The Unfair Advantage of Google Stadia

Google recently announced its entry into the gaming market with ‘Google Stadia’ — a new generation cloud gaming service. The promise is a service which allows users to access and play games on any device, anytime through an interactive video streaming service. No specialised hardware or software required.

We have been here before — OnLive, PlayStation Now, Gaikai and a range of others have tried to enter this market, but all failed to gain much traction. Between then and now (almost a decade), customer interactions with services like Netflix and Spotify have changed customer expectations and habits around consuming content online. Additionally, we have seen improvements in internet infrastructure and the emergence of 4G/5G to support more bandwidth-demanding services like streaming in 4K.

Why does Google think it can disrupt our habits and potentially displace current market leaders (even though they claim its not their intention)?

Google Stadia Presentation

Lean Canvas Takedown

The Problem

• Upfront investment in hardware and software
• Hardware and software upgrade costs and maintenance
• The exclusivity of games to different hardware
• Different hardware and software requirements for different games
• Triple ‘AAA’ games are a significant upfront investment
• Trying out many distinct games can be expensive and time-consuming
• Cloud gaming historically has been a miserable experience

One of the most significant barriers to gaming is access to appropriate hardware. For the PC/Mac market having the proper processor, graphics card and operating system can significantly influence what games you can experience. The standardisation of hardware found in-game consoles helped circumvented this by providing users and developers with a reliable platform to work with. However, there is a requirement to invest in this hardware upfront before even purchasing your first game which likely explains the explosion in mobile gaming as a new audience suddenly discovered a powerful gaming computer in their pockets.

Assuming you make this investment, it still does not give you access to all content. You may need to purchase multiple pieces of hardware or consoles to experience different games. Then there is the hassle of updating software or hardware to stay on top of everything. If you want to try out different games before purchasing, pray a demo is available and get ready for a long download.

This is all starting to sound like a lot of work and expense just to get to the content you want.

Moving onto cloud gaming — historically speaking, it’s not worked that well. Cloud gaming is at the mercy of the infrastructure, which supplies your internet connection and connects you to the cloud gaming server. If this is not good enough, you are likely to experience lag and graphical distortions all resulting in an unplayable experience.

Customer Segments

• Regular gamers
• Casual gamers
• Hardcore gamers?

The problem described above doesn’t necessarily impact everyone. People in the ‘hardcore’ category of gamers may place a high value on being able to configure their own hardware setups and on ensuring they are running games at their maximal graphical configurations with the lowest possible latency between game controller input and the action on the screen. This is especially true with users who compete in tournaments or fighting games where a millisecond delay can change the outcome of a match.

The likely consumers of cloud gaming are likely to be users who are happy to exchange graphical fidelity and a sense of ownership over content for convenience. This is similar to what we have experienced recently with music, movies, tv and film. This group of customers are likely to fit more into the ‘casual’ or ‘regular’ gamer categories where users enjoy playing games recreationally and may have more room for growth.

Solution

• Ability to play on any platform
• Instantaneous access to any game
• Gamer community

An ideal solution for gaming generally, is when you can pick up any device be it TV, tablet, phone, computer, watch or fridge; select from a broad, high-quality library of games and start playing. No-load time, no installation, no waiting. The experience should be as close to or better than the experience a user would get having a dedicated piece of gaming hardware in their home.

Also, the key to success is establishing an active community of gamers. This community would allow users to find, chat and play together with friends, compete in tournaments, share epic video clips all while showing off collections of rewards and trophies. This can help encourage customers to invest in the platform personally and hopefully make it easier to retain them as active users.

Unfair Advantage

• Library of content
• Exclusive content
• Active community
• Monitise play
• Latency (gaming lag)
• Graphics quality
• First mover advantage

Gaming is a competitive marketplace. Google going up against established industry players like Microsoft, Sony and Nintendo who have spent years developing brand loyalty, signing exclusive content licenses and are also very likely to compete in cloud gaming soon. Not to mention, companies like Amazon and Apple see future revenue growth coming from the services industry like this one. We are going to need some substantial unfair advantages to survive.

Assuming the user has a decent internet connection (>30mb/s), we need to ensure that appropriate infrastructure is put in place, so customers experience the lowest latency between gamer and server and get the best experience possible.

This means having servers physically located within close proximity of users all over the world. This is a complicated and expensive endeavour for an organisation who does not specialise in these kinds of services to achieve. Any additional services such as proprietary algorithms or systems (AI), which can help minimise disruption to the player experience in the event of poor connectivity is also a big plus.

Even if Google cracks the latency issue, we still need content. Ideally, access to an extensive library of high-quality content would help set up the service for success. Bonus points for access signing exclusivity deals and even creating your own line of exclusive titles (something google looks to be doing headed by Jade Raymond, a longtime producer and executive at both EA and Ubisoft).

And finally, community. I feel community been often overlooked or treated as a second class citizen up until recently in gaming. We are now starting to understand the impact youtube, twitch and other streaming game services can have on introducing large audiences to new content. This is something google realises and looks to capitalise on by not only allowing users to watch their favourite Youtube gamers but also jump right into the game and play them 1-on-1. If Google could find a way also to help these streamers monetise their play within the platform that could also help build a list of exclusive youtube gamer celebrities and attract more streamers to the Stadia platform.

Revenue Streams

• Subscription
• Pay per game
• Pay per play
• Pay per time
• Advertising
• Microtransactions
• Developer fees

In the past decade, the game industry has got really good at finding creative ways to monetise their customers. For a company like Google developing this service, they could make money in many ways, but if they want to follow in the successful footsteps of other content streaming services then a recurring, monthly subscription fee may be the most likely option. Alternatively, a more traditional route of paying per piece of content could be used or a hybrid solution charging the user per minute of playtime. All these models could be supplemented by advertising and microtransactions (purchasing additional content or items like character costumes).

Business Costs

• Servers and hardware infrastructure
• Streaming software services
• Exclusivity licenses
• Consumer hardware — console, controllers and other peripherals
• Marketing

This is not going to be cheap. Assuming all the research and development into game streaming is completed, you are going to either have to set up, manage or hire servers around different geographical regions to serve this content to users. This infrastructure needs to be robust and be able to scale quickly when required.

Getting high-quality content on the platform may also come with an initial price tag. Deals may need to be struck with third-party developers and potentially exclusivity licenses to ensure unique intellectual property is tethered to the Stadia library.

If the service requires hardware (Stadia requires a controller and Chromecast), this will need to manufactured and distributed. Historically companies have made a loss on their hardware to try and get their consoles into more households — the lifetime revenue of a customer is more valuable in this case than any upfront revenue.

Key Metrics

• # paying, active users per month
• # new paying user acquisitions per month
• Lifetime revenue per customer

Regardless of the revenue model selected, the number of active users and revenue generated per user, per month will determine the success of the platform. With the inclusion of other sources of income such as advertising and microtransactions, the lifetime revenue per customer should also be strongly considered and optimised where possible.

Final Thoughts

From Adrian

I have to admit that I’m optimistic about the future of cloud gaming. I can easily see a future where I would pay to access to access a range of gaming content without having to worry about what hardware or software I have. Assuming latency issues can be fixed, I believe people will be happy to sacrifice some quality for convenience, and can only see such services getting better in the future. If done right, I envision the market size of gamers growing as barriers to access is eroded.

Between Microsoft, Sony, Nintendo, Google and supposedly Apple (maybe also Amazon) somebody will crack this market. After this, we will rapidly see the retirement of owning hardware, as games (and software) take their place next to audio and video as an on-demand service.

In my opinion, there is no doubt that this will spark a new “Console Wars”. But this time, in addition to differentiating based on content; the community will play a huge role in carving out an unfair advantage. Google is looking to capitalise on its Youtube gaming community which is a genius move and will give them a big head start. They have direct access to their target audience, and an opportunity to advertise their Stadia platform with every potential youtube video watched. Can you even begin to imagine the size of that marketing opportunity?

From Jenny

I am optimistic about this initiative as a consumer and as someone working within the startup ecosystem.

On a personal consumer level, I can’t believe I had to wait until 2019 to catch up on my games. Let’s face it most 30-year-old people are like me we have memories of spending the 90ies glued to our Sega Mega, and Nintendo, and then Play Station. And the early 2000’s killing Sims and playing Theme Park Tycoon, and then gaming became too expensive and time-consuming at the setup level. I went from spending every waking hour playing Tekken 3 to occasionally playing a game on my phone, Stadia’s promise of ease of gaming is definitely an appealing one for me.

As a professional working in tech, I think this has the potential to create a whole new industry as Apple did with its app store. Of course, this prediction depends on how Google chooses to work with developers.