Even with the recent release of the PS4 and Xbox One, I am waiting for the consumer-oriented console, Valve’s Steam Box. It is worth the wait, not simply because I am a PC gamer, but for the fact that is a lesson in excellent market segmentation.
What is Steam?
For those not computer gamers, Valve has platform called Steam, which allows users to purchase games electronically and have them downloaded to the desktop. Using tried and true market disruption, it is likely the primary reason brick and mortar companies stopped selling boxed PC games.
Now they are on the cusp of releasing a TV based console to their 50 million+ user base. This is built on a platform called Big Picture, which allows users to hook up their computer to a TV and play games.
A cold reception
The overall reporting has been rather negative. The PC gaming community mainly complains that it is already possible to hook up a computer to a TV. The console community issues are about specs. Using a good, better, best system, the are likely to constantly change meaning users will need to upgrade every year to stay current*. And they are both right. However, neither are the targeted consumer.
Customers intimacy counts
Valve seems to have segmented their client base in such a way to discover a user group that has these attributes:
- Consume entertainment (games, music, and video) on alternate devices or in unique ways
- Do not want to tinker with technology, they just want it to work**
- Have discretionary income
If you have heard of this type of consumer before, it is likely you’re using an Apple device to read this post. What Valve gambles on is this customer group would like to play computer games (and purchased media) on their TV without hassle.
To make this easier, they have used a customer centric approach.
- Create a plug and play system, much like plugging in DVD player to the TV
- Offer familiar features lifted from the Steam application
- Build a great user experience by offering an easy way to find and play media and games
Unlike Sony’s PS4 or Microsoft’s Xbox One, which have to sell at least 10 million consoles in the next year to remain viable, Valve’s third party hardware designers, such as Asus do not need to sell in large quantities for success. Convincing just 2% of their user base, or about a million or so users, succeed in building a billion dollar eco system.
This approach is not unlike AppleTV. While not a major product, it fits a niche that helps the fruity company retain its most loyal (and profitable) customer segments inside iTunes.
To help adoption, Value has worked several things to help customers:
- Demanded a high-level of quality control around the user experience. Valve is controls the software and input device (controller) quality to giving to Steam box a standard user interface (UI) paradigm. This is much like other appliance based goods such as the iPhone and Microsoft Surface.
- Access to a hundreds of games day one, and when including their streaming service, access to all 2,000+ games the Steam library today.
Open platform (Linux) encourages programmers to find new uses for the system. Groups like XMBC are likely to have an app that gives users access to their previously purchased media. Valve already stated they are working with media providers so features like Netflix, and Spotify should be available day one. There might even be room for competition, such as the indie gaming platform Desura.
The open nature allows users to pair most any peripheral. Those who rather play games or surf the web keyboard and mouse will be able to do so.
The best part of this effort might be for those who don’t use the product. If popular, gaming companies will design their games around controllers and might be more inclined to port their games to Steam, enriching the ecosystem for all users.
* Consoles user complain about the upgrade treadmill, however this is not a problem. The reference designs are better than the new consoles. Usually, games companies benchmark their offerings to these platforms. In addition, a 5 year old mid-range computer plays every game today and likely for the next 5 years given the software plateau we have experienced lately.
** I explain that the likely user base is going to be non-tinkerers. Given that it is an open platform based on Linux, it is likely to attract a hacker following. However, it is unlikely they will buy a finished console. Instead, they are likely to install Steam OS on a custom machine much like PC builders do today.