Good morning,
A Sharp Tech mailbag episode dropped on Thursday — topics covered included privacy, tracking, and consumer choice, and COVID and content moderation — and Friday’s Dithering was about Google killing Stadia.
Speaking of, on to the update:
Google Kills Stadia
From the Wall Street Journal:
Google said it is shutting down Stadia, which launched in 2019, because the videogame service didn’t have enough users. “While Stadia’s approach to streaming games for consumers was built on a strong technology foundation, it hasn’t gained the traction with users that we expected,” Phil Harrison, Stadia’s vice president and general manager, said in a blog post.
The idea behind Stadia was that users could stream games directly to devices, like their TVs or phones, and didn’t need consoles such as Sony Group Corp.’s PlayStation and Microsoft Corp.’s Xbox to play games. The offering faced skepticism from some analysts, who said there was tough competition from other videogame companies.
Devin Coldewey at TechCrunch conveyed what is probably the conventional wisdom in tech, which is that “Stadia died because no one trusts Google”:
There’s a lot of chatter right now about the “surprise” shutdown of Stadia, Google’s game-streaming service. While it’s true that rivals like Geforce Now and Xbox Cloud Gaming presented entrenched competition and that Google knows next to nothing about gaming, the main trouble — as with most of its products these days — is that no one trusted them to keep it alive longer than a year or two.
It really is that simple: No one trusts Google. It has exhibited such poor understanding of what people want, need and will pay for that at this point, people are wary of investing in even its more popular products.
My Dithering co-host John Gruber pointed to a website predicting the end of Stadia based on the Google cemetery, which documents all of the products that Google has killed; as Gruber notes:
The joke’s on Scott, because Stadia Countdown still has 413 days remaining. At this point you’d be a damn fool to get excited about a new Google platform and think, “This is something great that I’ll be able to count on.”
I actually think these explanations let Google off the hook: they imply that the company gives up on winners, when the reality is that the vast majority of these products failed because they were bad; a smaller number had potential but never made sense for Google. Stadia was both.
Why Stadia Was a Bad Product
Coldewey writes:
The technical implementation certainly wasn’t to be faulted. I will admit to being a skeptic when they said they could hit the frame rates and response times they advertised, but by Jove they did it. At its best, Stadia was better than its competitors and almost magical in how it fulfilled the promise of going from zero to in-game in one second. The business side of things was never quite so inspiring.
I would, needless to say, go further: the business side was lazy and stupid. In fact, it was so lazy and stupid that my initial Stadia write-up was far more optimistic than it should have been; I just assumed that Stadia would be a subscription service, despite the fact that Google had not yet announced pricing. That was not in fact the case, as I noted when Amazon launched Luna:
The least creative product from a business model perspective has to be Google Stadia: selling individual games that you can play over a streaming service instead of on a console is literally copying a business model that was developed at a time when video games were physical objects that you had to get in your car and drive to the store to get — leave it to Google to pull off an incredible technical feat while putting absolutely zero effort into a go-to-market strategy that leverages said feat.
Like I said, lazy and stupid. Google undoubtedly spent a tremendous amount of time getting Stadia to work from a technical perspective, and then proceeded to spend literally zero time figuring out a business model that made sense with streaming, much less actually marketing the service (I suspect that close tech observers are not representative in terms of even knowing what Google service may or may not exist).
The root cause of this laziness and stupidness goes back, as flaws so often do, to Google’s origin story: the company grew at an unprecedented pace by being technically groundbreaking and…well, that was it. The graduate school project didn’t have a business model, didn’t have a go-to-market strategy, and it didn’t matter: the technology was that good (and let me promise you, as someone who was in college when Google came out: it really was that good, and word of its goodness spread like wildfire). Ultimately, it turned out that search was phenomenally well-aligned with an advertising business model, and Google became the massive company it is today.
Almost all of the company’s successes since then have slotted neatly into this model: Gmail was free and a technological breakthrough, and while the product no longer shows ads, it collects a lot of useful data that slots into the company’s business model. YouTube is free and has an ad model. Android is free and while it doesn’t have an ad model directly (like Gmail it collects a lot of data), the motivation to get Android right in order to protect the core business was very high. Google Cloud is probably the one business that doesn’t really fit into the company’s original model, and relatedly, it’s a business that has struggled to achieve product-market fit and actually make money.
Stadia was, I suppose, somewhat akin to Android — it was a platform play, of a sort — but it wasn’t integral to Google’s business, and it wasn’t, because of its dependency on third-party content, going to be free. That, more than anything, is why its death was predictable.
Microsoft, Activision, and Antitrust
There is one other explanation for Google that is a bit more generous than “lazy and stupid”; games are, of course, third party content, which means that Google needed to get permission from publishers for its business model. In that context its very easy to see how Google ended up with the exact same business model as consoles: selling games individually. After all, there is no risk from a publisher standpoint: a sale on Stadia is the same as a sale on Steam or a sale on PlayStation.
Indeed, from this perspective you can see that the flaw in my original Stadia analysis was not that I assumed that Google would have a subscription model and that the company was too lazy to do the obvious, but rather that my assumption was itself lazy and stupid: I jumped straight to the “right” business model from a platform perspective and didn’t even think about what an arduous journey it would be to get individual ecosystem players on board with an approach predicated on getting more users, even if the cost was making less money from current customers (if this point sounds familiar, it’s because I just wrote about it last week in the context of Spotify and ebooks).
This, by extension, gives me that much more appreciation for the lengths Microsoft is going to get Xbox Game Pass off of the ground; I noted when the company bought ZeniMax that spending so much money on a games business only made sense in the context of trying to create a new business model:
A huge amount of discussion around this acquisition was focused on Microsoft needing its own stable of exclusives in order to compete with Sony, but it’s important to note that making all of ZeniMax’s games exclusives would be hugely value destructive, at least in the short-to-medium term. Microsoft is paying $7.5 billion for a company that currently makes money selling games on PC, Xbox, and PS5, and simply cutting off one of those platforms — particularly when said platform is willing to pay extra for mere timed exclusives, not all-out exclusives — is to effectively throw a meaningful chunk of that value away. That certainly doesn’t fit with Nadella’s statement that “each layer has to stand on its own for what it brings”.
Here’s the thing, though…Microsoft isn’t necessarily buying ZeniMax to make its games exclusive, but rather to apply a new business model to them — specifically, the Xbox Game Pass subscription. This means that Microsoft could, if it chose, have its cake and eat it too: sell ZeniMax games at their usual $60~$70 price on PC, PS5, Xbox, etc., while also making them available from day one to Xbox Game Pass subscribers. It won’t take long for gamers to quickly do the math: $180/year — i.e. three games bought individually — gets you access to all of the games, and not just on one platform, but on all of them, from PC to console to phone.
Microsoft, like Google, is creating a cloud streaming service; Microsoft, though, is not only offering a business model that is uniquely enabled by the cloud, but is spending billions of dollars directly and indirectly (through foregone sales) to get that business model off of the ground (when-and-if Game Pass has a huge subscriber base, then signing up 3rd-parties will be easy — the challenge is getting to scale in the first place). This is the work that Google was never willing to do, and why Stadia was doomed to fail.
This also explains why I worry the eagerness of regulators to act before markets exist in any meaningful way is a bad idea. One of the acquisitions Microsoft has made in pursuit of this subscription strategy is Activision Blizzard, and I do, for the record, think it is important to scrutinize this deal, and perhaps extract guarantees from Microsoft that some of the titles involved (particularly Call of Duty) remain cross-platform (which as I noted, makes economic sense anyways). To that end, the UK’s Competition and Markets Authority highlighted Call of Duty availability in their argument for a more in-depth Phase 2 investigation; what was concerning, though, was this additional argument:
The CMA has also received evidence about the potential impact of combining Activision Blizzard with Microsoft’s broader ecosystem. Microsoft already has a leading gaming console (Xbox), a leading cloud platform (Azure), and the leading PC operating system (Windows OS), all of which could be important to its success in cloud gaming. The CMA is concerned that Microsoft could leverage Activision Blizzard’s games together with Microsoft’s strength across console, cloud, and PC operating systems to damage competition in the nascent market for cloud gaming services.
This framing suggests that Microsoft is going to unfairly win a cloud gaming market that is inevitable, much like Google once won the inevitable Internet search opportunity. The lesson of the Google cemetery, though, is that inevitable opportunities are the exceptions, not the rule; to that end, I would argue that Stadia’s failure is evidence that absent a Microsoft-level investment the cloud gaming market will never come into being in the first place. In other words, the UK isn’t protecting competition in cloud gaming; it’s making it impossible for subscription-based cloud gaming to ever be competitive with console gaming, $70 games and all.
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