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Published: Aug 21, 2019
Updated: Oct 15, 2019

Get up to speed on how cloud gaming is changing the video game industry

Author: Ed Schmit

Mixed Reality Gamer
Cloud gaming is worth nearly $140B right now and will only get bigger. New entrants are making a splash, looking to be the market leaders of this emerging industry. Learn where we are now and where we’re going with cloud gaming.

Ed SchmitAuthor: Ed Schmit, AVP Product Marketing Management, AT&T Developer Program
Ed tracks new technologies for the AT&T Developer Program. His specialties include network technologies, technology enablement, and strategic marketing.

Evolution of Gaming

The Magnavox Odyssey. Epoch’s TV Tennis Electrotennis. Home Pong. Coleco’s Telstar series. The 1970s were a heady time for video game consoles, as they were introduced to the general public and started to take hold of our imaginations. The Odyssey sold over 300,000 in its first few years, while Coleco sold more than 1 million of the Telstar series in 1975.
Since then, sales have been the marker of success for any video game console. Not any more. With the evolution in technology, hardware, and more importantly, software, the video game landscape is changing. In 2008, nearly 90 million consoles were sold, while in 2018, just over 45 million were sold. What explains this drastic drop of nearly 45%? The emergence of mobile and cloud gaming.

The shift from hardware to software

Gamers can now play on a variety of devices, from their smartphone or tablet to a laptop or computer. Yes, the console is still a primary source of gaming, but the revenues it brings in from pure gaming is significantly lower than the mobile gaming market ($38.3B versus 63.2B, according to GamesIndustry.biz).
The industry has moved its focus from the hardware games run on to the software that runs them. Most video game studios don’t produce any of the hardware or platforms their games run on, they concentrate on creating the best experience possible with the existing technology.

Some studios have disrupted the gaming industry even more by focusing on distinct portions of the industry, like Steam and Origin. To keep up with the pace of change in the industry, the traditional console makers have started to evolve as well. Gamers can download updates and brand new games from the PlayStation Store and Xbox Live Marketplace to play on their native consoles.

How cloud gaming changes the playing field

Typical online games use the console (or PC or Internet-connected device) to run the game, such as Epic Games’ Fortnite. Updates and in-game communication happen via the Internet, but the actual gameplay is processed by gamers’ local machines.
This is where cloud gaming is different.

In cloud gaming, all game processing occurs on a remote (cloud) server that “streams” the game back to the local device, which then sends commands based on players’ in-game activity. Players enjoy this on-demand access to games that cloud gaming provides since they can often simply log on and start playing right away.

The influence and impact of cloud gaming will continue to grow around the world as new devices are launched and can connect us to more digital content online. Much like streaming media services have taken over the way we watch TV and movies, so goes the future of gaming.

Industry numbers: How many people play?

The number of people playing video games continues to grow each year. Currently, Nielsen found that 66% of people over the age of 13 consider themselves “gamers”.

Percentage of Gamers chart
Source: Nielsen report

Market research firm Newzoo estimates the global video game industry was worth nearly $140 billion last year, up $16.2 billion from the year before. By 2021, they predict it’ll grow to over $180.1 billion, with gamers in Asia Pacific continuing to outspend their American counterparts almost by a 2-to-1 margin ($71.5 billion to $30.4 billion in 2018 alone).

Factors such as increased smartphone gaming apps, in-game purchases, live streaming, and esports will continue to drive both game adoption and spending rates around the world.

The impact of cloud gaming

Publishers, developers, and consumers are enjoying the benefits of the rise of cloud gaming.
Benefits to game studios/publishers
Game studios will enjoy more significant digital rights management and security with cloud gaming. That’s because all of their intellectual property is secured behind their own firewalls and other security measures, preventing external interruptions, theft, and more.

Game piracy will also take a hit from cloud gaming because hackers will not have access to the game code or software “in the wild.” Even unsecured connections from user devices will not give hackers an advantage as the games themselves are hosted and protected by the game servers and data center security protocols.

Benefits to developers

Until now, game development was always limited by the processors and software being run by the device the game was played on. It didn’t matter if it was a PC or laptop, dedicated console or mobile device, game development was always limited by what could be run by the end-user device.

Not any more. Cloud gaming removes those limitations for developers because they now have access to the higher powered virtual servers and graphics processors available in the data center that runs the games. This hardware and the systems that run them are typically much higher powered than an individual gaming device, since they run multiple pieces of software, have higher bandwidth, and are generally just designed to handle the higher workloads.

Benefits to consumer

Consumers will enjoy many benefits with cloud gaming, including:

  • More cost savings: They won’t have to spend hundreds of dollars on the latest console or upgrade the graphics cards on their PCs to handle the new games. Depending on the service they’re using, their cost to entry of cloud gaming will be like their media streaming device. They’ll only have to buy a small streaming box and possibly a Wi-Fi controller, and they’re set.
  • Reduced compatibility issues: Because all the computing power resides on the cloud servers, even high-end games can be played on lesser-powered devices. Gone are the RAM requirements, graphics processing power needs, and hard drive space; Users will still enjoy an exceptional gaming experience no matter the device they use.
  • Lower barrier to entry: Gaming is considered more mainstream today since people can already play anywhere with their mobile devices. With cloud gaming, their “gaming environment” becomes even more expansive, since they really can play anywhere, on any device.
  • Faster onboarding: Since cloud games will be available as soon as the user has connected to the cloud platform, they can start playing right away. No more waiting for games to load or updates to install. Everything is handled on the server-side, out of sight of the gamer, so they just connect and start playing.
  • Access to multiple games: The cloud gaming platform offers gamers the chance to play more than one game in each session. Studios tend to offer subscriptions to the entire platform each month, instead of to individual games. This gives gamers access to more games since each person often likes to play different games at different times (puzzle games one day, MMORPG the next).

Overall cost benefits to the industry

It’s not just the consumers that will enjoy the cost benefits of cloud gaming. Game studios will be able to manage their game costs better because they’ll control the data centers and inherent bandwidth themselves.
On a game release day, traditional studios would pay higher bandwidth costs because users were all downloading the game or updates at the same time. The actual game only took up a small portion of their servers and bandwidth; the bulk of it was reserved for users.

In the cloud gaming model, studios will be able to shift bandwidth and processing power more efficiently through virtual servers and other internal management services. Many of these management services are automated, meaning the systems themselves will be able to handle the additional bandwidth generated on release day, and users won’t notice anything. These systems will allow studios to enjoy significant cost savings on game release days because their systems will use less bandwidth, electricity, HVAC services, etc. The overall cost savings could be dramatic for cloud gaming providers.

Gamers will also enjoy cost savings through lower costs-to-entry since they won’t have to purchase expensive hardware to start playing. Additionally, they’ll also save on their annual gaming costs as cloud gaming platforms may offer monthly subscriptions that give them access to multiple games at a time. Instead of spending $59 per game every time one is released, they’ll spend $25 per month on their subscription and be able to play all of the games as they’re released. Studios will earn a portion of this subscription cost and will have increased earning potential through in-game purchases each of those subscribed gamers.

Technology improvements drive cloud gaming

As mentioned earlier, game developers and studios were limited by the consoles and devices their games were played on. They had grand ideas for bigger and better games and were even using more powerful game development software to create the games. But if the console it was running on didn’t have the right set of storage, memory, and processing power, they were boxed in by what they could produce.
Until now.

The roadblocks are falling away

More powerful technology has finally arrived for consumers and gamers can play the games as developers and studios intended.

  • The hardware gamers are using, namely smart TVs and high-powered smartphones, have the internal horsepower to display and refresh content the way developers designed them.
  • The network technology gamers are using to connect to their games is faster, and thanks to 4G and 5G improvements, game control and frame refresh latency are being reduced to the point where it is imperceptible to gamers.
  • The controllers now available to gamers, such as VR headsets, Bluetooth game controllers, and touchscreens, are broadening the game experiences studios can deliver. Which in turn, widens the creativity of developers, since they’re able to translate the more complex gameplay they’ve created more easily to gamers.

Cloud gaming studios today

The cloud gaming market is not crowded, but it does count some of software’s heaviest hitters in its ranks.
There’s the new entrant, Google’s Stadia. Stadia hosts the games on Google servers in data centers around the world, which are powered by AMD graphics processors and is accessed via the Chrome browser. Gamers only have to open Chrome on an Internet-connected device, connect the game controller to the device through wifi, and they’re on their way to gaming.

NVidia GeForce Now is one of the most flexible options available, as it lets you play both Android and cloud-based games on either a Mac or PC computer, as well as on a TV or monitor. It has a few limitations in terms of full speed and bandwidth as it reserves its highest processing functionality to games on the Steam library, on Battle.net or on Uplay. But overall, it’s a good option for new cloud gamers.

Sony PlayStation Now lets you stream PS games to a PC; however, it does not include the full PS library. Available games rotate regularly, so gamers are never quite sure what they’ll get when they log on.

The OG cloud gaming studio, Blade Shadow, is the smallest company but provides a good balance of performance and features for gamers. Where Blade may lose out to the competition is in pricing; their monthly subscription is currently $35 per month, making it a tad expensive for the casual gamer.

Who else is getting in the cloud gaming market?

Microsoft is hard at work on their Project xCloud, trying to get their Xbox games to play on a variety of devices, but it’s still in the early stages. Verizon and Amazon are also rumored to have cloud gaming in their sights as well, but nothing concrete has been confirmed or released. Nintendo has been working on streaming games via the Switch; however, it’s only been testing it out in Japan, with no word on whether (or if) it’ll be released in the U.S.
While most game studios are investigating the cloud gaming market, it’s likely it won’t replace traditional gaming entirely. It’ll just be another way for gamers of all levels, hobbyists and professionals alike, to get into video games.

Partnering to drive cloud gaming innovation

As business continues to find new ways to monetize the cloud, industries like gaming will continue to push the boundaries of cloud technology. The demands video games put on both hardware and software will drive cloud computing companies to improve their offerings and engineer new ones.

Studies have shown that when companies adopt cloud technologies, they innovate their own organizations. They expand their product and services portfolio, and they improve their customers’ experience. Most importantly, 76% of them expanded into new industries, like video gaming.

Previously, companies were only using cloud technology to streamline their IT infrastructure and reduce costs. Now, they risk being overtaken by competitors who are using the cloud throughout their organizations to achieve enterprise- and industry- level innovation.

And it’s not just about the technology itself. Yes, the technology might start the evolution of cloud gaming, but it’s the development and streaming aspects that complete it. Only through partnerships at all levels of the industry (development, technology, and delivery) can companies keep pace with everyone’s expectations.

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