The Steam Box is a bad idea for everyone but Valve.
There, I said it. Now, don’t get me wrong, I think the idea of a platform where a gamer can go and get virtually any game, agnostic of a console, usually at a steep discount is a great idea. I want something like this to work. For the record, Valve, the maker of the Steam digital platform will probably make a ton of money on this idea, but it will almost certainly be at the expense of the independent manufacturers.
Let’s take a step back here and think about what Valve’s idea is all about. Valve created a digital distribution model for computer gaming called Steam. With Steam, users have an account which keeps track of all the games they have purchased so they can download them at any time they like in the future. Anyone who has used iTunes can understand how awesome this is. Say your computer shits the bed out of the blue. You don’t have to worry about losing all the games you bought, because it is all accounted for. This is something that Nintendo has screwed up mightily with the Wii and now the 3DS. If you download games (which they encourage you to do) and lose your system… TOUGH LUCK.
Steam also offers awesome deals to consumers all the time. This is a tactic Sony has started to emulate with their PlayStation Plus service, which I fully endorse… this is a story for another column, but I pretty much don’t buy games anymore thanks to the monthly free games. I’m not really sure how anyone actually makes any money with this. Shhh… don’t tell anyone.
One of the problems with PC gaming is the prohibitive cost of the hardware needed to run these games. We’ve all been through the hassle of having a computer that at one time was cutting edge amazingness only to see it become a relatively slow piece of garbage a few years later. Hell, I remember getting a Packard Bell with a Pentium 75 and being completely blown away by it’s raw power compared to my previous PC’s 486 processor. Since game makers can keep pushing the envelope of what is possible graphics-wise with new video cards and things like that, the PC gamer feels compelled to constantly upgrade their rig to be able to play the latest and greatest the industry has to offer. Making things worse for the layman, like myself, many of the upgrades need to be done manually, and frankly, digging into a computer and replacing key components scares the hell out of me.
Enter the Steam Box! The idea here is that these are PCs designed to be not only cheaper than your average PC (the lowest priced costing around 500 bucks or so), but with all the specs necessary to run today’s best games. On the surface, this is a really good idea. It will take the confusion out of PC gaming. No longer will someone like me be wondering if the video card I have is up to snuff.This, in theory, is a nice happy medium between a PC and a console. The convenience of having a box that “just works” like a PS3 with the open system of a PC.
It’s not all lollipops and rainbows though. There are already more than a dozen companies that will be making their own version of the Steam Box. The prices of these range from $500 to more that $1000. This is confusing to me, considering I thought that the thing that makes the Steam Box attractive in the first place was the fact that someone would not need to worry about their computer’s power. Obviously, the more expensive machine’s must be “better” than the cheap ones. I find this odd.
If you dig a little deeper, you’ll notice that Valve is not making a Steam Box of their own. They are making the OS for it, called, wait for it, Steam OS, and are designing a nifty, new controller that has haptic feedback equipped touch pads, but are leaving the actual hardware business to anyone that actually wants to make it. On the surface, this seems like a very democratic idea on Valve’s part. Why not spread the wealth to any company, large or small, that wants to get in on the ground floor of what could be the future of games as we know? The problem is, we’ve seen this before.
Remember the 3DO? I can vividly remember reading an issue of EGM (I was a subscriber) where they showed screenshots of this new system that had true 3D graphics! This was before the Nintendo 64 or PlayStation 1. We were firmly entrenched in the 2D sprite based graphics of old at this time. Not to say 3D had never been done, I mean, we had StarFox (I still don’t know how the hell they pulled that off on the Super Nintendo) and games like Doom, but you get the idea. This stuff was so cutting edge that they were able to show a sphere, a cube and a pyramid rendered in 3D as a screenshot (these 3 shapes would go on to be their logo) and it BLEW ME AWAY! I had to have this!!!!
The company that held the license for this (called, creatively, the 3DO Company) decided to let manufactures like Panasonic and Sanyo make their own versions of the console. They treated it like a VCR or DVD player. Many companies pay a licensing fee for the right to use the new technology. Why should video games be any different?
There is a business strategy that is most commonly referred to as “The Razor Blade” model. The idea is that you sell something cheap to someone that will make them spend much more money in future. In the titular example, when you buy a new razor set, the handle and first few blades cost like 12 bucks… then each 4 pack of blade replacements cost like 20 bucks. Ouch.
Console manufactures know this all too well, and will often sell the hardware AT A LOSS, knowing that they will get a cut for every game bought during the life of the console (I’ve heard this is upwards of 10 bucks for 60 dollar game sold). Even when the Playstation 3 cost $600, the rumors were Sony was losing money on every one. They were in it for the long game. They didn’t need to make money on the console itself, since they got their cut for every game sold for it. That adds up fast.
This is why the 3DO failed. The companies that actually made the console needed to sell it for a profit, which made the 3DO very expensive for the time. After all, they weren’t reaping the benefit of a fee for each game sold. As a result, not many consumers bought in, seemingly from the high cost of the hardware.
I think the same thing is going to happen to the manufacturers of the Steam Box. Even the cheapest model is on par with the Xbox One in terms of price. These companies will not be able to profit from game sales, so they will not be able to sell their boxes at a loss like Sony and Microsoft are almost definitely doing at the moment. The only company that really stands to make any money in this endeavor is Valve.
Basically, for Valve, this is a win-win scenario. Steam is already an incredibly popular platform for PC gaming. They get their cut of every game sold, just like Sony, Microsoft and Nintendo do for their systems. If the Steam box is a success, they greatly expand their business. Yay. If these independent companies are not able to sell many Steam Boxes? Bad news for said companies, but the status quo remains for Valve… they will still have the #1 digital sales platform. And the best part is, they don’t have to risk any of the R&D of manufacturing costs to actually make a new console at all.
It’s actually a genius move on their part. They stand to benefit greatly from other people’s risk without putting too much on the line themselves. What I’m trying to say is, The Steam Box is a great thing for Valve’s bank account; just not a great idea for anyone else trying to get a piece of that pie. This isn’t to say Valve are bad guys in this scenario. I think they really do think everyone will make money. Only time will tell how this will all shake out, but know this: YOU HEARD IT HERE FIRST!
