For serious gamers, there are currently only two real options. The first is to buy or build a gaming PC, the cost of which can range from $500-$600 for an entry-level machine to well into the thousands of dollars. The second option is to buy a console, such as the recently released PlayStation 4 from Sony (NYSE:SNE) or the soon-to-be released Xbox One from Microsoft (NASDAQ:MSFT). These cost $399 and $499, respectively, well below the cost of even a mid-range gaming PC.
There will soon be a third option for gamers. Valve, the company behind such games as Half Life, Left 4 Dead, and Portal, as well as the Steam platform for PC, Mac, and Linux, is planning to launch the Steam Machine in 2014. Here's a look at Valve's prototype:
What is a Steam Machine?
The Steam Machine is Valve's attempt at taking over the living room. Unlike game consoles, the Steam Machine will come in all sorts of varieties. There will be low-end versions meant for streaming, as well as high-end versions meant for serious gaming. Multiple partners will be manufacturing the devices, and there should be a wide range of options to choose from.
The Steam Machines run SteamOS, a free Linux-based operating system created by Valve. While SteamOS will ship with all steam machines, it will also be possible to install it on a custom-built machine. SteamOS comes with all the features of the Steam platform, optimized for a TV screen. Valve claims that it's achieved significant performance increases in graphics processing compared to traditional PC gaming.
The cost of these machines hasn't been disclosed, but various websites have broken down the prices based on the components mentioned by Valve. The low-end option would be around $800, while the highest-end option would be a staggering $1,750. The graphics card alone in the highest-end option is more than twice the cost of the PlayStation 4.
Who is this for?
Because of the price, the Steam Machines are not really direct competitors to Sony or Microsoft game consoles. Rather, the Steam Machine is an attempt to get PC gaming into the living room without having to drag Windows along with it.
The problem is that Steam Machines can only run games built specifically for SteamOS. They can stream games from a gaming PC to a TV, but this obviously requires a gaming PC in the first place. And there are other devices that allow for such streaming, like the NVIDIA Shield, for example.
I see little reason for those who already have a gaming PC to buy a Steam Machine, as there are far less expensive options available to play games on a TV.
The advantage of consoles
The PlayStation 4 and Xbox One have a big advantage over Steam Machines: price. Typically, console manufacturers sell the hardware at a loss in order to be able to offer an attractive price, making up for it later from game licensing fees. The PlayStation 4 probably costs Sony more than $399 to manufacture, but building a large user base is more important than immediate profitability.
Another advantage consoles enjoy is a single hardware design. Game developers can optimize their games specifically for the console hardware, not having to worry about different versions. PC gaming, and Steam Boxes, are not like this. Game developers need to make sure that their games run on low-end hardware while looking good on high-end hardware, a balancing act which adds time to the development process. Steam Machines in no way solve this problem.
The bottom line
The details of Steam Machines and SteamOS aren't fully finalized, but unless Valve's strategy is very different than what it seems to be right now, I don't see these devices selling very well. Steam Machines are certainly no threat to game consoles, as the price difference guarantees that the PlayStation 4 and Xbox One will rule the living room. Unless PC game developers suddenly abandon Windows for SteamOS -- unlikely, given Window's massive install base worldwide -- Steam Machines will at best be a very niche device.
Timothy Green owns shares of Microsoft. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.