This year, the world’s four most valuable companies — Apple, Microsoft, Amazon, and Alphabet — all signalled a new or renewed push into gaming. The tech giants all want a bigger share of what market researcher NewZoo says is a $US152 billion gaming market, currently growing at 9.6 per cent each year.
For comparison, the gaming market is eight times the size of the $US19.1 billion global recorded music market and nearly 60 per cent bugger than the $US97 billion global movie market. It’s the king of media, and shows no sign of slowing down.
For big tech companies, which have mastered the art of converting data into revenue, there is also a trove of information available on gamers — widely regarded as a highly engaged and valuable audience to advertisers.
The companies are taking different approaches to their gaming strategies, and staking big bets in the process. Their success, or otherwise, could reshape the gaming industry.
Amazon, Microsoft, and Google have all been building the world’s most advanced cloud infrastructure, offering enterprise-grade services that would make light work of most gaming applications.
But with the notable exceptions of Microsoft’s XBox and Amazon’s game streaming platform Twitch, generally the tech giants’ gaming history is a chequered one.
Apple’s first major foray into gaming was an underwhelming console platform known as the Pippin, which flopped in 1996. Google’s pedigree extends largely to a mobile app store plagued with fraud and privacy problems. While Amazon’s game development studio is yet to produce a single game of note, laying off staff this year and reportedly cancelling several projects.
So why then does big tech continue to pursue gaming, including several big announcements this year around new subscription models and cloud-based gaming, all of which will likely see the services running at a loss initially?
“It’s really about information,” says Dr Steven Conway, a senior lecturer in games & interactivity at Swinburne University.
“These companies, of course, are new to the game industry but they are old hands at information.
“And in this information economy, it’s all about data gathering, so that you can use the data for various purposes. In games, data comes in many different forms and you can track it all.”
Conway tells Which-50 that while there is a healthy and growing market for the traditional games industry, big tech is also keen to hoover up more granular information on players and their behaviour. That information is valuable to game developers and publishers to improve products and services. But it is also increasingly valuable to advertisers.
According to Conway, getting deeply into the gaming market helps big tech lock more consumers within their ecosystems and capture their attention. With the right data that attention can be commoditised and traded in a way that mirrors social media’s business model.
“What that [data gathering] does really, in terms of keeping them in the games industry, is that it feeds into attention,” Conway says. “And of course, the more attention you attract in an information economy as a business, the more likely you are talking about attention into consumption.”
In that scenario, according to Conway, companies like Google, Amazon, Apple, and Microsoft can “prove eyes on-screen” — enriching that data with the consumer profiles big tech companies already hold, and ultimately providing advertisers with highly targeted and highly engaged audiences.
“They’re saying we want absolutely accurate information regarding what attracts our users at what point, doing what things. And if you get that you’ve got an enormously powerful set of data.”
At its annual hardware event in September, Apple kicked the show off by revealing “Arcade”, a new subscription service offering unlimited use of exclusive games across phones, desktops and Apple TVs for $US5 per month.
Apple is funding Arcade games development but insists developers, which include some of the biggest in the industry, retain creative control. The games so far have been more artistic than AAA and suited for smaller screens rather than the home TV.
However, mobile gaming is where the bulk of the industry’s revenue now comes from — $US68.5 billion each year, according to NewZoo. And most of the mobile gaming revenue comes from Asia, a market where Apple has struggled to sell its hardware.
Conway says Apple’s likely spending on game development for Arcade would easily exceed what it recoups in the relatively low subscription fees, at least in the initial years. He says Apple is subsidising Arcade with the higher margins it makes from other products, with the long-term goal of locking consumers into its ecosystem.
Apple’s ecosystem famously removes friction for users because the company controls both the hardware and the software. Arcade, like Apple’s music and storage services, works fluently across devices. Conway says Arcade is an extension of Apple’s friction strategy: removing psychological, financial and physical barriers in making a choice.
“All of [Apple’s] services are about locking you into their ecosystem. And that’s a really interesting proposition, because only a company as large as Apple, with its hold over both hardware and software, can even attempt such a grand plan.”
According to Conway, Apple sees its existing range of devices as gaming hardware, and is unlikely to move into consoles or high-end desktop gaming. That’s not the market it’s after.
“For Apple, the mission is: ‘you either convert to our ecosystem or you’re not our market’.”
Of the big four technology companies, Microsoft is the only one with substantial gaming pedigree. Last year gaming generated over $US10 billion in revenue for Microsoft, up 14 per cent from the previous year.
The Redmond-based software giant is expected to launch its next-generation console, currently known as Project Scarlett, in time for the holidays next year, alongside rival Sony’s Playstation 5.
“Microsoft is slightly different in its appeal [from the other big tech companies] because it is looking at a specific demographic. It is looking at that established gamer identity, who wants triple-A gaming experiences at the highest fidelity possible.”
This target market of consumers, Conway says, is not interested in the compromises or trade-offs of subscription or mobile games. “This is all about high fidelity, novel gameplay experiences. And for that, you do need specialised hardware.”
Like Apple, Microsoft can subsidise certain aspects, like hardware, to lock consumers into its ecosystem and still make money later with games and subscription services.
And as data on gamers becomes more valuable Microsoft has a leg up, Conway says, because of its history and more complete offering.
Microsoft owns Mixer, a streaming platform similar to Twitch, and has already got cameras inside consumers’ living rooms with its Xbox Kinect devices. And while gamers mostly disregarded Kinect, Conways says the rise of streaming means he’d be surprised if the next generation of consoles did not have some sort of camera capability built-in.
A streaming capability in home consoles again lowers friction but also gives Microsoft, in this case, another avenue to hoover up data.
Microsoft has also expanded into cloud gaming — the potential next battleground for the industry. Its offering, currently known as Project xCloud, allows users to stream and play games on mobile devices with Microsoft handling the hardware requirements in one of its Azure data centres via the cloud. Essentially the cloud service makes it possible to stream high-end games to relatively basic devices provided you have a sufficient internet connection, and has led to claims of being the “Netflix of gaming”.
Surprisingly, Microsoft is also partnering with console rival Sony for the cloud service infrastructure. The alliance is, according to analysts, a way of heading off gaming’s newest big tech entrant: Google.
Last month, Google launched Google Play Pass, its own subscription service for mobile games. Unlike Apple, however, Google is not focusing on funding new exclusive games. Rather it is offering a subscription model for otherwise paid games and removing advertisements for free games. The service costs $US4.99 per month.
Where Google is really staking its gaming bets though is with its own cloud gaming service, “Stadia”, which it says will outperform every other gaming console.
While Microsoft has the pedigree and an extensive catalogue of games, Google is betting on its compute power, promising 4K 60fps gaming (on top-tier subscriptions) across a range of devices.
Like Microsoft, Google handles the processing in its data centres and streams games to the user via the cloud. Google’s extra appeal though is the relative lack of hardware requirements. Desktops and phones can access Stadia with little more than a Chrome tab and a controller, while users can game at home on TV with a Chromecast Ultra.
“This new generation of gaming is not a box,” said Google VP and General manager Phil Harrison at the Stadia reveal in March.
“With Stadia the data centre is your platform. There is no console that limits the developer’s creativity of ideas and no console that limits where gamers can play.”
Google is bundling the required hardware — a controller and a Chromecast Ultra — along with three months of its pro subscriptions for $US129 — with subscriptions alone being $US9.99 per month initially.
“Stadia certainly is [Google’s] proper entry into the games industry. It is really looking, similar to Apple, to tether you into an ecosystem that makes it just natural for you to buy Google products and Google services over any other companies.”
Google’s gaming hardware will, of course, include its voice assistant and capture capabilities for direct sharing to YouTube, providing Google, the most pervasive of the big tech companies in tracking users, with even more gamer data.
Amazon (The Dark Horse)
“[Amazon is] kind of the dark horse in this entire thing because it kind of has tentacles in all sorts of areas,” Conway says.
Amazon’s gaming development “tentacles” appear limited on the surface. It has a struggling game development studio and its own game engine has only been used in a handful of games so far.
However, Conway says, the adoption of Amazon’s gaming service could change quickly because of a suite of complementary back end services and Amazon’s prized streaming platform, Twitch. He says the e-commerce giant will be looking to take a similar approach to gaming as it has done with its cloud-based digital infrastructure, Amazon Web Services.
“That’s Amazon’s tried and tested strategy. And it’s simply moving it from a general ecommerce model to a gaming model — they’re doing very similar things. It’s working on the back end to be the supply chain basically for all of these different processes,” Conway says.
Amazon is particularly appealing for smaller developers because it can offer back-end services like servers, multiplayer services, analytics, a game engine, and streaming via Twitch.
Indeed Twitch, the streaming platform Amazon acquired in 2014 for $US970 million, is arguably its best gaming asset. This year, the platform ticked past 2.5 billion hours watched, according to NewZoo, and appears to have weathered the loss of its highest-profile streamer Ninja, who left for Microsoft’s platform Mixer.
Amazon is also reportedly working on its own cloud gaming service, similar to Google and Microsoft. While the company has not confirmed the reports, it appears Amazon has been building the foundations to offer worthy competition to Stadia and Project xCloud.
If gaming’s newest and biggest entrants do establish themselves in gaming successfully, Conway says there could be significant changes for stakeholders.
Big tech companies driving consolidation, as they have done in their original industries, raises the possibility of, eventually, a few dominant publishing strategies — something that could impede independent developers and ultimately lead to less variety of games.
“[Publishers’] bread and butter is long-standing franchises,” Conway says, “And so if that happens on a massive industrial scale, then yes, exactly the same consequence will follow: everything will become about franchises and selling the next iteration of a tried and true product.”
It should be noted, Conway says, that Apple and Microsoft have generally been supportive of independent developers in recent years.
“The risks are just exactly what you would expect from any industry being dominated by an oligarchy: That you have a few players who dictate the market; and it really is about, are they a benign dictator or a malign dictator.”
Conway says privacy protection of big tech companies in gaming is also a legitimate concern. Because Google, for example, will gain direct access to the actions of player in a new way that it can easily verify. And it’s unlikely tech companies will waive that ability, regardless of players’ requests.
“For example, [take] the end-user licence agreement. You pretty much sign away all of your rights as a citizen, so to speak. You sign away any rights of ownership over content, over your characters, over your work in the game … You have zero rights in the game in the game space.
“‘You are renting the game’, the publishers say, ‘We own the game, you simply rent it from us. And everything that you do in the game, everything you create in the game, we own, not you’.”
That ownership would allow companies like Google to sell or leverage the user data in advertising, Conway says — much like Facebook’s practice in social media.
“There’s going to be history repeating. We’re going to see a lot of our data used for purposes we have no idea about. It’s a dangerous place to be.”