The days of gamers spending $400 on a new gaming console and then paying $60 for each new title may be coming to an end. As people have grown accustomed to streaming unlimited movies and music, gaming seems to be the next entertainment medium ready for a subscription-based model.
The dominant console makers, Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE), currently offer Xbox and PlayStation owners a subscription gaming service with Xbox Game Pass and PlayStation NOW, respectively, but these services have yet to gain mass appeal. Both services are tied to a specific ecosystem, which limits their reach, and there's also the issue with streaming quality.
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Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google is offering something much more robust. With the search giant's massive budget for data centers and cloud technology, it's seeking to disrupt the gaming industry with a feature-rich cloud gaming service called Google Stadia.
On paper, Google Stadia is impressive with the integration of social sharing features and the ability to jump into a game by simply clicking a link on YouTube. It's clear that Google Stadia is a service ultimately designed to build engagement on YouTube and grow ad revenue.
However, there are four major obstacles Stadia must overcome to win over gamers.
1. Technical issues
Reviews were mostly positive from those who got an early sneak-peak at the service during its unveiling in March. According to first impressions, games look good most of the time, about on par with a game running on a PC or console, but there are instances where the quality of the gameplay falters. The issue that crept up is what's known as input lag, where there is a perceptible delay between the time the gamer presses a button and the instant the game registers that action on the screen.
Input lag is a common problem with game streaming services where the game is not running on a local hard drive but miles away on a supercomputer and then streamed back to the gamer's screen. Streaming games require more advanced processing technology than streaming content from Netflix, for example. Even when a gamer has a reliable high-speed internet connection, input lag can be a problem.
At the Stadia announcement event, Google assured hands-on reviewers that input lag would not be an issue when the service goes live. Google has spent billions of dollars over the years on data centers; not to mention, well, it's Google — the company knows a thing or two about the internet and the cloud.
Nonetheless, game streaming has gotten a bad rap among gamers for the poor quality of existing services. As a result, there remains as much skepticism as optimism in the gaming community about Stadia, and that mindset, alone, may prevent gamers from signing up when it launches later this year.
2. The multi-player crowd will be a tough sell
The millions of players who play battle royale games, such as Fortnite and Apex Legends, as well as team-based shooters like Overwatch, are also going to be a tough sell for Stadia. These are some of the most played games in the industry, and they also require constant, smooth gameplay for the best user experience. The reputation of game streaming services for delivering inconsistent performance will likely keep Stadia from reaching mass appeal and becoming a game changer for the industry when it launches later this year.
3. Is Stadia worth it?
My colleague Timothy Green pointed out the concerns about Stadia's potential cost, but there's also the issue of game selection. For example, will Electronic Arts (NASDAQ: EA) be willing to put its best-selling games like Madden, Battlefield, and FIFA on Stadia, or will they take a page from Walt Disney's playbook by keeping the best titles exclusively available on its own subscription services?
A bigger obstacle is the growing popularity of free-to-play titles. Popular games like League of Legends, Apex Legends, and Fortnite don't cost a dime to play. Therefore, a subscription service is going to appeal less to gamers who play these titles on a regular basis.
4. There’s more game streaming services coming
Finally, other tech heavyweights are working on cloud gaming, including game maker Electronic Arts (Project Atlas), Microsoft (Project xCloud), and Chinese tech giant Tencent. Amazon.com (NASDAQ: AMZN) may eventually enter the race, given its expertise in cloud services with Amazon Web Services and the company's "all-in" mindset with Amazon Game Studios. It's possible these companies that have years of experience investing in the gaming industry may take one look at Google Stadia and be ready to come out with something better.
If there are two companies involved in gaming that can deliver a better service than Google, it's Microsoft and Amazon, which are both way ahead of Google in the cloud market. I would watch Amazon, given its knack for figuring out innovative ways to delight its customers with value and perks through its Prime service. Amazon has integrated Twitch, the game streaming site, with Prime, and the company would likely do the same with a gaming offering.
It’s still early
There's a lot of unknowns about cloud gaming at this point. With enough time and investment, I believe the big tech companies will be able to overcome the technical issues and deliver the gameplay experience consumers expect. But with so many companies working on this technology, in addition to Microsoft and Sony already gearing up to announce their next generation consoles in the next few years, it's likely going to take a while for cloud gaming to gain significant traction.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon, Electronic Arts, and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Microsoft, Netflix, Tencent Holdings, and Walt Disney. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.
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