Last month, Google announced it will be shutting down Stadia, its cloud-gaming service and will refund all customers by January 2023. It’s a multi billion dollar bet that didn’t pay off. Why did it fail? And what does it mean for the future of Cloud Gaming from here on?
The premise of Cloud Gaming
Cloud Gaming wanted to take advantage of cloud computing power and improvements in bandwidth/connectivity to enable gamers to play multi player games on their mobile, PC or Television without the need for physical games copies, or consoles.
According to Wikipedia:
Cloud gaming, sometimes called gaming on demand or gaming-as-a-service or game streaming, is a type of online gaming that runs video games on remote servers and streams them directly to a user’s device, or more colloquially, playing a game remotely from a cloud.
The stakes of Cloud Gaming are high
According to the 2022 Media Trends report by Deloitte, more than 80% of both men and women say they play, with half of smartphone owners saying they play on a smartphone daily. Gen Z and Millennial gamers play the most, logging an average of 11 and 13 hours per week, respectively. Gaming as a category generated $200 billion in revenue in 2021 and is expected to continue to grow, especially amongst the younger generation. I dove deep into this in The State of gaming in 2022, so feel free to open a new tab to get more stats.
Fortnite, for example, is a multiplayer game that is played in remote servers over the cloud, but it limits the number of players per session to 100. Fortnite generated $5.8 billion revenue in 2021 for Epic Games in 2021, much of it on users purchasing ‘skins’ or clothing for their virtual avatars.
Cloud Gaming Hiccups
On paper, the Cloud Gaming market is small, but growing. According to the 2022 Cloud Gaming report by Newzoo, 31.7 million paying users of cloud gaming services by the end of 2022, spending a combined $2.4 billion on cloud gaming services and games streamed via the cloud.
Other market research reports say that the global Cloud Gaming Market was valued USD 1.5 Billion in 2021 and is all set to surpass USD 12.6 Billion by 2028, exhibiting a CAGR of 42.7% during the forecast period 2022-2028.
For users, the motivation for play for Cloud Gaming service is clear. More variety at a lower price tag.
As the prize was big, many tech platforms launched their own Cloud Gaming products for consumers. To get it right the approach needed to combine the following tri-fecta:
- Strong infrastructure
- Big gaming catalog
- Low price and a great user experience
But in practice things got complicated.
- On catalog, Google, who historically didn’t own many games/rights, had to either build or license. Building costs a lot, and licensing ain’t cheap and sometimes not possible (when your competitor owns the rights!). Google initially tried to build an in-house gaming studio for Stadia, but shut it down in Feb 2021.
- On infrastructure, not everyone has good broadband/fibre access, which meant that for some, the cloud gaming experience was full of hiccups: buffering and delays. It’s possible to do load balancing on servers, but even the slight delay on a game like Fortnite means: you’re dead.
- On the pricing and user experience, I think Stadia did ok.
But Google realised it will be tough for them to win in this market, and costly to continue. Users of Google Reader are still bitter with the closure of their much loved product back in 2013 and have learned the hard way that if products don’t pay the bills, they are likely to be killed.
As Phil Harrison, a real veteran of the gaming industry and GM of Stadia wrote on the official blog post:
For many years, Google has invested across multiple aspects of the gaming industry. We help developers build and distribute gaming apps on Google Play and Google Play Games. Gaming creators are reaching audiences around the world on YouTube through videos, live streaming and Shorts. And our cloud streaming technology delivers immersive gameplay at massive scale.
A few years ago, we also launched a consumer gaming service, Stadia. And while Stadia’s approach to streaming games for consumers was built on a strong technology foundation, it hasn’t gained the traction with users that we expected so we’ve made the difficult decision to begin winding down our Stadia streaming service
Ultimately, the serviceable obtainable market (SOM) for cloud gaming services was pretty small (32M) given the connectivity requirements, so timing could have played a role.
Cloud Gaming: Where to next?
Some are calling Stadia’s shutdown the death of cloud gaming.
Big Tech may well abandon the cloud streaming effort altogether. The zeal behind a winner-takes-most strategy as the ultimate win condition in platform economies means at this point the anticipated costs of building their own audiences will exceed the benefit. Amazon is having an equally bad time with cloud gaming. With little to show for its investments and acquisitions thus far, it is increasingly less likely that the online retailer will front the cash necessary to catch up to legacy platforms like Microsoft and Sony.
But even though Google and Amazon might be struggling in this market, I still believe Cloud Gaming will be around in the years to come. As you can see from the infographic below, the Cloud Gaming ecosystem (from infrastructure to consumer experiences) continues to mature.
In my personal opinion, the winner in this market will be Microsoft. They’ve taken gaming seriously for years and have been successful with their Xbox cloud gaming approach. Microsoft spent billions acquiring IP (most recently Activision if the regulator approves the deal), but also Bethesda Games, Minecraft and others. Sony might as well compete in this space with their Playstation community and Nvidia GE Force, is well positioned to provide a superior tech infrastructure with their graphic cards and cloud technology.
Apple has a big stake in gaming, it collects 30% of all in-app-purchases on the app store, and has launched Apple Arcade as a one-off subscription where users can try many games (some which are normally paid). But Arcade hasn’t been a runaway success. And as for Meta, with the latest announcement at Meta Connect, it seems like Zuckerberg is opting for alliances, choosing to partner with Microsoft to bring Xbox games to VR to free up the company’s efforts to focus on infrastructure and hardware for the Metaverse.