Last week, Half-Life and Portal creator Valve began shipping beta units of its "Steam Machine" console, which are essentially computers that use a Linux-based operating system known as SteamOS to optimize the Steam experience for TV use. The company also released a beta version of SteamOS itself, allowing gamers and tech enthusiasts to build their own Steam Machines at home.
Steam Machines (and subsequently SteamOS) have generated a mixed reaction among gamers and game industry watchers. Some PC gamers seem confident that Steam Machines will drastically alter the gaming landscape because of the freedom they offer and the sizable Steam game library that they provide access to. Others aren't as enthused, seeing SteamOS as being targeted to an extremely small market niche and having relatively little effect on the gaming market as a whole.
Steam Machines vs. the consoles
The Steam Machine isn't going to be the console killer that some people believe it to be. Launching well after Microsoft's (NASDAQ:MSFT) Xbox One and Sony's (NYSE:SNE) PlayStation 4, it's simply not going to be the underdog that comes out of nowhere to claim a major victory in the current console war.
As of the end of November, the PlayStation 4 has moved 2.1 million units while the Xbox One has sold 2 million. Both consoles are breaking sales records, and suppliers are having difficulty keeping enough of the consoles in stock to meet demand. Even if the Steam Machine were to hit the market today, it's unlikely that it could touch the sales figures of the two dominant consoles while their momentum continues.
Of course, the big advantage that the Steam Machine has is that users can install SteamOS on existing or custom-built systems instead of buying a commercial Steam Machine system. Given that SteamOS is a free download, gamers could theoretically convert existing PCs into console competitors without spending a dime (unless they wanted to pick up one of Valve's as-yet-unpriced controllers.) This still isn't likely to turn the tides of the console war, though, as it highlights a key part of Valve's strategy: consoles aren't the primary target of the Steam Machine.
Dominating the PC gaming market
Steam has been the dominant player in digital PC game distribution for years. Though there are competing services such as Electronic Arts' (NASDAQ:EA) Origin service, IHS Screen Digest estimates that Steam controls approximately 75% of the global digital download market. Given that digital game distribution is a growing industry and is estimated to generate approximately $5.5 billion in sales in 2013, it makes sense that Valve would want to help secure its market-leading position and prevent competitors from chipping away at its market share.
SteamOS and the Steam Machines that it powers aren't intended to steal sales away from consoles. Instead, SteamOS provides PC gamers with a dedicated platform designed to put PC gaming front-and-center in their homes. This allows existing PC gamers to enjoy their games on the TV, something that Valve was already working toward with Steam's "Big Picture Mode." It essentially takes the existing Steam experience and expands it so that it becomes an underlying part of the entire platform.
This, of course, is the primary goal. By providing PC gamers with a gamer-centric platform, it cuts out potential competition from other integrated platforms such as the Windows Store that is part of Microsoft's Windows 8.1. Given that Origin doesn't currently have a Linux client available (though one has been rumored for a while), SteamOS also effectively prevents it from being installed natively on Steam Machines (for the time being, at least.)
Impact on the market
While Steam Machines aren't likely to slow the record-breaking sales run of the PlayStation 4 or prevent Microsoft from trying to get everyone to turn on their TVs with Kinect voice commands, if SteamOS does become popular among PC gamers then it could still affect the console market. Sony and Microsoft have both made big pushes toward digital delivery through their consoles, and even Nintendo has gotten on board the digital bandwagon by offering releases both digitally and in stores for the Wii U and 3DS. Increased acceptance of digital distribution through Steam Machines could see console makers incorporating more Steam-like features in future devices.
Of course, SteamOS first has to find popularity beyond a small niche of PC gamers. Reviews of both the operating system and Valve's unique controller have been largely positive, and the experience may improve further as Valve collects feedback from beta testing. In the end, though, it still has to overcome a problem that other operating systems have faced: convincing customers that the features it offers are enough to warrant a change from the systems they currently use.
John Casteele 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.
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