Steam Machine is Microsoft's 'worst nightmare,' games analyst says

Valve's new Steam Machine might be Microsoft's "worst nightmare" because it could lock the Xbox-maker into a very risky position.

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To combat PlayStation's mighty lead over Xbox, Microsoft has reportedly put together a plan that leverages its strengths. The idea, as reports have it, is to combine Xbox and Windows in a seamless way and make the next gaming console into a PC. That way Microsoft could utilize the power and versatility of Windows 11, and its new AI toolsets, to generate engagement, revenue, and continued profit.

There's just one roadblock: Valve's new Steam Machine could end up eating Microsoft's lunch in this new PC frontier. The Steam Machine is a major contender to Microsoft's plans, and Valve already pretty much dominates the PC market with Steam. As a result, one analyst believes that Valve's small form factor PC could end up being Microsoft's so-called "nightmare."

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In a recent interview with GamesRadar, games analyst and industry expert Joost van Dreunen shares his perspective on the Steam Machine as it relates to Xbox.

"Steam Machine basically turns Microsoft's worst nightmare into a shipping product. It pushes Microsoft further down the path it's already walking, where Game Pass and cloud access matter more than plastic boxes."

Microsoft's plan is risky--Xbox has been doubling-up on risky ventures for a while now, what with Game Pass and xCloud game streaming--and it could end up that the Xbox PC boosts Valve's Steam instead of their own Microsoft Store. The concept of Steam undercutting Microsoft's own storefront on its own hardware is something I've mentioned frequently on X, and it'll be interesting to see if Microsoft has an answer to this possibility.

"The strategic risk is that Valve becomes the preferred PC-console hybrid, meaning Xbox games strengthen Steam's ecosystem more than Microsoft's own," van Dreunen said.

Valve has yet to price the Steam Machine, and it's possible that Microsoft could make an aggressive push and subsidize the Xbox PC at a loss, similar to how it grew the Xbox, Xbox 360, Xbox One and finally the Xbox Series ecosystems (the latter of which has been handily beaten by the PlayStation 5 and Switch).