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Amazon's cloud gaming service poised to steal Google's thunder – analysts

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Amazon's cloud gaming service poised to steal Google's thunder – analysts

Although Amazon.com Inc.'s attempts to break into the PC gaming space stumbled this year, analysts feel the company's foray into the increasingly crowded cloud gaming space could prove more successful in the long run.

Luna, Amazon's new cloud gaming platform, will allow subscribers to stream games onto a variety of devices, including the company's own Fire TV media players. Unlike Google LLC's Stadia cloud streaming platform, which requires subscribers to purchase games on top of a $9.99 monthly fee, Luna's users will receive access to a range of games in a base $5.99-per-month subscription, with an option to buy into larger libraries via additional subscriptions to other "channels." Analysts feel this business model gives Luna an advantage over the competition right out of the gate.

"Amazon is approaching the cloud gaming market much in the way it approached streaming video with Prime," said Neil Barbour, an analyst with Kagan, a media research group within S&P Global Market Intelligence. "That approach will be unique to Amazon when Luna launches, and consumers' familiarity with that business model may win it a share of an emerging market."

According to recent data by Kagan, the cloud gaming market's user base is set to expand by more than 250% this year to an estimated 17.2 million. One of the key drivers of this growth is Microsoft Corp., which officially launched its Cloud Gaming service Sept. 15. Microsoft bundled Cloud Gaming, previously known as xCloud, into its Game Pass Ultimate video game subscription service, which costs $14.99 a month.

The company recently announced Game Pass surpassed 15 million subscribers. Though only a fraction of those users are on the Ultimate tier and thus have access to Cloud Gaming, analysts say the integration greatly expands Cloud Gaming's potential user base.

SNL Image

Meanwhile, Sony Corp. announced in May that its PlayStation Now cloud gaming service, which offers subscribers streaming access to more than 800 titles for $9.99 a month, more than doubled its subscriber count within a year to 2.2 million.

Kagan estimates Microsoft and Sony combined to reach nearly 6 million cloud gaming subscribers by the end of the year, making up more than a third of the overall cloud gaming market. However, Barbour said that Luna has a secret weapon which could see it grab market share after it launches: its compatibility with Fire TV hardware.

"The Fire TV stick is one of the most popular streaming media devices in the U.S., and Luna has the potential to turn it into the most widely installed game console," Barbour said.

George Jijiashvili, a senior analyst covering video games and AR/VR hardware at Omdia, added that Amazon's prowess in the public cloud via its Amazon Web Services Inc. unit, which will power Luna's operations, is another key strength that the company could leverage to win market share. However, he cautioned that cloud infrastructure alone is not sufficient to guarantee success for Luna.

SNL ImageThe Amazon Luna cloud gaming service will initially be available for early access by U.S. users by invitation only.
Source: Amazon

"While AWS is clearly a huge advantage, this is only one dimension of the final offering," Jijiashvili said. "Emerging features, content, Twitch integration and monetization models will determine the uptake of the service."

Jijiashvili also pointed out that unlike Microsoft and Sony, gaming is not one of Amazon's core business segments, which has been a huge hurdle to overcome for Google. However, he added that Amazon does have the second-mover advantage, so it can look to avoid Stadia's many missteps at launch.

"Google overpromised and underdelivered with Stadia, which was rushed out the door as a half-baked service, with most of its core features missing at launch," Jijiashvili said. "Almost a year since launch, it has finally gotten most of its act together and is beginning to resemble a fully-fledged cloud gaming service. However, it still lacks a large library of compelling games and its business model of having to purchase games on top of a subscription poses a barrier to adoption."

One other advantage Luna will have over not just Stadia but also Microsoft's Cloud Gaming is availability on Apple Inc.'s iOS devices, including iPhones and iPads. Apple does not allow cloud gaming apps on its App Store and instead requires gaming companies to submit an app for each individual game on their service. This means that if a subscription service offers hundreds of games, each one will need a separate app that connects to that service. However, Luna circumvents this requirement by running its games through a web browser instead of a native app, sidestepping the issue that prevents the other services from being on Apple's devices.

"I think the reason why Microsoft, Google and NVIDIA [Corp.]'s GeForce Now have insisted on going with the native app route is because the experience can be better optimized and controlled than a browser," Jijiashvili said. "But with the global install base of nearly one billion iPhones, neither company can afford to miss out on much-coveted iOS users who are, on average, more affluent and spend more on apps and games. If Amazon pulls off delivering good cloud gaming via a web browser, others are bound to follow soon."