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Valve Crashes Microsoft’s Holiday Gaming Party

Steam Box console targets MSFT more directly than SNE or NTDOY

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Steam Box gaming PCs run a free, Linux-based operating system that’s optimized for use with TVs along with integration with Valve’s Steam game distribution network. This requires porting titles from its massive game library, at least temporarily blunting the massive back catalog advantage Steam has over new consoles and their slim launch title selection (Valve says major developers are already on board). But in the meantime, the company is promising streaming from an existing gaming PC to the living room as a workaround.

Valve is privately owned, so it’s not an investment opportunity. But, it has the potential to play disruptor in the video game space — a market that’s already seen more than its share of rapid change thanks to mobile gaming on smartphones and tablets — and could ultimately play the role of spoiler to Microsoft’s Xbox One ambitions, not to mention hurting Windows 8.

How difficult could Valve make things for Microsoft? Valve counts thousands of PC games in its Steam platform and claims more than 50 million players. The Verge points out that the strategy Valve is currently embarking on is similar to the approach Google (GOOG) employed with Android to take on Apple’s mobile dominance: Release a free and open alternative operating system, sign up hardware developers to release systems that run that free OS, convince developers to begin releasing games for that growing OS base and provide the online marketplace and distribution network to deliver the games to players.

In Steam, Valve already has a massive, proven distribution network that game developers like — according to Forbes, it accounts for between 50% and 70% of all downloaded PC game sales. Publishers might gross 30% selling PC games through a retailer like Amazon (AMZN), but Steam gives them a 70% cut and the flexibility to offer price reductions and special offers — just like Google Play. Just as tablets have eroded Microsoft’s traditional business PC market, Steam has the potential to cut into home PC sales. In both cases, Windows is squeezed out, as are other Microsoft products like Office.

Steam machines might not be on store shelves for Christmas 2013, but they’re on the way, and they have the potential to crash the Playstation and Xbox release party by convincing gamers to wait. If they catch on, Sony will suffer through slower than hoped PS4 sales, but Microsoft stands to really take hits on its Xbox one and PC gaming fronts.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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