In a quote in Politico’s new technology-focused publication, Protocol, Xbox Chief Phil Spencer said something seemingly earth-shattering for any gamer: it isn’t Nintendo or Sony that Microsoft views as primary competitors in the gaming space, but Amazon and Google. That sounds deeply stupid. Google’s Stadia has basically been a flop, and Amazon hasn’t even launched a gaming console or service (no, the Amazon Fire does not count). But the cloud gaming race is a little more complex than it seems at first glance.
“When you talk about Nintendo and Sony, we have a tonne of respect for them, but we see Amazon and Google as the main competitors going forward,” Spencer told Protocol.
Spencer’s reasoning, according to Protocol, is that Amazon and Google are enormous in the server space – Amazon’s AWS and Google’s Cloud directly compete with Microsoft’s Azure. Those companies are positioned to be beasts in the gaming space currently dominated by Microsoft, Sony, and Nintendo.
Cloud computing has become an enormous business, with services like Azure, AWS, and Google Cloud providing cloud storage, which is the real backbone of all the apps you use and the websites you visit. When former Gizmodo reporter Kashmir Hill tried to cut Amazon from her life, she found it impossible thanks to the ubiquity of AWS throughout the internet.
Amazon is unquestionably the biggest provider of cloud computing services, but both Google and Microsoft have seen their cloud businesses grow. According to its Q2 earnings report, Microsoft saw its Azure revenue grow 62% year-over-year, raking in $11.9 billion.
And now these companies are looking to expand their efforts into cloud gaming, which costs a lot less money to venture into than console gaming. That’s why Spencer thinks it’s not worth focusing on Microsoft’s console competitors.
“I don’t want to be in a fight over format wars with those guys [Nintendo and Sony] while Amazon and Google are focusing on how to get gaming to 7 billion people around the world,” Spencer said. “Ultimately, that’s the goal.”
The “ultimately” is key here. Microsoft isn’t going to be killing the Xbox in favour of its Stadia competitor, Project xCloud, any time soon. The company currently seems to see it as complementary to the Xbox, rolling it out in markets like India where phones, not consoles, are the big gaming devices. Plus Sony and Microsoft are both launching major consoles this year and, by all accounts, both companies are aiming to produce consoles with components inside that are more powerful than even many gaming computers available today.
Microsoft has invested too much into the Xbox ecosystem to kill it – and its cloud computing business makes cloud gaming an easy space to enter.
There’s also the fact that cloud gaming is in its infancy and...not exactly doing well.
“It’s early, early days,” Joost van Dreunen, co-founder of gaming research company SuperData, told me over the phone. van Dreunen has been tracking the numbers of who plays what and when for more than a decade. SuperData is now owned by data research firm Nielsen.
Microsoft, Google, and Amazon have huge server businesses that position them for success in the cloud gaming space, but they’re actually all late. Sony doesn’t have the kind of server farms those companies have, but it’s been in the cloud gaming space even longer. Sony acquired the game-streaming company Gaikai in 2012 and OnLive in 2015 and has had its own cloud gaming service, PlayStation Now, since 2014.
Yet somehow Sony, the biggest console maker in the world, has only 1 million subscribers paying for its cloud gaming service.
“So basically less than 1 per cent of people in the world who own a PlayStation gave enough of a shit to get the subscription,” van Dreunen said.
Nvidia is the largest maker of gaming graphics cards in the U.S. and also has a cloud gaming service. Nvidia launched what was then called Grid as a beta back in 2013 before changing the service’s name to GeForce Now in 2015. That service let you play a selection of games offered by Nvidia itself – for free! It then transformed the service and launched a new open beta in 2017. The 2017 iteration of GeForce Now allows users to play any PC game via the cloud, streaming it directly from Nvidia’s servers to a computer. But when GeForce Now emerged from beta earlier this week, just 300,000 players had participated.
Between Sony and Nvidia, two of the biggest names in gaming hardware, that’s just 1.3 million cloud gamers total. Hardly a groundswell.
Meanwhile, Google made an enormous splash with Stadia last year, but the service has underperformed dramatically. Playing games at a nice resolution with little lag is possible, but the experience isn’t consistent, the support for games is paltry, and Google’s rollout of other long-promised features has moved along at a glacial pace.
Stadia increasingly feels like another grand Google experiment destined for the bin. Last week, its small but passionate user base kicked up an enormous fuss on Reddit decrying Google’s ability to roll out a viable gaming service.
Amazon, the other big competitor Spencer spies in his future-facing spyglass, hasn’t even begun a rollout of a cloud gaming service. In fact, Amazon’s cloud gaming ambitions are largely the supposition of analysts who have keenly watched as AWS has become the backbone of the internet. Amazon has continued to snap up game developers, but has does nothing with the acquisitions.
But besides the fact that Microsoft’s perceived competitors have barely begun to consider gaming, and its current competitors haven’t had huge success in the space, there’s another problem: The internet infrastructure just isn’t there for most places.
“It is a broadband situation in the U.S. that leaves us wanting,” van Dreunen said.
Short of Microsoft (and Google and Amazon) laying down pipes to improve internet speeds, there’s not a lot these companies can do to roll out the better internet needed to make cloud gaming a compelling purchase for most people.
“Phil Spencer probably believes much more in 5G than he does in broadband, although they haven’t come out and said that,” van Dreunen told me. “But if more people have a phone in their pocket than a broadband connection, it makes sense for Microsoft to pursue that.”
He noted that at a recent invitation-only event Spencer even mentioned 5G, noting that the biggest barrier to cloud gaming right now is the router (and thus the internet connection) in our homes.
But perhaps Spencer, and his theoretical rivals at Google and Amazon, know something the rest of us don’t. They’d have to if any of them expect the cloud to be the next big step in how we game.