Google close Stadia Studios

Last week, Google announced it is closing the internal game development studios associated with its Stadia streaming service. Kotaku provides some good background here. This is an interesting story in its own right, but it also touches on a much larger, more important subject about which we are preparing a lot more analysis.

First the basics. Two years ago, Google launched a Cloud Gaming platform, Stadia. The idea was that subscribers could play console-quality games on pretty much ‘any’ device with an Internet connection. Google would host the compute intensive parts of the game’s graphics on its own servers and just send a ‘simple’ signal to users’ hardware. (Yes, we are oversimplifying how this works.) The appeal of this is that it eliminates the need for a ‘costly’ game console and greatly expands the pool of players for a game.

We wrote about the Stadia launch, and as much as we admired the technical achievements involved, we were skeptical about the business model behind Stadia. First, we cautioned that the fate of the service would depend heavily on how many game developers would create or port content for the service. Google anticipated this problem by setting up two game studios to seed the market with content that would only be available on Stadia. This is the part that is being shut down, without releasing any titles.

On its face, this makes sense. Google really has no competitive advantage when it comes to creating games. But the news opens the question of what exactly are Google’s intention for Stadia going forward. There is certainly a lot of speculation that Google is losing with Stadia more broadly.

A second problem with Stadia’s business model is that it is not clear they are solving a real problem. Our overwhelming first impression of Stadia was that a bunch of Google engineers came up with some impressive technology and only then brought in the business people to provide a credible strategic explanation for the service. It was literally a solution looking for a problem to solve. Put simply, the cost of a gaming console is not really a limiting factor for consumers in markets that Google really cares about. Please take the huge backlog of people trying to buy Sony’s latest PlayStation 5 console as evidence that the cost of hardware is not a limiting factor for many gamers.

Cloud gaming makes more sense in markets where consoles are relatively more expensive or less readily available. For instance, gaming giant Tencent has cloud gaming ambitions as well. This makes more sense in markets like China and developing Asia, where consoles are more prohibitively expensive and home Internet connections are less common. And even for Tencent, who owns ALL the content, the value proposition is not entirely clear.

So we are left with the question of what will happen to Stadia. Our guess is that its future as a standalone service is fairly limited, at least as a consumer gaming option. That being said, there is still considerable value in what Google has built. The ability to host and stream games is incrediibly important for gaming companies. Serious games have been Internet connected for a long time, but their even-widening popularity and usage pose serious challenges for the whole industry. Game developers and studios are increasingly being measured by users for their ability to provide quality networked connections.

It has always stood out for us that Stadia does not appear to be closely tied to Google’s cloud service, GCP. Rather than Google selling a consumer-facing gaming service, it would make much more sense for GCP to sell a developer-facing gaming service, facilitating networked games, massive simultaneous game environments and a host of other features. For what it’s worth, GCP competitor Amazon Web Services (AWS) is attempting to do something similar but is not faring particularly well either. These are small non-core projects for big companies.

And this is where we get to the bigger import. There is a massive opportunity for moving much of the gaming stack to the cloud. Obviously gaming development has moved to the cloud a long time ago, as have all other software development. But the user experience has not kept pace. We are preparing a series of reports to look more closely at this space which we think of as the Gaming Internet.

One response to “Google close Stadia Studios

  1. Pingback: Google Stadia RIP | Digits to Dollars·

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