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February 18, 2021

Tech companies must act now on cloud gaming

By GlobalData Thematic Research

Streaming upended the music industry. Then it did the same to TV. The gaming industry is bigger than both, and cloud gaming is next on the list.

GlobalData’s new Cloud Gaming report details the ways this platform will revolutionize the gaming industry. Cloud gaming was worth $1bn in 2020. It will grow at a 40% compound annual growth rate to $30bn in 2030, according to GlobalData estimates. Big Tech must act now to secure their share of the revenue.

In cloud gaming, games are streamed directly from the cloud to devices. This departs from the technological approach of conventional gaming in two ways. First, devices need not store game files on-device. Second, game processing will be done on the cloud, so need not be done on-device.

Cloud gaming has collapsed the advantage of PCs and consoles

This eliminates the need for large storage capacities and high end on-device processing units. Previously, having such hardware was the main advantage that consoles and gaming PCs held because it meant they could run resource-intensive games that mobile devices and household PCs could not. Now, the cloud collapses that advantage. Mobile is already the largest sector in gaming by a significant margin. Cloud gaming will strengthen mobile’s lead.

Almost every tech giant is competing within cloud gaming. It is crucial to secure customers at an early stage, especially given that gaming customers can be tribal and reluctant to leave the first platform they choose.

Success will require two things: an impressive library of games, and a good pricing strategy.

Freemium games attract customers

The games are the product. Customers will not go to a service, no matter how good its infrastructure, if its games library is poor. Additionally, the pricing strategy must be well-received. There is little precedent for charting such a product and getting it wrong could be catastrophic.

Providers should furnish their platform with the major franchises. Freemium games are games whose basic content is free, with add-ons available for a monthly fee. Freemium games are enormously popular, and though they don’t deliver that much revenue to the service provider, they are indispensable for attracting customers. Nvidia’s GeForce Now, for example, expanded from one million subscribers in February 2020 to four million in August 2020 following its decision to allow users to play games like PUBG and Fortnite. Most revenue from Freemium games goes to the developer, but the increased userbase presents the service provider for an opportunity to generate ad revenue.

Providers should also concentrate on offering platform-exclusive titles. To produce these, providers should either establish their own development teams or acquire existing developers. Exclusive titles are a huge draw and provide an opportunity for a subscription-based pricing strategy. Recurring revenue streams, like Netflix’s, are extremely desirable.

Snooze and lose

Companies that are too slow to move into cloud gaming will suffer. Apple already stands out as a loser. It is the only one of the GAFAM (Google, Amazon, Facebook, Apple, Microsoft) giants yet to announce an offering, and its reluctance to admit cloud gaming apps to its App Store has led developers to leave and launch their own browser-based solutions.

Apple risks losing customers if it does not stake a claim very soon. No company can afford to delay its entry into cloud gaming.

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GlobalData Thematic Research
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GlobalData Thematic Research