Market Insight

Valve Announcements Reveal Strategy for Move Towards Living Room


During late September, Valve Corporation made a series of announcements centred on its ambition to extend the Steam platform into the living room. The announcement of SteamOS was followed up by the reveal of beta testing of Valve designed hardware, Steam Machines and finally the Steam Controller. SteamOS is built on Linux and incorporates the features of the Steam platform, Steam OS will be free to both CE manufacturers and developers. The Steam Machine beta test will recruit 300 Steam users to run the prototype of the company's box through its paces. The Steam Controller will work with all Steam games according to the company. Its mission in developing a new controller has been focused on precision and latency issues that it says are limiting factors in gaming with existing controller technology.

There are two distinct elements to Valve's developing Steam strategy:

  • First is commercial - Valve's ambition to engage a wider audience across different connected devices, first in the living room and then later on smart devices.
  • Second is industry positioning - Valve wants to break down the barriers of publishing and distribution in the traditional games space. Valve has already started that with its Greenlight initiative on PC. Building a Steam OS that can be adopted by hardware partners is the next stage and is a threat to incumbent console players and also future moves from Apple and Google which we believe will be looking to make more significant plays in the TV gaming space in the future.

We also believe that Valve's decision to open up the Steam platform to third-party device manufacturers reflects the limitations the company faces in building its living room presence using just its own hardware solution.   

Valve's Latent Threat

IHS estimates that Valve's Steam platform is responsible for around 75 percent of the PC games paid download market, generating spending of over $1.1bn from full game downloads alone in 2012. Steam's daily peak concurrent users (those using the platform at the same time) stand at a little shy of 6 million. We believe that translates to an active user base of more than 50 million. More recently the platform has embraced freemium games including the launch of its own game DoTA 2. Monthly active users for DoTA 2 stand at around 6m showing the potential of the platform to embrace new business models and compete with other channels more extensively.

Naturally, this substantial user base makes Valve and its community of PC gamers a potentially significant threat to other established games platforms, especially in the West.

However, Valve's ambition to broaden its appeal still faces stiff challenges: 

  • Steam OS is an interesting proposition, but convincing influential CE companies to adopt the platform is the next stage. Much depends on the terms of use and whether a manufacturer is willing to take advantage of the Steam platform and community in exchange for control over monetisation, store front and content. At this stage it is likely to be adopted by companies wanting to enter or build their presence in the connected TV or set top box games market rather than the leading CE players that have established brands.  
  • Question marks remain with limited information regarding Steam Machines. Will the company be able to design and have built a device that manages to tread the fine line between mass market pricing and usability. Will the device need to stream content in-home from a well-specced PC? If yes, this will be a serious limitation to the broadening potential of any new platform.  The long delay to the platform reflects that finding the right commercial balance is not easy to achieve.
  • The introduction of the Steam Controller addresses some pressing issues about bringing games to the TV environment. By optimizing all of Steam's games including its old library the company has created a shortcut that reduces the time it would have taken to roll out a portfolio of games suitable for the TV.  

Next Steps and Outlook 

Next stage for Valve is to adjust its strategy based on the beta testing feedback. Issues IHS expects to crop up are pricing and capability to play content directly rather than streamed from a local PC. If these two factors are a problem IHS believes that these devices will have limited impact at this stage. However, if pricing is attractive and combined with over-the-top streamed distribution of games Steam Machines would be strongly positioned to disrupt existing TV gaming incumbents.