Why big tech is betting big on gaming in 2020
Gaming is the biggest entertainment industry. Tech is finally taking it seriously.
Since the advent of modern technology in the 1970s, video games have often been considered a separate but not quite equal use of computing power. For much of the last five decades — as mainframes gave way to PCs, as the internet and portable wireless computers (sometimes called cell phones) reshaped most aspects of human existence — the mainstream technology business and the electronic entertainment industry have often had little to do with each other. With the exception of Microsoft, which introduced the original Xbox in 2001, the internet behemoths for many years tended to treat video games as an afterthought, a curiosity, a niche.
At more than $150 billion in annual revenue, the global game industry is now more than twice the combined size of the worldwide film box office ($42.5 billion in 2019) and the planet's recorded music business ($19.1 billion in 2018, including streaming). Roughly 2.5 billion people play games, even if many don't think of themselves as "gamers" (yes, Candy Crush counts). Big tech has taken notice. Over the last few years, Amazon, Apple, Facebook and Google have each joined Microsoft in making gaming a strategic priority. In 2020, games will become even more important to their bottom lines.
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"For many years the game industry was somewhat overshadowed by music and movies and was always trying to justify itself as a form of mainstream media and entertainment," said Phil Harrison, a Google vice president and general manager and longtime game executive. "Now, games are far and away the largest entertainment medium on the planet from a digital perspective, so that global scale and size is attractive to the large technology companies as a way of bringing their products and services to more people."
"As a technology company, you simply have to be in games," said Phil Spencer, head of Microsoft's games business (and a direct report to chief executive Satya Nadella).
In the coming year, each of the technology giants hopes to expand its presence in gaming. And each will face its own particular challenges. Here's what to look for as the big tech companies try to win big at gaming, according to interviews with the people calling the shots.
Amazon's approach to gaming is perhaps the most intriguing among the tech titans and also the most opaque. That's because Amazon controls a collection of game-related businesses but manages each separately and seems to be in no hurry to integrate them into a common strategy.
Of Amazon's game assets, the most visible is Twitch, the powerhouse streaming service that has emerged in recent years as one of the most important vectors of global game culture (and marketing). More than 140 million people watch Twitch each month, and the 15 million viewers who tune in daily stay for an average of 95 minutes each.
Less visible is Amazon's AWS cloud, which provides back-end computing for much of the industry. Amazon also makes games, and its first major releases will roll out over the next few months.
"Amazon is not about forced coordination," said Mike Frazzini, Amazon's vice president for game services and studios. "We think about a distributed ownership model, which allows us to move faster. We don't think so much about how to tell the overall story. We think about each customer in their own context and tell our story to them."
I would bet everything that it's this year, an actual game-streaming service from Amazon. — Michael Pachter
Analysts and senior executives at other companies anticipate that Amazon will introduce a new cloud-gaming service later this year to compete with Google's Stadia and Microsoft's xCloud, and Nvidia's GeForce Now service, which launched this week after seven years in beta testing. Frazzini declined to discuss it.
"I would bet everything that it's this year, an actual game-streaming service from Amazon," said Michael Pachter, an analyst at Wedbush Securities. "No later than the launch date for the Xbox Series X and the PlayStation 5," which are expected this fall.
Despite, or perhaps because of, working at Atari before co-founding Apple, Steve Jobs hated video games. And for a long time, it showed. For decades Apple seemed to discourage, or, at best, grudgingly tolerate, game development on its desktop computers, almost entirely ceding the PC game market to DOS and Windows.
So there is a deep irony to the fact that video games are now one of Apple's most important financial drivers, generating more than 80% of total revenue on the company's mobile App Store. More than 1 billion people play games on iPhone and iPad, according to Apple executives, making iOS by far the world's most popular video game platform. Apple does not even make games itself, yet the company generates more revenue from them (an estimated roughly $10 billion annually) than any company besides Tencent, Sony and Microsoft.
"Apple is an extraordinary piece of the global game market that doesn't get much attention," said Ben Schachter, a technology analyst formerly at Macquarie and UBS. "Apple is arguably the world's largest video game distributor, and the App Store is dominant in a way that no other platform has ever been."
Apple generates the vast majority of its game revenue by taking 30 cents of every dollar consumers spend in the App Store, including in-game purchases, while developers keep the other 70%. In September, the company launched a new game subscription service called Apple Arcade, where for $4.99 a month, subscribers get access to more than 100 mostly kid-friendly games that do not include the "pay to win" microtransactions that plague most mobile games.
Apple declined to comment, but people familiar with the company's game strategy suggested keeping a close eye in 2020 on Apple TV as a casual living room game platform (as they have, in fairness, in the past). The system recently added support for PlayStation and Xbox controllers, and Apple may begin to market Apple TV as a family-oriented competitor to Nintendo's Switch.
It's been a decade since Facebook was dominant in web gaming (80 million monthly FarmVille players, anyone?). The company initially left games behind in its transition to mobile, but now Facebook wants back in.
"For Facebook not to notice gaming now would be damn near impossible," said Jason Rubin, the company's vice president for special gaming initiatives. "Seven hundred million people play, watch or engage with gaming content on Facebook each month."
The burgeoning streaming market is one way in. Facebook Gaming is positioning itself as a convenient alternative to Twitch built around your existing social network (naturally).
"We're excited to see Twitch crack open this huge opportunity for the rest of us. We think the category is so huge that we don't see this as 'us versus other platforms,'" said Vivek Sharma, Facebook's head of gaming product. A Facebook Gaming mobile app is now available in 14 countries, though not the United States, he said. It appears likely that the app will come stateside in 2020.
Yet two larger questions loom for Facebook's gaming ambitions. First, how quickly to develop cloud gaming in competition with Google's Stadia, Microsoft's xCloud and the new service expected from Amazon. In December, Facebook acquired PlayGiga, a Spanish cloud-gaming company, for a reported $78 million. Sharma declined to discuss the deal.
Second, can Facebook's Oculus virtual reality system finally make the leap to the mass market? "Facebook clearly looks at gaming through the prism of Oculus, and obviously it hasn't gone as planned," said Schachter. "They say they're in it for the long-term, but I don't think anyone can be pleased with how it's gone so far."
Rubin said positive consumer reaction to the new Oculus Quest headset reinforces his optimism.
"The next five years will put to rest the question of where VR stands in the entertainment landscape," he said. "Five years from now we will not be asking the question: Are millions of people willing to spend a large amount of time in VR? How many millions, I don't know. But it will be millions and millions."
More than 250 million people watch game videos on YouTube every day, according to Google's Harrison. Yet Google's most ambitious foray into gaming began last year with the introduction of Stadia, the most advanced attempt yet to liberate the video game experience from local computing hardware.
Since the dawn of electronic entertainment, the calculations that deliver a video game have been performed on chips that are physically right in front of the player, whether in an arcade machine, a console next to the television, a computer, a phone, or some other device. With a cloud-gaming service like Stadia, all that heavy lifting is performed by a remote server.
Initial reviews suggested that the service just wasn't fast enough. That impression has given way to a general consensus that while Stadia may not satisfy the most demanding gamers, it is responsive enough for most players. Yet other current drawbacks are limited game selection and a general cost of around $130 for a controller and access to the service.
Outlining Google's plans for 2020, Harrison said the company intends to launch a free version of Stadia soon. "The big strategic difference is that over the next few months you will be able to experience Stadia for free," Harrison said. "No money down, without having to put a box in your home, you can just click and play amazing games straight from our data center."
Stadia is playable through Google's Pixel phones, on televisions through the Chromecast dongle, and through the Chrome browser on most computers.
As for the small library, Google says it intends to bring more than 100 additional games to the platform this year. In January, Google announced a partnership with the publisher Activision Blizzard to host Activision games on Google's cloud and broadcast Activision tournaments on YouTube. Yet the deal did not include making Activision Blizzard games available on Stadia. Google has also not brought publisher Electronic Arts onto the platform. Harrison declined to comment on negotiations with those companies.
"From a broader industry perspective, we are now seeing the shift from games being device-centric, which has been the model for the last 40 years, to a model where the data center becomes the platform," Harrison said. "This shift to the cloud will be the defining change in how games are created and played."
For gaming veteran Microsoft, the big change this year is in who it considers its big competitors.
In the fall, Microsoft will square off once again with traditional rival Sony as each introduces new game consoles, the Xbox Series X and the PlayStation 5.
But Microsoft's Spencer says he doesn't consider Sony and Nintendo his main competition anymore, largely because neither of those Japanese companies owns its own top-end global cloud infrastructure akin to Microsoft's Azure platform. One of Microsoft's main selling points for the new Xbox will be integration with its xCloud technology, which is meant to allow you to play the same game across a console, a desktop PC and a mobile device.
"When you talk about Nintendo and Sony, we have a ton of respect for them, but we see Amazon and Google as the main competitors going forward," Spencer said. "That's not to disrespect Nintendo and Sony, but the traditional gaming companies are somewhat out of position. I guess they could try to re-create Azure, but we've invested tens of billions of dollars in cloud over the years."
Spencer said Microsoft was willing to cooperate with Nintendo and Sony on initiatives like allowing gamers on the various companies' systems to play with and against one another. He added: "I don't want to be in a fight over format wars with those guys while Amazon and Google are focusing on how to get gaming to 7 billion people around the world. Ultimately, that's the goal."