We attended the Game Developers (GDC) conference this week. The Google Stadia announcement, in particular, really resonated with us, and we detail the importance of that below.

For anyone who loves gaming (us) and the business of technology (also, us), GDC is a great event. We were not able to spend as much time at the show this year, but what we did see convinced us to block out more time for next year’s show.

For those not familiar, GDC is pretty much what the name says – it is a show of software, tools and platforms for game developers. This runs the gamut from an ocean of ad networks and analytics providers to the developer outreach teams from the major platforms including Amazon, Google, Microsoft Xbox, and Sony Playstation.

The big news at this year’s show was the launch of Google’s Stadia gaming platform. Stadia is cloud-based, meaning that users, in theory, need very little hardware to play games. No consoles or PCs required, just a controller and a simple box from Google.

This is important, but probably not for reasons most would assume. The core of the platform is the networking service that underpins it, and this has important implications for the Networking industry. The impact on the gaming business is much more debateable. Let’s break those into two areas of exploration.

On its surface, Stadia is being heralded, by some, as an important, (dare we say it) disruptive entrant into the gaming space. Google is looking to move gaming into a “post-platform” world, where consumers do not need special-purpose hardware to play games. In some senses, this is the natural evolution of gaming from console-based, to app-store distribution, to now fully cloud-hosted gaming. In other senses, this is just another example of how history can be a pendulum, a console attached to some central computer,even mainframes had games.

The problem with Stadia is that it is going to be very dependent on getting games ported over to run on Google’s servers. There are a lot of companies who are right now dreaming of building the “Netflix of Gaming”. We can cover that whole topic in another post. The TL;DR summary of that post would be Google does not have a great track record with licensing content and the pricing for Stadia (i.e. stream based) faces a lot of game publisher skepticism.

Google is at heart a software company and this explains the origins of the service. From what we can tell, the genesis of Stadia comes from the networking software side of the company. Google is one of the world’s best at connecting up computers around the globe.

One of the biggest problems in creating a cloud-based gaming system is that running software in the cloud is subject to the latency of connections between the data center and the users’ video screen. A little bit of latency (aka delay) in Gmail or Google Sheets is a minor annoyance to users, but that same latency can mean virtual life or death in a game. Google seems to have a solution to the latency problem, and then post-hoc found a business to build on top of that. Our sense is that this is a great solution to a problem that may not exist.

That being said, the solution to the latency problem is pretty exciting. Several years ago we wrote about game publisher Riot Games’ network. They spent several hundred million dollars building what is essentially a global telco network all for the purpose of reducing gameplay latency in their hit League of Legends. Last week, online gaming store Valve released software tools to access their network targeted at the same purpose.

Put simply, the Network is now a major source of competitive advantage for gaming companies. We think this is profound because it further breaks apart the century-old telco model. Companies are now going further than ever in building out networks to meet their specific needs. Based on open source software and common API building blocks, this is an important step in disintermediating the telcos, or at least forcing a radical change to their traditional model.

This will also have important implications for the gaming industry. The gaming world has long become dependent on networked games. For years, gaming companies have struggled with the massive technical challenges this presented. In addition to having to develop cutting edge graphics and gameplay, game developers have had to contend with online issues as an important determinant of consumer experience. Badly networked games fail. Now, the big game platforms have found a new way to advance the state of this particular art.

Interestingly, Google is not really offering this network as a service for others to use. This would have made a great fit inside Google Cloud Platfrom (GCP, Google’s AWS competitor) as an API for developers to build their work on. Instead, Google has gone the extra step of defining how developers can monetize on the platform. Valve is attempting something more akin to the Infrastructure as a Service (IaaS) model we are describing, but that comes with its own issues.

The ball is now in Amazon’s court. Just as Google appears to be competing with other game platform owners, Amazon has long competed with its own AWS customers (e.g. Prime Video vs. Netflix which runs on AWS). Amazon is a big participant in GDC. They have their booth full of analytics and monetization tools for games. A natural next step for them will be to offer the networking services that Google has unveiled with Stadia. AWS already has the network in place and just needs to distribute a set of GPU-enabled racks across AWS zones. The key question will be the business terms they offer developers. Will they offer Low-Latency as a Service on top of AWS bills, or will they launch a gaming service as well that tries to capture consumer subscription revenue? Or will they just offer games to consumers as part of a Prime subscription? Any of these will have an even bigger impact on the gaming industry.