Valve is a fast-growing business in a dying market. They’re one of the biggest forces in PC gaming, thanks to great games and also Steam, their gaming network/app store/publishing platform. But PC sales are in freefall, so  Valve has realized that they are doomed.

Doomed, that is, unless they make a play for either mobile devices or the console market. They’ve decided to go for the console market.

If I was one of the incumbents, I’d be preparing my counter-insurgency tactics right now.

What’s Happening

Last week Valve announced three developments:

• Steam OS, an operating system for consoles
• Steam Machines, console hardware that runs on Steam OS
• The Steam Controller, a Steam console input device

Steam OS

Steam OS is a free, Linux-based operating system for consoles. Valve says it “combines the rock-solid architecture of Linux with a gaming experience built for the big screen.” Hundreds of games will run on the new OS, from AAA releases to small indie games. Steam OS is also a freely licensable operating system for manufacturers. This means that Steam OS could do to consoles what Google Android did to smartphones.

Why this matters

Remember what happened when Android was released? Anyone who wasn’t ready to deal with it (Nokia, Windows, Blackberry, anyone?) took a massive hit in the gut from which they are struggling to recover. This could happen again – to Microsoft and Sony. Valve’s founder, Gabe Newell, admits quite openly that this is exactly what they are trying to do.

Steam Machines

To go with Steam OS we have the announcement of Steam Machines. These are PCs designed to play games on your television – i.e. they are games consoles. Exactly like Android handsets, they’ll be manufactured by a range of hardware makers, giving users a lot of choice over specs, size, design and so on.

Why this matters

Steam Machines will have a range of devices suited to every taste and budget, and access to an app store with hundreds of popular games, and a ready installed user base of 54 million users. Arguably, this is a better position than Google was in when it launched Android, and look where they are now. With this kind of seed start it’s likely the system could quickly grow in popularity. This is especially relevant as it comes right at the launch of two new-generation consoles with very high price points.

Steam Controller

The Steam Controller doesn’t have thumbsticks. Instead, it has two trackpads that offer haptic feedback. This means that the controller can feel different depending on the context of what you’re doing in a game.

If you’re in a game menu, it can feel like it has buttons.

If you’re playing an RTS or other “thinking” game, it can feel like you have two trackballs in there, for mouse-like precision.

If you’re playing an FPS like Halo, the input will be much more precise than a regular thumbstick set-up.

The experience of using it is apparently uncanny.

Why this matters

There’s a reason that FPS, driving, and sports games are the mainstay of console gaming. For some types of games, you simply need a keyboard and mouse, and no one wants to use one of those in their living room.

This is about to change.

In Valve’s words: “Whole genres of games that were previously only playable with a keyboard and mouse are now accessible from the sofa. RTS games. Casual, cursor-driven games. Strategy games. 4x space exploration games. A huge variety of indie games. Simulation titles.”

People love playing all kinds of games, but there’s not much market for detailed RTS or strategy games in a gamepad/console environment. Unitl now. If the controller works as well as Valve says it does, Microsoft and Sony may find gamers clamouring to play different types of games, unless they evolve their controllers.

Summary

A new player has appeared on the console market, and they’re not playing by the rules. This has all the elements of a classic industry disruption. It’s too early to tell how successful Valve will be, but they have form. They’re known as gaming innovators, they have a solid base of rabid fans, and their console gambit is bold and audacious. The old boys might have to adjust their offering to deal with Valve’s new playscape.

One thing is certain: if Microsoft and Sony ignore this newcomer, they face a serious risk of getting Blackberry’d.