The battle isn't going on here anymore.
Xbox vs. PlayStation: The Console Wars. Fanboys, industry analysts and game journalists (like me) love them. The steady chatter about who’s winning and losing rises to a roaring crescendo when Sony and Microsoft are set to release a new console generation. This year is no exception, the clamor has already begun. Except this year is an exception and the noise you hear is the sound of one hand clapping. The video game industry has moved beyond who sells the most consoles. Microsoft moved with it, Sony didn’t and PlayStation is left warring with . . . Nintendo? Nobody?
Competition in the game industry isn’t about who sells the most consoles, it’s about who makes the most money. And there’s a lot of money to be made. According to a recent article in Protocol, the global game industry produces more than $150B in annual revenue. Compare that to 2019’s global film box office at $42.5B and 2018’s recorded music business including streaming at $19.1B. Global revenue from games is a bit above 240% of the revenue realized from movies and music combined.
There was a time when console sales and competition among console manufacturers played a central role in determining the major players in the video game space. Games were mostly single player, were played locally and console ownership corralled buyers into the manufacturer’s segment of the market. Watching people play and playing with friends took place on couches and LAN parties
The road to success in the game industry goes to the cloud.
That was then, this is now. The world’s most popular games are multiplayer or have strong multiplayer components. They’re played in the cloud. You can play with friends who live anywhere. Tens of millions watch game-related content on Twitch, Mixer and YouTube every day. The real competition in the video game industry isn’t taking place in the console arena, it’s happening in the cloud.
Microsoft understands this. Phil Spencer laid it out for Protocol when he said
When you talk about Nintendo and Sony, we have a ton of respect for them, but we see Amazon and Google as the main competitors going forward. That's not to disrespect Nintendo and Sony, but the traditional gaming companies are somewhat out of position. I guess they could try to re-create Azure, but we've invested tens of billions of dollars in cloud over the years.
I don't want to be in a fight over format wars with those guys while Amazon and Google are focusing on how to get gaming to 7 billion people around the world. Ultimately, that's the goal.
This statement may come as a shock to those still invested in console wars, but Spencer’s comments accurately reflect the current state of the video game industry. Hardware platforms and game exclusives were yesterday’s barometers of success, today it’s cloud hosting. And Microsoft, Amazon and Google are the only players with the infrastructure to take cloud-based gaming worldwide.
Phil Spencer at E3 2019
Xbox has been focusing on the cloud, not the console, throughout much of the current console generation. Satya Nadella took over as CEO and started taking Microsoft to the cloud less than a year after the Xbox One debacle at E3 2013. A month after he took over, he put Spencer in charge of Xbox. In 2017, Spencer was named to the Senior Leadership Team reporting directly to Nadella. Spencer has been downplaying console competition and promoting bringing games to players wherever whenever as long as he’s been the head of Microsoft. Many understood this as trying to put the best face on the PS4’s dominance in console sales. In fact, it was an indication Xbox understood console sales aren’t the future of gaming. They’re not even the present.
To see why cloud hosting, not console sales, is the key to success in the game industry all you have to do is follow the money. Multiplayer games, mobile games, Twitch, Mixer and YouTube are all mega money makers and they all depend on cloud hosting. That trio alone makes the cloud the most attractive source of gaming revenue today.
Now add game streaming to the mix. Stadia debuted in November, GeForce Now roared out of beta a few days ago, xCloud is in beta. 5G networks are being built out. Subscription-based streaming isn’t a major feature in the gaming landscape now, but it’s on its way and it will make cloud hosting even more valuable than it is today. Companies don’t need their own console to succeed in this world, they need state-of-the-art infrastructure with powerful data centers all over the world.
Azure data center
Microsoft, Amazon and Google have the data centers, Sony doesn’t. Sony is still driven to sell consoles because it can’t compete in the cloud. The surprising PS5 reveal in Wired allowed Sony to focus the early next-gen discussion on the console which dovetailed perfectly with the misperception that console sales are still the criterion of success. Sony’s strongarm tactic of using PS5 exclusives to coerce players into buying the new console, the news that PS5 pricing may depend on the price point for the Xbox Series X, and PlayStation’s well-documented resistance to cross-platform play are all signs that PlayStation is still hanging on to console sales while the games industry has moved on.
Console sales were critical when the current generation launched in 2013 and PlayStation won that war decisively. But the battleground changed in the intervening years. The money is in the cloud now and Sony doesn’t have the cloud infrastructure to compete. The sign was on the wall when Sony and Microsoft announced a partnership last May allowing Sony to use Microsoft’s Azure cloud service for game streaming. The sign read “Game over.” You’ll hear a lot about the console war between the PS5 and Series X in the coming months but it’s much ado about nothing. The console war is a skirmish at best, it’s a cloud war now.
