbox Game Pass connectivity in smart TVs without additional hardware requirements (other than a controller). The company will also start building its own Xbox Cloud Gaming streaming devices for use with any TV or monitor.
So, for gamers who want the high-value game library of Game Pass and are willing to dish out the $399 for the Steam Deck, the handheld console is the perfect hardware medium for Xbox's cloud-based streaming services. A quick search engine query for "Steam Deck Xbox Game Pass" proves this point, with pages upon pages of articles and discussion boards already posted on the topic. Clearly, while Xbox doesn't need a handheld console, it could benefit from one that fits its needs.
Keep an eye on the market's reaction
Some Xbox fans are expecting Microsoft to respond to the Steam Deck with its own handheld console. However, it seems that Xbox has not been planning for its own handheld, and this announcement wouldn't change that overnight. Xbox has started and scrapped a handheld console project several times in years past, never getting further in development than a few drawings.
A few critical details will need to fall into place for the Steam Deck to help Game Pass gain and maintain subscribers in any meaningful way. First, the installation process of the Windows operating system will need to be straightforward and clean. Second, the user experience of playing Game Pass on the Steam Deck will be vital.
The interface, ergonomics, and gameplay of a console can be difficult to predict before the market actually gets its hands on it. To be sure, we'll have to wait and see when the first Steam Deck orders ship in December. Until then, it's a great time to put your money on Xbox Game Pass' pending iterations -- integrated smart TVs, streaming devices, and even handheld PCs -- as a long-term Microsoft shareholder.
