I ask this question because as of late I've seen numerous people claiming that Microsoft has a right to charge for Xbox Live given the assumed costs associated with server upkeep, bandwidth, etc., and I've also seen many claiming that the PlayStation Network is the current cause of Sony's losses in their Networked Products and Services division, given that ps3 hardware is now profitable, and was at the very least near the break even point prior to their last financial results.

If the costs associated with maintaining a server based online gaming and distribution platform are so high, how is it that Valve is currently rolling in cash?  They support all the main features that XBL and PSN support, from achievements, to in-game text/voice chat (which is peer to peer anyway, so it costs them nothing once implemented), and on top of that, they're now supporting cloud storage to save your game progress, something that XBL does not do and something that Sony is only considering for their premium PSN service.

The only thing I could see being the cause of this would be Valve's smaller yet far more active install base.  I doubt Steam's member base is as large as the combination of Xbox Live Silver and Gold members, yet they probably buy more games.  Left 4 Dead 1/2 sold better on Steam than on 360, and I'd assume Steam in general has a much higher attach rate, given Steam's crazy good deals, thus they make more money per user.  I own countless games through Steam that I may never even play.  Buying Knights of the Old Republic for $2 is simply too good a deal to pass up!  I'm sure the 60 cents or so Valve gets out of that helps cover the cost of me using their service.

Of course, it could simply be that the costs of maintaining such a network aren't as great as we're lead to believe, and the money spent on games and other products bought through the network (or even bought via retail) are more than enough to cover any such costs. 

Have Valve simply created something special with Steam?  Or are the costs supposedly associated with such a network simply an excuse to convince us to pay for services that could be free?  Does anybody have any evidence either way regarding the costs of mainting such networks?

You didn't take into account that Valve makes some very high selling games, which certainly help their profits. Sony and MS both spend a ton in RnD and subsidies for their hardware, Valve does not have to.

I suspect you're right about the userbase thing, and I don't think that hosting is as expensive as some claim it to be.

Sony and Microsoft also make some very high selling games.

As for the bolded, I'm inclined to believe this is the real case.  I believe the networks themselves are for the most part profitable ventures (especially given that Valve seems to be improving Steam at a faster rate than either MS or Sony - cloud saving being a good example), and charging for the network is simply to cover R&D and other hardware related issues - issues that were just as prevalent in previous generations yet we were not forced to pay for via subscriptions.

Edit:

Although I suppose the royalties per game that were once meant to solely cover the cost of hardware development and manufacturing are now required to cover both hardware costs AND network costs.  On the other hand, I'd assume the development costs of Steam's services (cloud storage, Steam Play for cross-client PC/MAC users, etc.) are quite hefty.

I wasn't exactly sure if you were comparing Steam to the PSN/xbla arcade or to the PS3 and 360 as a whole. The first point was intended if it were the first, and the second point if it were the second. I probably should said that somewhere though :P

Steam makes people buy games. Their discounts and the way it's set up on your PC makes you buy more games than you would if Steam wasn't there. Steam actually increases the money spent.

The other services don't do that to the same extent. I don't know a lot about them, but they don't make the discounts, or anything of the sorts.

That alone makes Valve makes more money (through the cut they get from games selling), but it also puts them in a far better bargaining situation than what the other services have. Put a good, old game on discount on Steam, and it's going to sell. In that sense, I'd assume they can also demand a higher cut of the sales than what the other services can.

I'm not quite sure about this, it's just some basic reasoning. I don't really have any proof to back it up, it just seems logical.

The Live subscription may offset the cost of the network but the reason they charge is to make money above and beyond upkeep. Sony should too but they do not so they have to try to make it pay in other ways but do not make money from it and I believe they actually lose money.

Valve started steam as I recall to allow it to improve the games in a granular way and to also cut out the middle man and distribute directly to the end user. It may sound similar but in many ways it is a completely different model. In recent times this philisophy now extends to other game distributors and developers and even platforms (MAC).

Err, correct my if I'm wrong, but don't most Steam games have dedicated servers run by users? If that's the case, they shouldn't have to deal with too much server upkeep beyond download/cloud servers, right?

Multiplayer servers actually have little to do with Steam/XBL/PSN.  In all three cases, the platform holder must host servers to keep track of user information (achievements, games you buy, etc.) but they do NOT host servers to allow for online play (barring exceptions like Sony's own Warhawk, since they made the game).  When it comes to playing games online, either the company that made the game hosts dedicated servers (like EA does for their sports titles) or they use a P2P network which uses the machine of the player creating the match as a host in lieu of a server (ala Gears of War). PC games are special in that they often allow private entities to host dedicated servers in addition to those hosted by the company that created the game, but that is unrelated to whether or not they work with Steam.

This is true.

Steam makes royalties on game sales. And selling games is the main purpose of Steam unlike Xbox Live.

/thread.