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Amazon is good at so many things. Why is it bad at games?

2020 was supposed to be the coming-out year for Amazon's gaming efforts. Here's why it's not working out that way.

Amazon's vice president of games, Mike Frazzini

Sources say Amazon's vice president of games, Mike Frazzini, is under internal pressure amid the recall of Crucible and the delays surrounding New World.

Photo: Andrew Burton/Getty Images

Why is Amazon having so much trouble making good video games? Because Amazon's internal structure and culture are optimized to generate mass commercial products, not foster creative entertainment, according to people close to and involved with the company's game efforts.

In April, Amazon essentially announced that 2020 would mark the big coming-out party for the company's video game division. After spending hundreds of millions of dollars and almost a decade building an internal game development operation, Amazon said that this year it would launch its first two big games: a team shooter called Crucible and a massively multiplayer fantasy adventure called New World.

Things could have gone worse since then, but not by much.

Crucible debuted in May, was widely panned by gamers and critics for simply not being much fun, attracted abysmally few players, and was unceremoniously yanked off the open market and returned to closed beta in June.

As for New World, in March Amazon said it would ship in May. In April, Amazon said it would ship in August. In July, Amazon said it would ship next year.

The recall and delay have left Mike Frazzini, Amazon's vice president for game services and studios, under considerable internal pressure, according to people close to and involved with the company's game efforts. Frazzini joined Amazon in 2004 and has been the company's main cheerleader for game development for almost a decade. He has not yet shipped a successful major game, a fact that has not gone unnoticed by his boss, Andy Jassy, chief executive of Amazon Web Services, who in turn reports to Jeff Bezos.

The third major project that Frazzini's division has been scheduled to deliver this year is an innovative version of Pac-Man that can be played directly on Twitch, the wildly popular streaming service that Amazon acquired in 2014. The new Pac-Man is not a major "AAA" game like Crucible or New World, but it is important to show the way forward for Twitch as a platform for actually playing games rather than simply watching them.

In May, Amazon and Bandai Namco, which controls the Pac-Man franchise, announced that Pac-Man Live Studio would be playable on Twitch in June. It still isn't. The game's official page now simply says, "Coming soon."

So, what's the problem? In recent years Amazon has become a major force in television and film, so we have seen that the company can succeed in generating popular mass entertainment. Why is the company struggling so badly with games?

Discussing the question with people involved with Amazon Games, some common themes emerge.

Games are art, not just a software product

"We're bringing a lot of Amazon practices to making games," Frazzini told me in March. That isn't working because video games are fundamentally a creative endeavor, not the sort of purely quantifiable mass consumer product or service that Amazon knows how to make.

No less than great novels or films, great top-end games cannot be created through user data requirements, A/B testing, behavioral analytics, user surveys and iterative critiques by departments ranging from security to finance. Yet games must jump through all those hoops at Amazon, according to people in a position to know.

That product development sensibility can work for chintzy mobile games that are made to extract as much money as possible from players but does not work in creating multibillion-dollar long-term franchises that generate not just revenue but emotional loyalty. Instead, thinking of games like tech products just leads to watered-down games without a strong point of view or creative direction.

For example, Amazon executives told me that while designing Crucible they solicited private input from hundreds of streamers and esports figures — people who play video games for a living and definitely know fun when they feel it. So how could the company ingest that input and still churn out a mediocre product?

Turns out, the questions Amazon asked the game pros were generally incremental — "Which weapon do you prefer?" "What classes and enemies do you enjoy?" — rather than stepping back and asking, "Does this overall concept work?" That's why Crucible can feel like it was put together with bits and pieces of other successful games, rather than forging a strong vision of its own.

The entire structure of most successful game publishers is built around protecting and insulating the creative people — writers, artists and designers — from the business. Take-Two does not tell Rockstar what the story of the next Grand Theft Auto should be. Mike Morhaime spent decades shielding the creative engine at Blizzard Entertainment from various corporate owners as Blizzard created StarCraft, Warcraft and Diablo — iconic franchises all.

Many precincts of the entertainment business are run by financial professionals, but the successful ones — whether in television, music, film or games — learn to let the creative people create.

"Amazon is run not even by finance guys but by tech guys who instead of putting their creatives outside the bubble and protecting them from the culture, hired them into the bubble and expected them to work within that confine," said one person involved with Amazon's game efforts. "Amazon culture is great for product, horrible for creative endeavors."

At Amazon, games do not get the Hollywood treatment

It is impossible to imagine Jennifer Salke, head of Amazon Studios, issuing her own version of Frazzini's pronouncement: "We're bringing a lot of Amazon practices to making movies."

That is because when it comes to film and television, Amazon lets people with deep industry experience run the show and acquire projects being made by outside professionals. Salke was president of NBC Entertainment before joining Amazon two years ago. Her boss, Mike Hopkins, who joined Amazon in February, was previously chief executive of Hulu and chairman of Sony Pictures Television. Frazzini, meanwhile, had no significant game industry experience before joining Amazon.

Perhaps as important, Hopkins — senior vice president for Prime Video and Amazon Studios — reports directly to Bezos while the game operation does not. Rather, Frazzini reports to Jassy, and Twitch, Amazon's most prominent game-related business, reports separately to Jassy. Project Tempo, Amazon's secretive cloud gaming initiative — which could compete with Google's Stadia, Microsoft's xCloud and Nvidia's GeForce Now — also appears to be under construction at least partly within the AWS organization.

By contrast, at Microsoft, the head of gaming, Phil Spencer, reports directly to Satya Nadella.

Bezos has clearly appeared to develop an affinity and appreciation for the distinct culture of Hollywood. That seems to be at least one reason why Amazon is letting its video division function on its own while the game division is shoved into the company's standard operating procedure.

Of course there is a long and distinguished history of technology moguls molding their companies around their own personal entertainment interests. The compact disc's maximum length of 74 minutes was set at least partly by Sony executives determined to listen to Beethoven's Ninth Symphony without interruption. Steve Jobs loved music and hated video games, so the world ended up with iTunes instead of iGames.

The troubles at Amazon Games may at least partially reflect the fact that neither Bezos nor Jassy appear to actually be gamers.

At Amazon, games are partly seen as a tool to sell something else

Bezos and Jassy have pushed the company's games operation to make games that are computationally intensive, according to people close to the division. That is, to make games that use a lot of AWS horsepower.

You see, AWS has a large team dedicated to selling cloud services to the game industry itself. The idea is that Amazon makes games that show off what can be achieved with AWS and other proprietary technologies such as the Lumberyard game engine so other companies will want to buy them. In that sense, Amazon's games aren't supposed to attract just players but enterprise customers as well.

The problem is that this mandate creates exactly the wrong incentives if your fundamental goal is to create games that millions of people will love.

A great game starts with a concept, and then the team asks, "What are the technologies and business models that will bring this concept to life and support it?" At Amazon, by contrast, at least some teams are hearing, "Here are the technologies and business models; find a concept to bring them to life and sell them."

For example, internal AWS accounts are known as Isengard accounts, after the fortress in "The Lord of the Rings" eventually controlled by the corrupted wizard Saruman. When internal game development teams use Isengard accounts, they must pay (via internal accounting) the same rates for AWS compute cycles that outside retail customers pay, according to people close to the teams.

Using vast cloud computing resources has allowed those teams to create innovative prototypes, but the costs are then projected to be so large that the company abandons the projects, according to those people. The problem is that when developing a truly new sort of entertainment (which AWS could certainly enable), it is next to impossible to forecast revenue and demand. By driving the technology and client cost calculations so deeply into the game studios, Amazon makes it more difficult for those studios to focus on making compelling games.

There are bright spots

Amazon rebranded the marketing vector formerly known as Twitch Prime as Prime Gaming on Monday. (Even when his product was called Twitch Prime, Ethan Evans, who runs the operation, reported to Frazzini, not Emmett Shear, Twitch's CEO.) Amazon rebranded the service, which offers third-party games and in-game loot, so it could expand to other game platforms besides Twitch.

Even more far-reaching, Amazon appears close to announcing its first major games publishing deal. Just as the company's video operation mostly acquires and distributes TV and film content made by others, moving into game publishing for external developers would diversify Amazon Games beyond its rocky internal efforts.

And despite the troubles, there are interesting projects in Amazon's internal pipeline. The studio in Irvine that is making New World is also making another online game based on "The Lord of the Rings" franchise, though one wonders how well that studio is managing two huge projects at once. A separate internal team led by acclaimed industry veteran John Smedley is working on an unannounced, eagerly anticipated project in San Diego.

As for the new Pac-Man on Twitch? People close to Amazon's game division say it could be released as soon as next month.

An Amazon spokesperson declined to comment.

Seth Schiesel

Seth Schiesel ( @SethSchiesel) is a contributing editor for Protocol focused on the business of video games and adjacent industries. He is a former editorial writer for The Boston Globe, entrepreneur and business reporter, technology writer and video game critic for The New York Times.

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Protocol | China

Everything you need to know about the Yuanxin Technology IPO

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.
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