In what may be the biggest challenge Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) have faced in years, a host of cloud rival threaten to make console gaming obsolete. Worse, it also is gutting the download business they let privately-held Valve create over nearly two decades. Microsoft stock is strong for now, but cloud gaming could be a real problem for it. ]
Snap (NASDAQ:SNAP) is just the latest entrant, with Snap Games, an ad-supported multi-player gaming cloud announced on April 4. Previously, Alphabet (NASDAQ:GOOGL) had announced the Stadia games service and Apple (NASDAQ:AAPL) had announced Apple Arcade.
Mobil Gaming and Microsoft Stock
Mobile and online gaming have always been limited by problems of latency and graphics quality. Thus, avid gamers spent thousands of dollars on high-end client PCs to fuel their passions for downloaded multi-player games, or on Microsoft and Sony hardware specifically aimed at gaming.
But the cloud upgrade cycle and the rise of free-to-play games, are opening new opportunities for the Cloud Czars. Statista estimates that the cloud gaming market, worth $66 billion last year, could be worth $450 billion in 2023.
Microsoft and Sony both have plays in the new space. Microsoft is demonstrating a system it calls Project xCloud. Sony’s existing Playstation Now service is getting a remote play update that lets its games stream to Apple hardware.
As all these competing services scale, the question is who will win the market’s loyalty and why? Developers like Epic Games, creator of Fortnite, are conducting billion-dollar funding rounds. Tencent owns almost half of Epic. If it’s client hardware that matters, Nvidia (NASDAQ:NVDA) has been teasing a service called GeForce Now since 2015.
Microsoft Stock and the Cloud of the Future
While client hardware and compelling software may be important, all this requires cloud infrastructure, which is why the Cloud Czars are playing now.
The Google, Apple and Microsoft clouds all require enormous traffic in order to maintain their capital budgets. So, too, does Amazon.Com (NASDAQ:AMZN), which owns the Twitch streaming service, and is rolling out “Twitch Prime,” currently free to its 100 million Prime members
What the Czars, like Google, want to do is make their platforms the most attractive sites for existing PC and console gaming companies like Electronic Arts (NASDAQ:EA) to use for reaching their audiences.
While Google is going after existing game companies, Apple is targeting developers like Final Fantasy artist Hironobu Sakagachi of Mistwalker for Apple Arcade. Developers would be tied to the platforms, and if they create market excitement like Fortnite did, exclusivity would create demand for the platform.
The Bottom Line on Microsoft Stock
The entry of the Cloud Czars into gaming changes the industry game and Microsoft stock is most likely to benefit from it.
Clouds are becoming the delivery vehicle of choice for gaming in the way that PCs and consoles once were. Building a gaming service on top of a cloud, as Snap is doing, looks risky when you’re competing with your infrastructure supplier.
Of all the incumbents in the gaming space Microsoft would appear to be best-positioned, because in addition to making a console and having relationships with developers they own a cloud, Azure. They have their own infrastructure of developers and delivery professionals to call on, both on their own behalf and those of the publishers they work with.
Google, Apple and Amazon may have flashy offerings, and the freedom to offer a variety of free and paid business models, but it’s Microsoft that starts this game on top.
Dana Blankenhorn http://www.danablankenhorn.com is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family https://www.amazon.com/Reluctant-Detective-Finds-Her-Family-ebook/dp/B07FSRDR4Y/, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT, AAPL and AMZN.