The cloud gaming market is set to become a billion-dollar industry in 2022 — a major feat for a sector that didn’t even exist a few years ago. Newzoo, a prominent game market insight and analytics firm, paints a clear picture: revenues in 2020 were $633 million, and the firm expects 2023 profits to surpass $5 billion.
Despite several high-profile media stories centered on the early failings of some of the major cloud gaming providers, recent and expected future gains in the cloud gaming market are more than robust. Grandview Research forecasts a compound annual growth rate of 48.2% from 2021 to 2027. It’s clear that for whatever short-term failings existed in the infancy of cloud gaming, the industry has found solid footing. By the end of 2021, Newzoo predicts there will be nearly 24 million paying cloud gaming users.
See below for a look at the cloud gaming market, including key drivers for its impressive historical and potential growth, leading cloud gaming providers, the benefits of cloud gaming, and current and potential use cases.
The term cloud gaming typically refers to on-demand gaming or gaming as a service (GaaS), where gamers access games via remote servers that stream gaming content to devices. Instead of downloading game files and installing them on machines or devices, users stream games remotely from a public or private cloud.
Cloud gaming can be categorized into three overarching types, with cloud gaming companies usually specializing in one category over the others.
Video streaming includes games that are controlled remotely. Gamers stream interactive videos and send input commands to the cloud gaming server, which processes the operations and runs the game. Gameplay videos are transmitted to the user and decoded on the user’s local device. Video streaming offers high-quality graphics, but users need fast, stable internet connections.
By contrast, command streaming games are processed in the cloud, and rendering occurs on the user’s local device. While command streaming reduces network load and requires significantly less bandwidth because videos don’t need to be decoded locally, graphic quality is limited by the GPU capabilities of the local device.
File-streaming technology is something of a middle ground between command and video streaming options. Here, users download a small portion of the files required to play a game to their devices. This method allows developers to deploy patches to players in a streamlined way, but to play file streaming games, users must invest in sometimes expensive, compatible hardware.
Newzoo cites several drivers for 2021’s significant revenue increase, including:
- The launch of Microsoft xCloud, a significant benefit of the Xbox Game Pass Ultimate subscription service
- New proprietary service offerings from Amazon and Facebook
- The resolution of early licensing issues between NVIDIA and gaming companies connected to its GeForce NOW service
- The global emergence of smaller, indie cloud gaming services, including partnerships with local telecom companies in less tech-developed regions
See more: Data Belongs in the Cloud. Full Stop
Benefits of cloud gaming
In many ways, cloud gaming is a win-win scenario where gaming companies enjoy lower overhead, deployment, and production costs, and consumers have fewer barriers to entry.
For gamers, notable cloud gaming benefits include:
- The ability to play high-end games on lower-end machines
- Potential lower hardware investment required to play resource-intensive games: some players forego investing in game consoles, instead opting to stream games to their desktop or laptop computers
- Instant gratification: instead of waiting hours for a modern game to download, cloud gaming gives users much quicker access
- Portability: location independence means players are not lashed to a stationary console or powerful gaming desktop computer
- Cross-platform and integration capabilities: many games are ported to secondary device types, opening access to gamers who don’t own or want to own the specific hardware required to run a game
Many benefits for game developers and cloud gaming services are the flip sides of consumer benefits. Primarily, cloud gaming opens new avenues for expanding into new customer bases. Users are far more likely to stream a game over investing in a game console when they are only interested in select titles offered by the console. And, users with less expendable income represent potential profits that may not have existed in the traditional console/download models.
Another interesting benefit for gaming companies is the ability to resurrect older, retired titles. Gamers can find back catalogs of games dating back decades on various cloud gaming services.
Leading cloud gaming platforms
Familiar leaders in the console game space, Microsoft’s Xbox and Sony’s PlayStation, have emerged as leaders within the cloud gaming sector as well. Prominent cloud gaming platforms include:
- Project xCloud (Xbox)
- PlayStation Now
- GeForce Now
- Stadia (Google)
Cloud gaming use cases
In addition to a natural evolution into streaming by well-established game and console franchises, other industries are getting into this space.
For example, some industry analysts expect the e-sports gaming sector to more fully embrace cloud gaming in the near future. ESports centers on professional competitive, typically console-based, video gaming. While gameplay video streams are already popular, professionally competing on the cloud is newer but promising territory.
Because a growing percentage of cloud gaming traffic streams across fixed and Wi-Fi networks, 5G technology is becoming a key component of cloud gaming infrastructure. In a recent analysis, technology, media, and telecommunications consultancy firm Analysys Mason identified cloud gaming as one of the top use cases for 5G.
“Mobile operators should have a plan to manage its high quality of service demands and should use industry partnerships to gain a market advantage,” writes Gorkem Yigit, principal analyst for the company.
Cloud gaming market
The cloud gaming market has the potential to eventually overtake console and PC games, according to many industry analysts. However, there’s a long way to go to get to the point where cloud gaming is the default for most users.
Some gaming leaders, like Take-Two Interactive CEO Strauss Zelnick, take a mostly pessimistic view about the trajectory of cloud gaming adoption. In an interview with Protocol Magazine, Zelnick compared cloud gaming to virtual reality (VR) technology.
“There was all this hype for years about VR, and I wasn’t very compelled by that,” he said.
Still, Take-Two released their hit game “Red Dead Redemption 2” on Google’s Stadia cloud gaming platform.
One likely scenario is a segmented market, where geographical regions with strong internet infrastructure will see more cloud gaming adoption. U.K.-based Juniper Research released a report in late 2020 that estimates that cloud gaming is unlikely to make up more than 25% of subscription gaming services’ revenue by 2023, citing subscription costs as a significant barrier.
Still, with platforms like GeForce Now offering memberships similar to the cost of Netflix, the cloud gaming sector may deliver more surprises in the overall gaming market.
See more: Public Cloud Computing Providers