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Prior to the announcement of Steam, Valve found that Sierra had been distributing their games in PC cafes which they claimed was against the terms of the contract, and took Sierra and their owners, Vivendi Games, to court.

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In 2002, the president of Valve, Gabe Newell, said he was offering mod teams a game engine license and distribution over Steam for US$995. The first mod released on the system was Day of Defeat. Valve partnered with several companies, including AT&T, Acer, and GameSpy. To demonstrate the ease of integrating Steam with a game, Relic Entertainment created a special version of Impossible Creatures. It was publicly announced at the Game Developers Conference event on March 22, 2002, and released for beta testing the same day. Steam's development began in 2002, with working names for the platform being 'Grid' and 'Gazelle'. Valve approached several companies, including Microsoft, Yahoo!, and RealNetworks to build a client with these features, but were declined. Through user polls at the time of its announcement in 2002, Valve also recognized that at least 75% of their users had access to high-speed Internet connections, which would continue to grow with planned broadband expansion in the following years, and recognized that they could deliver game content faster to players than through retail channels.

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Valve decided to create a platform that would update games automatically and implement stronger anti-piracy and anti-cheat measures. They could provide downloadable patches, but for multiplayer games, new patches would result in most of the online user base disconnecting for several days until everyone had implemented the patch. ДЄround this time, Valve had problems updating the published games. The new contract eliminated Sierra's IP rights and gave Valve rights to digital distribution of its games. Around 1999, as Valve started work on Half-Life 2 and the new Source engine, they became concerned about their contract with Sierra related to the IP rights, and the two companies renegotiated a new contract by 2001. Valve published additional games through Sierra, including expansions for Half-Life and Counter-Strike. The contract had given some intellectual property (IP) rights to Sierra in addition to publishing control. Valve had entered into a publishing contract with Sierra Studios in 1997 ahead of the 1998 release of Half-Life. History Timeline of release events 2002ДЇilm/TV purchases/renting added to catalog The success of Steam has led to the development of a line of Steam Machine microconsoles, which include the SteamOS operating system and Steam Controllers, Steam Link devices for local game streaming, and the upcoming Steam Deck, a handheld personal computer system tailored for running Steam games. By 2019, the service had over 34,000 games with over 95 million monthly active users. By 2017, users purchasing games through Steam totaled roughly US$4.3 billion, representing at least 18% of global PC game sales. The Steam platform is the largest digital distribution platform for PC gaming, holding around 75% of the market share in 2013. The platform also offers a small selection of other content, including design software, hardware, game soundtracks, anime, and films.

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Mobile apps were also released for iOS, Android, and Windows Phone in the 2010s. Though initially developed for use on Microsoft Windows operating systems, versions for macOS and Linux were later released.

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The software provides a freely available application programming interface (API) called Steamworks, which developers can use to integrate many of Steam's functions into their products, including in-game achievements, microtransactions, and support for user-created content through Steam Workshop. It also provides the user with installation and automatic updating of games, and community features such as friends lists and groups, cloud storage, and in-game voice and chat functionality. Steam offers digital rights management (DRM), server hosting, video streaming, and social networking services. Steam has also expanded into an online web-based and mobile digital storefront. It was launched as a standalone software client in September 2003 as a way for Valve to provide automatic updates for their games and, expanded to include games from third-party publishers. Steam is a video game digital distribution service by Valve.