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Google Stadia: What is the strategy and what are the implications of Google's gaming move?

March 20, 2019  | Subscribers Only

Piers Harding-Rolls Piers Harding-Rolls Director – Research and Analysis Director, Games, IHS Markit

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Google lays out end-to-end cloud focused strategy for the games sector

Mirroring prior announcements from Microsoft and EA, Google Stadia is a cloud-based platform that offers a collection of tools and services for games developers, offers distribution through a new cloud gaming capability and full integration with YouTube for content, creator tools and also user acquisition. Google aims to offer an end-to-end solution that supports game developers, gamers and YouTube creators on one cloud-based platform.

Microsoft laid out a similar vision with Microsoft Game Stack and EA has done the same with Project Atlas. It is likely that both Tencent and Amazon will follow suit with similar strategies. Cloud is the new platform dynamic for the games sector and will be where the future competitive landscape resides.

Google has strengths but isn’t the best placed of the cloud service providers for cloud gaming

Google has a lot going for it in cloud gaming. It operates a collection of very successful consumer facing platforms and services which are related to games – YouTube, Google Play, ARCore and Daydream VR, Android (and Android TV), Chromecast and Google Chrome – and also has a global presence in the cloud services market with Google Cloud. Like Microsoft and Amazon, it offers a specific set of tools tailored to the games industry alongside Google Cloud.

IHS Markit data shows that there were an estimated 71 million Chromecasts active in the market at the end of 2018. Additionally, IHS Markit expects there to be over 80 million Android TV-based device shipments in 2019, although a majority of these will be shipped into mainland China without Google Play.

In essence, Google is well positioned to build a cloud gaming business and will be able to use the audiences on its various platforms and its device reach to engage a wide number of consumers. But it has one key weakness – first party and exclusive content. Arguably both Microsoft and Tencent are better positioned with strengths in both infrastructure and content.

Content availability and exclusivity are the big question marks over Google’s cloud gaming potential

Google also announced Stadia Games and Entertainment, its new first party studio. While this is a step in the right direction for Google to build its own content exclusives, it will still need to negotiate timed exclusives with third-parties to start to compete more significantly with those with major games portfolios. If Google is serious about competing, the likelihood that the company will acquire studios or even a publisher must be considered high.  

Google’s cloud gaming approach is unique, could reduce latency and opens up the market to more users

Google’s novel approach to include wireless connectivity in its game controller so that is can communicate commands directly back to the cloud server is an interesting solution to both aid connected device compatibility and reduce latency. Rather than connect the controller through Bluetooth and open up a return channel from the connected device, a direct connection with the internet removes some latency and also enables controller support for connected devices that do not have Bluetooth.

Is Google’s cloud gaming service a threat to consoles?

The game console market remains a large and significant part of the overall games market opportunity. In 2018, IHS Markit data shows console content and services spend represented 25 per cent share of the $128 billion market. In addition, world consumer spending on console hardware reached $14.7 billion bringing the overall console market opportunity to $47 billion.

Most significantly, console gaming is still dominated by three incumbents; Sony, Microsoft and Nintendo, and this sector wasn’t significantly disrupted by the last wave of technology centred on mobile devices and app stores. With the shift towards cloud gaming this status quo is likely to be impacted. All three console manufacturers are embracing cloud gaming to a greater or lesser extent and this inevitably means a slowly decreasing reliance on client hardware, but also an opportunity for these companies to reach new users, while also catering to the traditional console gamer. As this transition takes place, there is also an opportunity for new market entrants to disrupt the existing platforms and build their own services. This opportunity extends to a cross section of companies including games publishers building direct-to-consumer businesses, cloud service providers and telcos.

 
 

The cloud gaming market will be an incremental opportunity for the foreseeable future. I do not expect a Google cloud gaming proposition to dramatically impact the next cycle of console sales, but it may start to pick up some users that are not ready to spend $400 on a new console at launch. The extent of this impact will depend largely on content availability, pricing, service quality and geographical availability. The cloud gaming content subscription market was worth $234 million in 2018 and was dominated by Sony’s PlayStation Now service. We forecast it to grow to $1.5 billion by 2023, a result of new market entrants, the transition of existing subscription services – Xbox Game Pass, EA/Origin Access – to the cloud and the roll out of 5G and fiber to the home.

Geography
World
Organization
Google Inc.
Research by Market
Media & Advertising
Category
Games Video
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