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Larger publishers, such as id Software, Eidos Interactive, and Capcom, began distributing their games on Steam in 2007. Although digital distribution could not yet match retail volume, profit margins for Valve and developers were far larger on Steam. Valve announced that Steam had become profitable because of some highly successful Valve games. Р”В«eginning in 2005, Valve began negotiating contracts with several third-party publishers to release their products, such as Rag Doll Kung Fu and Darwinia, on Steam. During this time users faced multiple issues attempting to play the game.

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This decision was met with concerns about software ownership, software requirements, and issues with overloaded servers demonstrated previously by the Counter-Strike rollout.

Valve's Half-Life 2 was the first game to require installation of the Steam client to play, even for retail copies. In 2004, the World Opponent Network was shut down and replaced by Steam, with any online features of games that required it ceasing to work unless they converted over to Steam.

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At the time, Steam's primary function was streamlining the patch process common in online computer games, and was an optional component for all other games. The client and website choked under the strain of thousands of users simultaneously attempting to play the game. Р”В«etween 80,000 and 300,000 players participated in the beta test before the client's official release on September 12, 2003.

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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. Movies/TV purchases/renting added to libraryР”В«efore implementing Steam, Valve had problems updating its online games, such as Counter-Strike providing patches would result in most of the online user base disconnecting for several days. 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. The service had over 34,000 games on it by 2019, with over 95 million monthly active users.

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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 space in 2013. The platform also offers a small selection of other content, including design software, hardware, game soundtracks, anime, and films.

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. 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 matchmaking, 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 saving, and in-game voice and chat functionality. Steam offers digital rights management (DRM), matchmaking servers, 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.