Steam's Greatest Challenge Yet

The announcement that Valve is set to expand its Steam digital distribution service beyond the realms of game software confirms a number of long-standing rumours and assumptions about the service. It suggests that Valve, a company noted for its broad ambitions and experimental approach not only to gaming but also in education, augmented reality and a host of other areas, has recognised the fact that in creating the Steam service to distribute first its own games, and later the games of other publishers and developers, it has pushed itself to the forefront of the digital distribution revolution. Now it wants to seize that opportunity.

The problem is, it's a rapidly receding opportunity. Valve presently has around 40 million active users on Steam, which is a huge community to which to sell software. However, with the release of Windows 8, Microsoft will follow in the footsteps of Apple by introducing its own software marketplace to the system - and there are indications that software on the new Windows interface (formerly known as Metro) may only be available through Microsoft's store.

"Just as Netscape was mortally wounded when Microsoft chose to bundle a browser with the OS, so Newell could see Steam facing a tough fight against a bundled software store"

That shouldn't impact on the games market - games will still be released for the traditional Windows interface, since they don't take advantage of the GUI at all, let alone requiring Metro's new tile-based interface. However, it indicates a lock-down of the Windows system, bringing it a little closer to the sort of semi-closed environment more commonly seen on mobile platforms like iOS and Windows Phone, or indeed on Apple's Mac OS X.

Despite the dire warnings about such a move which have been issued by Valve's Gabe Newell - and backed up by the likes of Blizzard - the reality is that this isn't necessarily a bad move from a consumer perspective. Just as Apple's role as a usually-benign gatekeeper (there have been slip-ups into less benevolent dictatorship, but they are the exception rather than the rule) has kept the iOS App Store mostly free of malware, spyware or viruses - my mind still boggles at the fact that Android users are encouraged to use anti-virus software on their mobile phones - a similar regime could help to keep Windows PCs safer and more secure.

Equally, while plenty of people will decry Microsoft's software store as "anti-competitive", the truth is a little more nuanced. The iOS App Store is, in theory, anti-competitive. It's the only place you can get software for your iPhone or iPad - you can't shop around for a better price (that's notably not the case with the Mac OSX App Store, which is probably more like the model Microsoft will eventually adopt). However, prices on the iOS store have dropped rapidly over the years, to the point where a price point of either free, or £0.69, is now absolutely standard. Why? Because the store itself may have no competition, but competition within the store is fierce - never before have consumers had such a selection of software available to them, which makes them incredibly picky and incredibly price-conscious.

In fact, going back to Steam, you could make the argument that it has seen pretty much the same evolution. Unlike iOS, it hasn't moved towards a free to play model for games (it's not really in Valve's interest for that to happen, although it may be at some point), but prices have tended downwards. It's hard to sell a two year old PC game for £20 when it's sitting in an immense storefront alongside countless other titles; publishers have been forced to take a strong dose of realism not by pressure from Valve, but simply by the commercial reality of being in a genuinely competitive marketplace.

Might not the Windows 8 Store do the same for other types of software? Perhaps, and if so, that could end up being a very good thing for consumers. Cheaper software, easily accessible, and sold with a guarantee that it's not going to mess up your computer, produce pornographic pop-ups or send your granny's online banking details to deepest darkest Russia.

"what Steam actually does well isn't necessarily selling software. It's an IM network, a social network, and most interestingly of all, it's a very public way to share and show off your game collection"

It's easy to see, though, why Valve would press their lips together in anger at such an idea. It has spent many years establishing itself as the premier digital distributor of software for the PC. Steam has evolved greatly and built itself a rock-solid reputation among a large consumer base. Yet despite its Mac and Linux versions, Steam remains a product that runs on top of the Windows platform - and just as Netscape was mortally wounded when Microsoft chose to bundle a browser with the OS, so Newell could see Steam facing a tough fight against a bundled software store. Bear in mind here that Newell was still at Microsoft when the fateful decision to bundle Internet Explorer with Windows 95 was taken. He knows exactly what the stakes are.

That's why Valve is getting its non-gaming software offering off the ground now. That's also why Newell is openly and publicly willing Windows 8 to fail - which admittedly at this juncture looks a bit like doing a rain-dance when the storm clouds are already gathering overhead, given that Microsoft's new OS already has the distinctive scent of Vista-style unpopularity around it.

The problem, though, is that what Steam actually does well isn't necessarily selling software. That may seem like an odd claim, but hear me out. Steam's storefront isn't very good. Its interface overall, as a piece of software, is actually fairly awful - which is a shame, given how excellent the technology it overlies actually is. On the other hand, Steam - perhaps simply because it's running, by default, on every gamer's PC - has become an extremely popular social tool. It's an IM network, a social network, and most interestingly of all, it's a very public way to share and show off your game collection.

Steam has, in effect, become the digital era equivalent of your bookshelves - specifically, the bookshelf in your front room or next to your desk, where you stash all of the books which you want people to see when they're visiting you. It can be quite subconscious, but we all do it to some extent - carefully arranging our books (or our games, or our DVDs) in such a way that the visitor will get the impression we want to give, or start the conversation we'd like to have. Some people take it too far, buying Folio Society editions of literary classics which they never intend to read just in order to impress their guests; for most people, it's just a casual way to show what kind of person you are and what you're interested in, and a surprisingly valuable (both emotionally and commercially) strand of human interaction.

Through its social networking functions, Steam has become a visible bookshelf for its users - and I don't think that's something that will be replicated with creative or productivity software. Equally, it's not something the Windows 8 Store will replicate for games, which gives Steam a huge advantage over this potential rival. When we look at the strategic decisions Valve is taking around Steam - and their obvious worry over the direction in which Microsoft is bringing the Windows platform - we have to think more carefully about where Steam's real value lies. The store components of Steam may, ironically, be its Achilles Heel - but with the right strategy behind it, the social aspect of the service could propel Valve through this challenge and on to even greater things.