December 17, 2019

The Future of Gaming? Cloudy

TDG’s Mike Fischer Shares His Forecasts for 2020

2020 will prove to be the most disruptive era in gaming since the introduction of the iPhone in 2007 and the App Store in 2008. Why? New industry entrants, new business models, and new technologies are creating opportunities for a new round of winners and losers.

Cloud Gaming Gets Real
The rough launch of Google’s Stadia cloud-gaming service has not helped the reputation of this promising new way of delivering and playing games. A poor content selection, high prices for old games, and performance issues related to latency have marred what could have been a successful debut for Google—if it had just labeled the event as a “Beta” and not a “launch.” Nevertheless, this technology will continue to improve, as will content selection and user experience.

Microsoft’s streaming service, dubbed “xCloud,” is getting positive feedback from an early test rollout (I have tried it myself and had a good experience). However, it is unclear where in the Microsoft gaming-platform ecosystem this new service will sit. Not to be overlooked, the Shadow PC-based gaming service has been operating for nearly two years, building a solid audience. As well, Sony has announced that its cloud-based PlayStation service will run on Microsoft’s Azure platform, meaning that Microsoft and Sony will be partners on infrastructure even as they compete for content and audience.

With so many major companies pushing into this new area, it is inevitable that cloud gaming will become a mainstream consumer service. As internet infrastructure and connectivity improve (especially as 5G diffuses), the convenience and ease of use inherent in cloud gaming offer a effective alternative to investing in either a dedicated game machine or an expensive gaming PC. What is most needed at this point is compelling content: those not-possible-anywhere-else experiences that gaming has long provided. Much has been promised, but nothing delivered so far. Until we see winning content, no amount of technical breakthrough will be relevant to gamers.
Mobile and AAA Games Swap Business Models

AAA games have traditionally relied on a retail sales model (usually at a $60 price point), with mobile games being dominated by a free-to-play model powered by microtransactions and aimed at casual gamers. The trade-off was that AAA games offered big production values for major franchises, while mobile games featured simpler graphics and gameplay in bite-sized sessions. Recently, more games have been defying these constraints, and more will follow. Activision’s Call of Duty is now a high-quality mobile game, as are the Battle Royale games PUBG and Fortnite. At the same time, AAA PC and console games continue to have success with the free-to-play model. Electronic Arts took a page from the Fortnite playbook to launch Apex Legends—the biggest surprise hit of 2019—as a high-quality, free-to-play shooting game. We can expect this trend to grow in 2020, with more AAA-quality games on mobile and more free-to-play games targeting hardcore users on PC and console platforms.

More New Big Industry Entrants
Google jumped into gaming in a big way with the launch of Stadia, and Apple stepped up its presence with the subscription-based Apple Arcade service. 2020 will likely see Amazon enter the space, most likely with its own cloud-based subscription service tied to Twitch, the video streaming service Amazon acquired in 2016.

All of these companies have some degree of ulterior motivation for deepening their move into games. In large part, they see games as part of a Trojan Horse strategy to get a foothold in the smart-home business. A games service connected to big-screen home televisions provides a sizable competitive advantage. Games are also an important defensive move. Apple cannot afford to have its game apps disintermediated the way Spotify and Netflix took away so much of its iTunes business. And Amazon is at risk of losing a large (rumored to be more than 20%) of the AWS business currently supporting networked game services. All this means that these big tech firms may be willing to lose money for several years in order to establish dominant game platforms.

Consoles: Last of their Kind on the Way
Microsoft and Sony will both release new consoles in 2020, and most believe they will be the last of their kind—high-powered devices in the home that still play optical media. Future devices will certainly focus on a games-as-a- service model rather than the traditional retail model. Microsoft is expected to bring out multiple models – possibly a disc-playing machine, a disc-less download only model, and maybe even a cloud device (like Stadia – with a dongle to connect to a TV and a dedicated controller).

Photos of the PlayStation 5 have leaked, although their authenticity can’t be verified. Sony’s partnership announcement with Microsoft does, however, confirm that at least some form of cloud-based play will be possible. In mid-December 2019, Microsoft officially released the details of the X platform, though it will not be available until November 2020.

The general industry consensus is that this new generation of consoles will transition over time to be little more than connecting devices between cloud-based services and the various video screens around the home—perhaps acting as a buffering/storage device to help compensate for latency issues.

Nintendo continues to dance to its own beat. It released a price-reduced version of its Switch handheld console this year, and there are no expectations of any big moves in 2020—just lots of big-selling hit games for its existing platform, and maybe a few Android and iOS titles as it continues to dip its toe into mobile gaming outside its own devices.

AR and VR – Not Dead Yet!
As TDG foresaw in 2015, virtual reality (VR) has become the tech industry’s poster child for unmet expectations. Early high-powered systems like Oculus Rift and HTC Vibe were expensive, required high-powered PCs for operation, and were challenging to set up, not to mention clunky and heavy to wear. Even low-end systems like Samsung’s Oculus Go were more likely to deliver headaches than entertainment.

Facebook has stayed with Mark Zuckerberg’s vision of a socially-connected virtual reality, and the 2019 Oculus Quest is a step in that direction—a light but powerful wireless device reasonably-priced at $399. In 2020, the cost of such devices will drop further even as performance and quality dramatically improve—starting with an “inside-out” technology that uses built-in cameras to track the hands of users, thus eliminating the need for handheld controllers.

Apple has yet to announce a release date for its widely-rumored Augmented Reality (AR) glasses. But its entrance into this space (and possibly VR, as well) will signal the evolution of these immersive technologies from a favorite of Early Adopters to one enjoyed by Early Mainstreamers. What remains to be seen is what sort of experiences will best grab public attention. While 3-D video games have failed to make an impact, a socially-connected virtual presence could represent the next wave of personal interaction. This is the “metaverse” pictured in movies like Ready Player One and the driving force behind Facebook’s dedication to VR platforms.

“Netflix of Gaming” Still a Big Question
Both Netflix and Spotify disrupted their respective industries with an “all you can eat” content offering for a monthly subscription price. The same was expected for gaming, with early offerings such as the Xbox Live Game Pass and Apple Arcade already available. It remains unclear, however, if this is something gamers actually want.

A “hardcore gamer” was once defined as someone who buys five or more games a year. For this type of gamer, a subscription is perfect—$300 a year to buy five $60 games is more expensive than a $15/year subscription. But recent years have seen the rise of a new type of player: the competitive gamer who plays more than twenty hours a week, but always the same game. This new generation of player maximizes their time around one game in a never-ending quest to improve their skills and strategy. A Netflix-style subscription won’t appeal to this player, who is more likely to sign up for a battle-pass—that is, a single-game subscription that provides access to exclusive content and myriad social connections.

While we expect more of these Netflix-style offerings to be introduced in 2020, they are unlikely to become a dominant business model in the next few years.

 

Mike Fischer is a veteran of the video and gaming industries, having held executive positions at Microsoft, Amazon, Epic Games, and Square Enix. He is also a member of the faculty at the University of Southern California.

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