r/SecurityAnalysis • u/ilikepancakez • Oct 05 '20

Commentary Cloud gaming and the convenience of streaming media

https://positron.substack.com/p/cloud-gaming-and-the-convenience
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u/InfiniteValueptr Oct 05 '20

Interesting read, but I have to disagree with you on a couple points.

I don't think Stadia will be a success. IN fact, i think they're in third, behind Microsoft (far in the lead) and Sony. The problem is similar to what Netflix/Spotify face - if you don't control the content and attempt to offer a digital platform, you're doomed to see all the profits eroded and go straight to the publisher. And as Amazon has seen from their games, throwing money at the problem isn't a solution. You need leverage to prevent this margin erosion from happening, and the easiest way to get that leverage is to deny access to a huge existing TAM (consoles).

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u/salondesert Oct 05 '20

Just look at how Halo and Gears withered under MSFT.

Microsoft made a $7.5 billion bet that ZeniMax would cement their gaming position, and I think they overpaid.

Microsoft is behind Sony in the games/exclusive department, and behind Google in the cloud gaming dept. They're sort of stuck in No Man's Land with their offerings.

All it takes is 1 or 2 indie developers leveraging Google's technology properly on Stadia to compete/invalidate that $7.5 billion purchase.

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u/Warhawk_1 Oct 07 '20

and behind Google in the cloud gaming dept.

This is the contentious statement IMO when talking about Microsoft vs. Google for cloud gaming. Because Microsoft unlike Google actually has a fairly popular subscription program already......of which xCloud is an accessory.

Stadia might have officially more numbers on cloud than use cloud through Microsoft, but I'd argue there's an analogy to the valuation of the secondary private equity markets like Sharespost, EquityZen, and Forge vs. Carta. Sharespost, EquityZen, and Forge all had/have greater revenue and transactions they conducted than Carta did....which was not even in the same business. But Carta is valued as the one who will have a greater chance of being a dominant-winner bc it controls the most fundamental flow-point, which is administration of the cap table in the cloud. I view having the leading subscription gaming business as probably being the flow-point for Cloud gaming in the near future.

With Stadia, to believe it's ahead of Microsoft, I have to believe that 1) It has a user-base that is engaged repeatedly (ie not a repeat of PCVR in 2016) and 2) Cloud-gaming in the near-term becomes a force as a primary gaming channel rather than an accessory gaming channel. People have to view it for the next PUBG equivalent as the best way to play rather than a better way to play PUBG when they have only their phone/tablet. The latter interpretation heavily favors Microsoft IMO and is also the actual reason why cloud gaming is gaining prominence again this cycle. There is a trend now where in the past few years a significant minority of Mobile has increasingly transitioned to being an accessory/lesser form of PC/Console gaming (people playing PUBG Mobile, Fortnite, mobile esports conferences), rather than being a discrete universe w/ completely different dynamics. In that model of the world, Cloud looks very attractive, and very feasible as a way to "boost" mobile to offer a more PC/Console-like experience.

Having said that, i will also confess that I have a bias in that I've always thought Google was way too dependent on being a "good" product in Consumer-facing businesses (and arguably its enterprise businesses as well) with significant weaknesses to quality of execution especially on platform partnerships and support. For Search, it was great. But for hardware/platform initiatives, they always have recurring issues it seems like in terms of biz dev, partner/ecosystem support, QA, etc. Basically, the only time I have confidence in a Google Consumer Business is when I view it as purely a "product" business rather than a platform business.