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After writing two November stories analyzing price expectations for Valve’s upcoming Steam Machine, I really didn’t think we’d be offering more informed speculation before the official price was revealed. Then Valve wrote a blog post this week noting that the “growing price of… critical components” RAM and storage meant that “we must revisit our exact shipping schedule and pricing” for the living room-focused PC gaming box.
We don’t know exactly what form that “revisiting” will take at the moment. Analysts who spoke to Ars were somewhat divided on how much of its quickly increasing component costs Valve would be willing (or forced) to pass on to consumers.
“We knew the component issue was bad,” DFC Intelligence analyst David Cole told Ars. “It has just gotten worse. “
Starting at $599 to $1,000?
How much worse has the pricing situation gotten for Valve since November? Superdata Research founder and SuperJoost newsletter author Joost van Dreunen suggested that the 512GB Steam Machine model would probably run $50 to $75 more than he expected when the Steam Machine was announced, and to expect a price “potentially $100+ above target” for the high-end 2TB model. That would mean a $599 to $629 price at the low-end and $849 to $899 for the high-end model, in his estimation.
Wedbush Morgan analyst Michael Pachter agreed that, even with the additional component costs, Valve would ly “try to get it out at $599 or so for the 512GB version,” A starting price higher than that would mean “abysmal” sales, he added. “I think $700 is a death sentence and $1,000 is unsellable.”
It costs a lot to look this good.
It costs a lot to look this good.
Other analysts think that Pachter’s “unsellable” price for the Steam Machine is increasingly plausible now, though. DFC’s Cole said possible prices for the Steam Machine are now “approaching $1,000,” with the 512GB model perhaps $100 less than 2TB model. But F-Squared analyst Michael Futter expected an even bigger gap between the two models, saying the 512GB model “could crest $1,000” and the 2TB model would ly fall somewhere in the $1,300 to $1,500 range.
Bad news for Valve in particular?
On the surface, it might seem every company making gaming hardware would be similarly affected by increasing component costs. In practice, though, analysts suggested that Valve might be in a uniquely bad position to absorb this ongoing market disruption.
Large console makers Sony and Microsoft “can commit to tens of millions of orders, and have strong negotiating power,” Niko Partners analyst Daniel Ahmad pointed out. The Steam Machine, on the other hand, is “a niche product that cannot benefit in the same way when it comes to procurement,” meaning Valve has to shoulder higher component cost increases.
F-Squared’s Futter echoed that Valve is “not an enormous player in the hardware space, even with the Steam Deck’s success. So they ly don’t have the same kind of priority as a Nintendo, Sony, or Microsoft when it comes to suppliers.”
Sony and Microsoft might have an advantage when negotiating volume discounts with suppliers.
Credit: Sam Machkovech
Sony and Microsoft might have an advantage when negotiating volume discounts with suppliers. Credit: Sam Machkovech
The size of the Steam Machine price adjustment also might depend on when Valve made its supply chain commitments. “It’s not clear when or if Valve locked in supply contracts for the Steam Machine, or if supply can be diverted from the Steam Deck for the new product,” Tech Insights analyst James Sanders noted. On the other hand, “Sony and Microsoft ly will have locked in more favorable component pricing before the current spike,” Van Dreunen said.
That said, some other aspects of the Steam Machine design could give Valve some greater pricing flexibility. Sanders noted that the Steam Machine’s smaller physical size could mean smaller packaging and reduced shipping costs for Valve. And selling the system primarily through direct sales via the web and Steam itself eliminates the usual retailer markups console makers have to take into account, he added.
“I think Valve was hoping for a much lower price and that the component issue would be short-term,” Cole said. “Obviously it is looking more a long-term issue.”
It’s all relative
So, if Valve is forced to significantly increase the asking price of the Steam Machine, does that mean significantly fewer people will be willing to buy it? Not necessarily. DFC’s Cole said that this kind of gaming hardware already has “a fairly niche built-in audience that will not be too price sensitive.”
Van Dreunen agreed that the Steam Machines’ “core audience, PC gamers who want a living room setup without the hassle of a full build, will absorb a $50 to $100 price increase without much hesitation.” But that core audience might not be very large; Pachter said that, even with a $599 starting price, the Steam Machine would “ly sell no more than 5 million [units].” At a higher starting price, he saw total sales going down quickly.
A lot has changed since Valve first introduced the Steam Machine in November.
The analysts who spoke to Ars agreed that recent price increases for every major game console gave Valve a little more competitive breathing room regarding pricing. But the relative price difference between Valve and the other console makers will still matter, they said.
“While Valve may have been aiming to price its Steam Machine in line with the PS5/Xbox Series X|S at one point, or potentially undercut it, it’s now clear that the company may have to price it above these competitors,” Ahmad said. “At a time when multiple competitors exist on the market, we believe the higher price will limit the audience for the Steam Machine going forward.”
Futter agreed that whichever company could offer the lowest-cost machine that could plausibly offer 4K, 60 fps performance in most modern games (as the Steam Machine is targeting) would reap great benefits in the market. But even if the Steam Machine isn’t cheaper than competing high-end consoles, Futter said Valve’s hardware would appeal to those who “want to get into [high-end] PC gaming and can’t absorb $2,500+ for access to the Steam ecosystem.”
In the end, how Valve handles Steam Machine pricing might depend on whether the company wants to “expand SteamOS beyond the enthusiast base and into territory currently held by PlayStation and Xbox,” as Van Dreunen put it. “The memory cost shock doesn’t threaten Valve’s ability to sell to its existing audience. It threatens the pace at which it can grow a new one.”
Kyle Orland Senior Gaming Editor
Kyle Orland has been the Senior Gaming Editor at Ars Technica since 2012, writing primarily about the business, tech, and culture behind video games. He has journalism and computer science degrees from University of Maryland. He once wrote a whole book about Minesweeper.
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Arstechnica.com
