Last month both Apple and Google announced the launch of new platforms, Arcade and Stadia. Both tech giants will offer Netflix-style catalogues of video games for a monthly subscription.
The move by the tech giants marks the advent of gaming-as-service rather than gaming as a group of connected products – consoles or PCs and games sold individually – reinventing the current business model. The video gaming sector can be added to online retail, digital advertising, video & music content streaming and driverless cars as markets that each have several of the tech giants competing with each other for. Amazon is expected to announce its own rival gaming service to those of Google and Apple and it would be no surprise if Facebook and Netflix did too.
In a January letter to shareholders, Netflix boss Reed Hasting addressed the overlap between gaming and his company’s video content offering:
“We compete with (and lose to) Fortnite more than HBO. Our growth is based on how good our experience is, compared to all the other screen time experiences from which consumers choose.”
Bruce Stein, chief exec of aXiomatic, an investor with stakes in Fortnite developer Epic Games as well as Niantic, the publisher behind Pokémon Go further expanded on the role of gaming in the shifting entertainment landscape:
“Gaming is far more than just a game — it is a new media format. Anybody who looks at gaming has to be aware of the amount of time it’s consuming, with each generation now growing. If they don’t put it into their mix, they are likely to be victimised by it.”
Microsoft and Snap have also both announced new gaming services in the past month as has China’s Tencent.
Until now there has been limited competition between the U.S. and Chinese tech giants, with the latter largely content with their huge local market. But Tencent and other Chinese tech competitors now have growing international ambition. East and West are coming into direct competition in big developing markets such as India and Brazil. And Tencent has now cast its gaze towards the traditional FAANG (Facebook Amazon, Apple, Netflix and Google) strongholds of North America and Europe.
Gaming As Part of Tech Giant ‘Ecosystems’
The gaming industry has become the latest big tech battleground for two simple reasons. The first is that it’s highly valuable and still growing quickly, boosted by the rise of mobile gaming the smartphone era has stimulated. Last year it was worth an estimated $140 billion globally and double digit growth is anticipated for at least the next decade. The second is that it fits comfortably into the ‘digital ecosystems’ the tech giants are all striving to build and keep consumers inside as much as possible.
Apple wants us to have an iPhone, Mac laptop, watch film and television through Apple TV Plus, read magazines and newspapers through its new Apple News service. Paying for it all with the new Apple credit card. Google largely wants the same, only with an Android OS smartphone, Google Home Assistant etc. etc.
Operating systems for our homes and future cars are seen as the evolution of operating systems on our smartphones and computers. And entertainment is a major component across all four. That includes gaming, which now appeals across demographics and not just from kids up to those in their twenties as was the case in previous decades.
Not every big tech company feels able to compete for every major digital market. But they would certainly like to and are quick to mount a challenge for those they feel best positioned to succeed in. Their longevity relies on building the digital ecosystems that will keep consumers locked in rather than continuing to rely on the product or service their original success has been built upon.
Gaming is attractive to Google and Apple as they already have well established shop windows ideal to promote it as a new service. Apple has a billion devices in active use and Google far more, even if it is only the operating system (and Google Play app store and chrome browsers) rather than the hardware that it provides. YouTube will also play a crucial role in selling Arcade.
The other reason why gaming-as-service is a natural fit for much of big tech is their existing Cloud computing infrastructure. That’s also why Amazon, the biggest Cloud computing provider in the world through AWS, will throw its hat into the ring in the near future. A network of Cloud datacentres is essential to be able to stream games cheaply and stably without latency being a major issue as long as there is a strong internet connection.
Amazon and Google already have the biggest global networks of such datacentres from AWS and Google Cloud. Apple also has a network that supports its iCloud, even if it currently has nowhere near the capacity of the major Cloud ‘computing-as-a-service’ vendors. In fact, Apple has a partnership with Google Cloud Services, which partly hosts the iCloud. That explains the fundamental difference between Arcade and Stadia – the former will not be Cloud-based.
How Will Gaming-as-a-Service Work?
The different players jostling for a share of the new ‘gaming-as-service’ market will not all approach it in exactly the same way. Google and Microsoft are rolling out Cloud-based services that will de-couple the most powerful games from the need for specialist hardware. The computing resource required to run the heavy load represented by the most technologically sophisticated will be taken on by their global Cloud datacentres (Google Cloud Services and Azure respectively).
All that a customer will, in theory, need to play the most advanced games will be a subscription, a screen, browser and strong internet connection. The question of whether Cloud technology and internet speeds have developed sufficiently to mean latency (time lag) won’t be a problem will remain unanswered until the services launch. However, it is to be presumed Google and Microsoft are confident.
Tech: Apple’s Arcade will differ from Google’s Stadia and Microsoft’s in that it will not be a Cloud-based streaming service. Users will download games rather than play them online through a browser. That approach offers advantages and disadvantages.
The advantage is games will be playable without the requirement for a strong internet connection and high bandwidth. And there is no risk of latency issues impacting the experience and generating negative PR.
All games will be playable across Apple devices so will be compatible with iPhones, iPads, Macs and Apple computers and televisions. That will place limits on how ‘heavy’ the games can be. They won’t be graphically cutting-edge and data-intensive in the same way as the top-tier console and PC games as the computing capabilities and storage capacities (games will be downloaded to the device) of Apple mobile devices simply can’t support that.
Catalogue: Apple have already announced an extensive initial library of over 100 games and have signed up partnerships with publishers including Sega, Annapurna, Klei, Konami, Lego, Skybound, Disney, Platinum Games, Versus Evil and Gameloft. Many of the titles will be exclusive to Apple Arcade and it can be presumed they will be developed to fit into the company’s ‘family friendly’ ethos. ‘Team Sonic Racing’ and two Lego titles are among those already confirmed. There are also a couple of VR games in the mix, suggesting this technology genre is one that will be developed. Gamespot has curated a full list of confirmed Arcade catalogue titles.
Route to Market/Business Model: Arcade will be immediately available in 150 regions from launch. Basically every country where the company has a presence and official Apple hardware resale partners. Arcade will be available on the App Store and the service’s route to market will be based on marketing the service to Apple’s 1 billion active hardware owners.
Unknowns: what kind of multi-player capabilities Arcade will offer and subscription pricing.
Tech: Stadia will be a Cloud-based streaming service. Games will run on virtual servers hosted by Google Cloud Service datacentres around the world and be streamed through browsers. Has the latency issue been resolved to the extent player commands in heavy, fast-paced, multi-player games will translate instantaneously in gameplay? It will have to have been if Stadia is to prove a success.
Catalogue: an even bigger question around Stadia is what games will actually be available. Details on the catalogue were a notable absence when the new service was announced last month and not much has changed since. A partnership with Ubisoft is confirmed and the demo version of the platform featured the publisher’s Assassin’s Creed Odyssey title. Id’s Doom Eternal is the only other title confirmed for the launch.
Activision Blizzard and EA have been the two biggest console games publishers in recent years but have close relationships with Sony and Microsoft respectively and it remains to be seen if Google can lure them over to Stadia. If Stadia is missing the hit titles of those two giants, it could be hard to tempt the core gamer audience.
Google has established its own inhouse first-party studio that will develop exclusive titles for Stadia but how likely is it this will churn our enough hits soon enough to make a real difference?
Route to Market/Business Model: Stadia will of course look to leverage Google’s existing extensive digital ecosystem when it comes to putting the new service in front of potential users. That includes the Android smartphone OS, widely used digital services such as Gmail and Google Docs, Google Maps et al. and, of course, YouTube will be central.
Who doesn’t use Google products and services, even if just the near-monopoly search engine?
Stadia’s business model is also still to be announced. It’s not entirely clear if it will be a subscription model, if users will pay for individual games titles or a hybrid of those two formats.
Tech: Microsoft’s new xCloud will, like Stadia, be a streaming service. Its Azure Cloud service means the company behind the Xbox console, which in a duopoly with Sony’s Playstation has dominated the non-mobile gaming sector for well over a decade now, means it has the existing datacentre infrastructure to match Google’s streaming capacity.
Microsoft says it does not intend Project xCloud to replace the Xbox console but “as a way to provide the same choice and versatility that lovers of music and video enjoy today. We’re adding more ways to play Xbox games.”
However, as with Stadia, streaming would theoretically mean console games could be played without a console, with the hardware’s role in running a game being taken on by Cloud servers. In that context it’s not entirely clear why an actual Xbox would still be necessary but further updates will hopefully shed more light on the question.
Catalogue: Will presumably be based on the Xbox games catalogue though it is likely that all Xbox games may not be immediately available via the xCloud service, though presumably that is the eventual target.
Route to Market/Business Model: the xCloud service’s route to market will be mainly converting existing or former Xbox gamers. It’s not currently clear whether the business model will be catalogue subscription based or individual game titles will be purchased and then playable over the xCloud in much the same way as is currently the case for the Xbox.
Sony PS Now
Tech: Sony’s PS Now Cloud gaming service differs from its competitors in that it is already on the market and has been for a couple of years. However, it represents a halfway house between the console gaming market and the kind of streaming service Stadia and Microsoft’s xCloud will represent. Playing the catalogue of game on PS Now still requires either a PS4 console on Windows PC. The service is not supported by smartphones or tablets.
Catalogue: The PS Now catalogue offers over 600 PS4, PS3 and PS2 titles. However, it represents a back catalogue and recent hits still need to be purchased individually, only moving onto PS Now once they have passed their commercial ‘best before’ date.
Route to Market/Business Model: A PS Now subscription costs £19.99 a month and is mainly marketed and sold to existing PS4 owners.
Tech: the Chinese mobile gaming giant has launched its ‘Start’ Cloud gaming platform in a beta version currently only available in Shanghai and Guangdong. It looks like Start will, pending further details from both companies, look very similar to Google’s Stadia.
Catalogue: Tencent built its business as a developer of successful mobile games on the Chinese market. As well as its own extensive catalogue of titles, which are mainly freemium model games which earn money from optional in-game micro payments (not an obvious fit with a subscription service), Tencent has built up stakes in many major publishers. It owns 88 per cent of Supercell, the Finnish maker of Clash of Clans and Hay Day, as well holding significant minority stakes in Fortnite developer Epic Games and Riot Games, which is behind League of Legends.
Route to Market/Business Model: one big advantage Tencent has over Microsoft and Google is that it has direct access to the biggest gaming market in the world – China, where it is already the dominant force. Google and Microsoft’s global network of Cloud computing datacentres will give them an edge internationally but for now they have no obvious route into the Chinese market. And that’s a big plus for Tencent, who don’t face the same barriers to entry for the rest of the world as their competitors do into China.
Tencent hasn’t yet offered any concrete insight into its intended business model for Start but its options are roughly the same as those of its Western competitors – flat catalogue subscription, pay-per-title or a hybrid that gives access to a catalogue of games while holding back premium titles gamers must by separately.
So far Amazon has yet to make any official announcement that it is throwing its hat into the ring in the battle for ‘gaming-as-a-service’ market share. But it will. Amazon owns Twitch, the most popular live video game streaming service in the world. Gamers stream their own screens to the Twitch audience, rather than play itself being delivered through a stream. But Amazon didn’t spend close to a billion dollars on Twitch back in 2014 without it being part of a bigger picture ambition in gaming.
When Amazon finally does announce its own service to compete with Stadia, xCloud and Arcade, Twitch will be central to its route to market, much like YouTube will be for Google. There will also be an inevitable tie-in with Amazon Prime, the Netflix competitor in TV and film streaming.
An announcement is expected before autumn with a potential launch date in 2020.
Whatever Happens, Gamers Should Win
How this new front in the battle between the world’s biggest tech companies for the world’s most valuable digital markets will unfold it is far too early to tell. But there is little doubt each and every one of Google, Apple, Microsoft, Amazon, Sony and Tencent have the existing ecosystems, technology, experts and funds to come out with high quality services. And they are also very well aware the level of competition means that it will take something outstanding to become a market leader. Falling much short of outstanding will also mean failure.
Make no mistake, making a success of gaming is hugely important to each. Herman Narula, chief executive of UK start-up Improbably, funded by the Vision Fund and a specialist in the simulation technology used to create virtual worlds, recently stated:
“I would go as far as to say [gaming] is the single most important thing happening right now in our culture. It’s going to change the way we make money and relate to each other and form our most important relationships.”
With so much at stake, the only thing that is really certain is that gamers are going to enjoy some spectacular new games, delivered by outstanding gaming-as-a-service platforms over the next several years.
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