Valve also has ridiculous amounts of money.
And very detailed statistics on the average PC hardware used for modern gaming.
And the biggest digital distribution service in gaming.
And very successful first-party games.
They could do it. For sure. Valve could make a console. Kind of. They could also make a "console" that uses Windows, meaning complete compatibility with their current library.
Future PC games could be sold with a "Steam Engine Compatible" label, which would mean certain performance standards at 1080p on said hardware.
Updated to newer PC hardware every three years.
Valve has recently been experimenting in dealing physical goods. A Razer Hydra controller can be ordered through Steam.
They're able to provide a product MS and Sony literally cannot compete with. Not with their current business models.
Realistic enough hardware / logistics details:
Quad-core AMD processor (phenom II probs. Cheapaer than Intel, good enough for gaming) -- maybe i5? Target ~$120-160
Mid-range card from ATI HD7000 series (these cards will likely have 768MB-1GB video RAM @ $200-250 retail)
6GB dual channel RAM. ($50 at wholesale / partner rates)
Runs Windows 7(or 8) 64-bit, but boots into a special fullscreen Steam UI by default.
640GB Hard Drive ($40 wholesale from a few different brands).
Includes a flash drive that, when booted, resets the machine to a factory state(very possible -- my laptop has this). (less than peanuts)
Hardware warranty voided on opening chassis, obviously.
If flash drive lost and messed up software-wise, low fee to fix that includes two-way shipping (Say, $50 from user).
All A/V ports required and proper for living room use, video/sound over HDMI being the primary route. (peanuts)
Includes functional, reliable, responsive (but feature bare to cut cost) wireless mouse+kb. (peanuts for a partner / wholesale, inexpensive retail)
Sleek chassis, yadda yadda.
Supports second hard drive via covered slot (slide-in).
No optical drive (They run THE digital distro service. They wouldn't have one.) Covered slot (slide-in).
Partner with ATI for optional automated driver updates (not a problem, since the hardware is a known constant.)
Valve could do this. They have every resource they need and enough power / industry pull. Microsoft would be forced to retool the next Xbox into basically the same thing in order to compete. Sony would possibly still have a product at the end of the day. Nintendo would probably be totally unaffected. It'd be out of left field, but it would turn the gaming industry on it's rear if it was priced at $600 or less.
$600 too much for a living room box? Remember that this would be a next-generation product compared to either console. Its only real competition on grounds of gaming experience would be the Wii U and the next Xbox / PS (Decent gaming rumor sites report that they will target current mid-high end PC hardware). Don't flame me for this. I know you might like your PS3 + 360, but they are not going to compete with new technology on quality grounds. That's just not how technology works. Technology from 2011 > technology from 2005.
And remember when the PS3 launch was announced? FIVE HUNDRED NINETY NINE US DOLLARS! It became a meme, but people did buy PS3s. $550 is a fairly realistic retail price for those parts, especially seeing as Valve would get partnership prices with hardware manufacturers (even better than wholesale). Of course, they might be forced to pay wholesale for Windows / use Windows 7 instead to keep costs down. Somehow I don't see Microsoft offering Valve the Windows rates they offer Dell / HP / etc so Valve can use it to create a competing platform.
I dunno, I think Valve has a chance to really clean up if they get into the set top box business, since I don't see Sony letting Valve actually do anything profitable with Steam on PS3. Letting owners of PC + PS3 chat with Steam friends on PS3? No problem. Letting Valve sell games via Steam on PS3? I really don't think so. It's clear from that venture that Valve wants a living room presence, but how far will they go? Does the industry even have room for four boxes? It'd be good for the industry, right? I can imagine publishers would flock to Valve's platform, given that there would be no used game market for it.
