Earlier this month, Valve announced that it was delaying its highly anticipated Steam Machines until 2014. At the time, it was unclear what Valve's hardware partners -- set to launch Steam Machines of their own -- would do, since Steam OS was being delayed as well. While Steam Machines were originally meant to free PC gaming from the clutches of Microsoft (NASDAQ:MSFT) Windows, in an ironic twist, the first Steam Machines will be launched this holiday season running Windows 8.1. By delaying Steam OS, Valve may have accidentally created a market for Windows PCs in the living room, and when Steam OS finally does arrive, convincing gamers to ditch Windows will be even more difficult.
Not waiting for Valve
While hardware partners Alienware and CyberPower PC remain committed to the Steam OS platform, both have announced that they will launch Windows 8.1 versions of their Steam Machines this holiday season. Alienware will release the $549 Alpha, powered by and Intel processor and a custom-built NVIDIA GPU. The box will ship with an Xbox 360 controller, as Valve's own controller is being delayed, although any controller that works with Windows will be usable. CyberPower PC's Syber will be pricier at $599, and it will ship with an unspecified controller.
Both devices will run the desktop Steam client in Big Picture mode, a full-screen mode designed for the TV, and the Alienware Alpha will include a custom UI for changing Windows settings along with the ability to automatically launch into Big Picture mode upon turning on the machine. Users will be able to completely avoid the Windows interface if desired.
Is there a market for this sort of thing?
It's not clear if there is actually a sizable market for a small-format, living-room gaming PC. PC gaming does have some advantages over the game consoles, with one important one being that games are generally less expensive. Valve routinely runs sales on Steam, marking down games by double-digit percentages, and the availability of low-cost titles on the PC isn't matched by the game consoles.
The downside is that PCs cost more than the game consoles, and these Steam Machines are no exception. Microsoft and Sony can afford to sell the game consoles at cost, or even at a loss, since they make their money through taking a piece of every game sale. Valve gets a cut of games sold on Steam, but its hardware partners need to turn a profit on their Steam Machines, so there's no way that they can compete on price with the game consoles.
Will people be willing to spend $600 on a living-room PC instead of $400 on a game console? Maybe. Will Steam Machines be able to seriously compete with the game consoles? Probably not.
Windows has some key advantages
If Steam Machines do find a market, Windows-based versions have some key advantages that will make it difficult for Steam OS to find much traction. Since Steam OS is based on Linux, games that only work on Windows will not be able to run natively. Steam OS does support streaming games from another PC, but this requires that the user has a second gaming PC already. There are far less expensive ways to get PC games on the TV without buying a second PC.
Steam OS Steam Machines may cost less, due to the lack of a Windows license, but the selection of games will be far more limited. The delay only makes things worse for Steam OS, as now Valve's hardware partners are likely to offer both variants, even when Steam OS is released. There are reasons why Linux hasn't overtaken Windows, even though it's free, and one of them is games. Steam OS will always offer just a subset of what can be played on Windows, as developers would be foolish to release Linux-only titles. That fact alone is enough to cast some serious doubt over the future of Steam OS.
The bottom line
In delaying Steam OS, Valve may have inadvertently created a new market for Windows PCs. When the OS finally does release, it will be an even tougher sell since Windows Steam Machines will be in the wild. Whether or not this form factor takes off is still up in the air, but if it does, it may be Microsoft that benefits most of all.
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.