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Perspectives

Getting to the future of gaming with cloud

Deloitte on Cloud Blog

June 11, 2020

A blog post by Michael Vovk, Managing Director, Deloitte Consulting LLP

The global video-gaming industry is huge, at an estimated $149 billion, and it’s growing at 10 percent annually.1 However, the industry is undergoing a seismic shift. Recently, cloud gaming—where both games and data are completely cloud based and games stream to and from devices—has been slowly gaining market share. This nascent world of cloud gaming presents many opportunities for both gaming companies and gamers, but it’s also fraught with complexity. Will the payoff be worth the challenge?

A new gaming universe—and new challenges too

Gamers are as diverse as the games they play. Broadly, there are casual mobile gamers, immersive gamers, and esports players. Each group has different needs and different sweet spots that gaming companies will need to hit to win them over to cloud gaming. Overcoming these challenges and delivering a smooth experience will be key to cloud gaming success.

Mobile gamers may be the easiest to satisfy with cloud gaming. They’re also a huge audience—accounting for 74 percent of mobile spending2—and, technically, they’re the easiest segment to provide services to, as mobile games typically require less bandwidth.However, they’re also notoriously fickle.4 It could be difficult to justify developing the cloud infrastructure and gaming experiences for customers that are so subject to churn.

On the other hand, immersive gamers—those who play multi-player games that feature narrative experiences with warfare, world-building, etc.—and esports players will be more challenging to provide for. Latency is the key issue, as all players must be in sync with each other for the experience to be satisfactory. Any latency over 75 milliseconds can cause synching issues and ruin the gaming experience.5 And because data transfer is bi-directional, these games require enormous bandwidth, as well as good connectivity, for gamers to have an optimal experience.

A further challenge lies in the market structure for immersive and esports games. PCs are customized to deliver a very rich Esport experience and the next generations of consoles are due to release in the next 12 months–both conditions that could make gamers hesitant to switch to cloud gaming.

Meeting the cloud gaming challenges

These challenges are daunting, but not insurmountable. For mobile gamers, where the issue is mainly churn, companies could offer subscription-based models that provide new games at regular intervals, or monetary or points-based incentives to try new games. Indeed, some top titles have become so popular that they’ve managed to endure for several years,6 so a sampling strategy may potentially pay off well.

Further, telecoms could offer new or renewing subscribers bundled subscriptions to game services. Many console companies are already adding mobile versions of top games, recognizing that mobile gaming as yet another element of their gaming universe.

The issues with immersive and Esports gaming may be more complex to solve. To address latency issues, cloud gaming companies could partner with cloud providers and telecoms to build an infrastructure that meets cloud-gaming requirements. And, the race to capture the market for cloud gamers could also create competition among telecoms that may change pricing models and induce them to offer incentives to attract—and keep—more gamers.

Telecoms could also use cloud gaming as a way to incent people to upgrade to 5G services, because 5G would be more likely to meet the connectivity and speed requirements of cloud gamers. Indeed, some industry pundits see China’s expansion of 5G as a critical enabler of its cloud-gaming industry,7 so broad adoption of 5G may fuel, and be fueled by, cloud gaming.

As for non-technical issues like console loyalty, cloud gaming companies could offer seamless, cross-platform playing experiences that enable cloud gamers to switch platforms, from console to cloud to mobile, without losing games—or with the ability to play modified version of them—to entice them to make additional investments in cloud-gaming subscriptions. However, as a recent Deloitte survey suggested, some gamers may have “subscription-fatigue”8 and companies will need to offer great value to overcome that fatigue.

Is the payoff worth the challenge?

The potential for profit in gaming is huge and the market continues to grow rapidly. Savvy cloud gaming companies will look for ways to team with cloud providers and telecoms to build the infrastructure it takes to move those gamers to cloud. However, they’ll have to overcome more than technical issues. They’ll have to convince gamers to give up their beloved consoles, or they’ll have to overcome subscription fatigue and offer them enough incentives to make the switch And those companies who can chart that course will be well positioned to cash in the payoff.

There’s much more to the story! If you’d like to know more about cloud gaming, and its challenges and potential, you can read the Deloitte Insights article, “Cloud gaming and the future of social interactive media.”

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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Endnotes

1 Wesley Beerepoot, “The global games market will generate $152.1 billion in 2019 as the US overtakes China as the biggest market, “ Newzoo, June 18, 2019

2 App Annie, The state of mobile, 2019

3 Tom Hancock, “China 5G rollout to boost cloud gaming,” Financial Times, November 4, 2019; Cyrus Lee, “Half of China plays mobile games, report says,” ZDNet, September 20, 2019

4 Rebekah Valentine, “On average, it costs $35.42 to get a mobile gamer to make first in-app purchase.” Gamesindustry. Biz, October 1, 2019

5 Jonas Demuro, “What are latency and ping and what do they mean for gaming?,” PC Gamer, June 25, 2017

6 Saleha Riaz, “Clash of Clans, Candy Crush still raking in cash.” Mobile World Live, July 24, 2018

7 Hancock, “China 5G rollout to boost cloud gaming.”

8 Kevin Westcott et. al., Digital media trends survey, 13th edition: Piecing it together, Deloitte Insights, March 19, 2019

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