Currently there are 3 players – a fourth is now trying to enter. How are the incumbents fairing? – in general not well. So is Valve crazy?
BusinessWeek/Bloomberg notes (“Valve lines up…”) that Steam in its Half-Life and other games has the equivalent of the installed base of Xbox and PlayStation. They also encourage developers – no licensing fees, indeed no vetting process for new games. Will that be enough? They claim their current user base wants to move from their PCs to their livingrooms.
Past history suggests only 3 firms can exist in this space, though at any given time not all will be profitable. No one wants to buy a system without lots of available games, and systems aren’t compatible so a game on one won’t run on another. The bigger you are, the more attractive you are to users. Hence small numbers. Will Valve upset the current triumvirate?
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The Valve “Steam” console sounds very much like it is still a work in progress, but their strategy sounds like it will be effective. In a market with network externalities, it is key that Valve enters the market with an existing base of gamers and developers. If Valve enters the market with out both halves of the equation, it will fail. For example, the Sega Genesis failed because Sega sold the console at a price that was too high. Software developers would have been willing to code games for the console, but there were no gamers because it was too expensive. In order to be successful, Valve will need to find a market penetrating price for its new console. Some firms in the market will take losses on early sales of consoles just to build up a community of gamers.
If Valve can stick to this proven strategy then it might just survive, especially with the way Nintendo has been struggling. Nintendo was the market leader after the release of its Wii console. However Wii sales have plummeted after Microsoft released Xbox Kinect and Sony released Playstation Move, both of which are motion-sense add-ons for their existing consoles. Once Wii wasn’t the only console in town with motion-sense, it was no longer special.
Additionally, Nintendo kicked off current generation console war last year with the release of the Wii U. Technology critics gave the system harsh reviews. The overwhelmingly disappointing sales suggest Nintendo might be in a bigger nosedive than originally anticipated. If Nintendo continues to tank, there will be ample room in the market for the likes of Valve.
In deciding if I was going to get a PS4 or the new Xbox console I took into account two criteria. 1) Which my friends were going to get… I enjoy playing multiplayer games and if all my friends waited for Xbox and I got a PlayStation it would decrease my enjoyment from gaming. You can only mock a twelve year old across the globe so long before it gets boring. 2) Xbox required you to buy Microsoft points to play its games every month. This is a marginal cost which PlayStation does not have. I like paying one fixed price and then getting as much utility from my game as possible. I generally only buy one or two games myself and am content with my purchases.
I think that this move bodes very poorly for Valve. From personal experience PC gamers pride themselves on customization: custom hardware, cases, etc. People who play games on PC also do it for that sake (the game console is not a new phenomenon). Therefore I find the idea interesting, but without particularly much promise.
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