Zynga spends $1.8bn to buy its way back into relevance

Zynga has announced the purchase of Turkish mobile games developer Peak for $1.8 billion, skyrocketing share price at a firm credited with being one of the first to break the mobile gaming sector.

Once upon a time, Zynga was a bright shining star, another exciting prospect to emerge from Silicon Valley. After raising almost $900 million from various funding rounds, the company registered itself on the NASDAQ during December 2011. Leaping more than 40% in the first few weeks to $12.93, Zynga looked like hot property, until it plummeted to $2.72 in the summer of 2013. The next six years were that of irrelevance and mediocrity.

With a poorly managed venture into real-money gaming and an inability to create blockbuster games, the business simply trundled along, though the purchase of Peak clearly excites the market, shooting up share price 25%.

“Peak is one of the world’s best puzzle game makers and we could not be more excited to add such creative and passionate talent to our company,” said Frank Gibeau, CEO of Zynga.

“With the addition of Toon Blast and Toy Blast, we are expanding our live services portfolio to eight forever franchises, meaningfully increasing our global audience base and adding to our exciting new game pipeline. As a combined team, we are well positioned to grow faster together.”

The difficulty with the mobile gaming industry is speed and sustainability. Firstly, because launching a game does not take much money, viral games can come from anywhere not just those companies with cash. Secondly, there is absolutely no guarantee a successful game will stay successful for very long.

In purchasing Peak, Zynga will bring Toon Blast and Toy Blast titles into its stable, two games will regularly feature at the top of download charts. How long this will continue is unknown, but in an ecosystem which is increasingly being defined by talent not cash, the 100 Peak employees will be a very valuable addition.

What is worth noting is that acquiring another business should not be viewed as a cure to the Zynga ills. This is the thirteenth acquisition, albeit the largest, since the business went public in 2011. Investors will hope it is thirteenth time lucky.

KKR sets aside $1bn to muscle in on European data centre market

US investment firm KKR has outlined vague plans to fuel growth in the European data centre market with $1 billion for a build-to-suit and roll-up acquisition data centre platform.

While it is difficult to translate the overly enthusiastic PR and marketing language which dominates the press release, it does appear to be an effort to build more data centres in the European region.

“The data centre market in Europe presents a unique opportunity to invest behind the secular trend of increased cloud services adoption and demand for data,” said Waldemar Szlezak, MD of KKR.

The new company, which will be known as Global Technical Realty (GTR), will operate in two ways. First, a build-to-suit programme for the major cloud players. This segment will presumably have an anchor tenant dictating the location, before selling services on to additional cloud players.

Secondly, the team plan to execute a ‘roll-up’ acquisition strategy, a particularly effective business model when economies are facing tough trading conditions. This is a simple, albeit slightly predatory strategy, effectively identifying distressed assets for acquisition, before merging together in a single operation to benefit from scale.

“We are thrilled to have found an investor like KKR that shares our vision for the future of the data centre market,” said GTR CEO and founder Franek Sodzawiczny.

“KKR’s breadth of resources and tremendous expertise will allow GTR to fully participate in this growing market and provide a solid foundation for GTR’s future growth and success.”

Ultimately, KKR and GTR are attempting to capitalise on momentum towards the cloud. The major cloud players have their own data centre footprint of course, which is rapidly expanding, but there is only so much which can be done alone. The built-to-suit programme releases some of the risk associated with data centre investment, while the roll-up acquisition strategy is a quick win for a cash-rich company looking to muscle in on cloud momentum and create an immediate presence.

Today, trends are only heading in one direction. With more companies digitising business processes and workloads, the cloud computing segment is certainly benefiting from societal lockdowns and enforced digital transformation programmes. The big question is how many of these programmes will be returned as the world returns to some semblance of normality.

When we asked Telecoms.com readers how many thought their employers would retain remote working practices 50% said they would have to check into the office once or twice a week and 34% believed they would given the option to work as they please.

It does appear the enforced remote working dynamic has some sustainability in the long run, perhaps kick-starting a wider transformation programme. Nicholas McQuire, SVP and Head of Enterprise Research at CCS Insight told us there has been resistance to the cloud from traditional companies in the past, though once started it should provide a catalyst for greater things.

Aside from these very immediate and unusual drivers for cloud, trends have of course been gradually heading towards a more digitised and distributed world. Netflix, as an example, is very interested in caching as much content in edge data centres, to improve experience for customers, while cloud gaming could also provide greater demand for data centres.

Not only is the world become more digitised, super data centres will have to be supplemented by additional infrastructure to create a distributed cloud. This is an important element to reduce latency and remove choke points when attempting to improve customer experience.

The world is only heading in one direction though the pace of change is unknown for the moment. COVID-19 might have acted as an accelerator for digital transformation, and while this might only be temporary, this is an excellent time for KKR to be throwing money at data centre infrastructure.

Online gaming seems coronavirus proof, but is it recession proof?

Online entertainment and gaming companies are seeing COVID-19 surges in revenues, but are these businesses in a position to resist the pressures of a global recession?

With many countries around the world entering into recession due to the impact of the coronavirus pandemic, online gaming companies will face challenges like never before. Let’s not forget, this is a segment which did not exist during the last major financial downturn, the ‘Great Recession’ of 2008, and it is almost entirely reliant on discretionary income.

This is of course a massive question which should not be taken at surface value, but the up-coming recession has the potential to completely turn this industry on its head. However, for the moment, there is money to be made thanks to circumstance.

How are the gaming companies getting on now?

In short; very well.

Activision Blizzard has released its 2020 first quarter results, and while the figures might be down on the same period of 2019, outlook is considerably better than the forecasts provided by the company on February 6.

Total revenues for the three months ending March 31 were $1.79 billion, down 2.1% year-on-year, but 9% up on the guidance which was offered to investors in February. This guidance was offered before the full impact of COVID-19 was comprehendible, so it understandable that estimates were off.

The Call of Duty title has been credited with much of the success, most notably the mobile game which was launched in late-2019 and the Warzone addition. Warzone was launched under a free-to-play business model, with in-game purchases, and has attracted more than 60 million users.

Elsewhere, Electronic Arts has also released financial statements for the period ending March 31. Total revenues for the three months increased 14.4%, 3% higher than what was forecast in January while net income was up 5% on the guidance offered. Digital revenues now account for 78% of the total, a transformation which has been taking place over the last few years.

FIFA 20 and Madden NFL 20 both excelled for Electronics Art in the sports gaming segment, with the latter recording the “highest engagement levels in franchise history”, while Apex Legends was the most downloaded free-to-play game on the PlayStation platform in 2019 and continued to excel through 2020.

These are only two examples of gaming companies who have benefitted from societal lockdown protocols, but there are numerous others including Microsoft with Xbox and its cloud gaming platform Project xCloud.

In short, more people are locked in doors and need entertaining. More are turning to gaming.

Telco data backs up the financials

With more people staying at home, there was a risk strain would be placed on broadband networks as these are assets which have not been deployed with the current societal lockdown in mind.

Video conferencing is on the up, content streaming is skyrocketing, and gaming is entertaining adults and children alike. All of these elements add up to pressure on the network, though many are performing admirably.

In March, Telecom Italia Luigi Gubitosi suggested network traffic had increased by as much as 70% in some regions, with Call of Duty and Fortnite usage some of the more prominent contributors. Performance of the networks were a worry, but these fears have now been addressed.

Who should we be keeping an eye on?

There are a lot of companies who will be releasing financial statements over the next week, all of which will be inclusive of at least some of the lockdown period.

  • 7 May: Nintendo
  • 13 May: Tencent
  • 13 May: Nexon
  • 13 May: Sony
  • 14 May: Ubisoft

Due to the number of private companies and start-ups in this segment, it is difficult to gain full visibility into the financial gains, but usage reports and download statistics can help. Ultimately, it is a fair assumption this is a segment of the technology industry which is benefitting from the on-going COVID-19 pandemic.

The financial risks have been predicted

In October 2019, the International Monetary Fund (IMF) held a press conference during which the risk of indebtedness was discussed in detail.

“In the event of a material economic slowdown, the prospects would be sobering,” said Tobias Adrian, Director of the Monetary and Capital Markets Department of the IMF.

“Debt owed by firms unable to cover interest payments with earnings, which we refer to as corporate debt at risk, could rise to $19 trillion in a scenario that is just half as severe as the global financial crisis.”

$19 trillion would account for 40% of the total corporate debt in the worlds’ eight largest economies. Of course, much of this rhetoric refers to traditional organisations and those who are already in precarious situations, but it does demonstrate risk.

Adrian stated six months ago that there was a corporate debt bubble building. The accessibility of borrowing facilities over the last decade, as well as tendency to stretch asset valuations, has led to a tsunami of debt. External debt has risen to 160% of exports according to Adrian, compared to 100% in 2008.

This does not necessarily directly correlate to the online gaming sector, but it is good to place the current situation into context. Last October, the IMF warned of a corporate debt bubble which would burst during a recession, compounding the misery and extending the financial downturn. This is the reality which the world is facing today.

Could be a short, but sharp downturn

Coutts bank has recently suggested the financial downturn would be a recession, but the depth would not extend to a depression.

“The current recession will without doubt be very deep and widespread,” the company said in a blog post. “Unemployment has risen significantly, and a wide range of sectors are affected.

“But we think the recession will be short-lived, and that’s the key to our cautious optimism. With economic activity plunging so deeply, even a slow, partial re-opening of the economy is likely to lift activity from these extreme lows.”

Although financial data demonstrated the downturn has been dramatic, there are few deep-seated systemic problems standing in the way of a recovery. The economy will not bounce back overnight, but recovery should be swift assuming there is not a secondary wave of infections.

This is the big question which many companies will be facing; how long will the recession last?

There will be an inflection point on the horizon

Companies who are benefiting from the societal lockdown will have to be wary of the inflection point in fortunes.

People being locked indoors is fine for a while, but soon enough it will start having a very material impact on the economy. When this happens, unemployment could rise, and consumer spending habits are altered. Discretionary income could disappear, and belts would be tightened as a result.

In this scenario, money spend on online gaming habits would almost certainly be cut back, turning the fortunes into flounders.

What is worth noting is this is based on assumption. The online gaming segments were nowhere near as prominent as they are today. In 2008, online gaming was a niche, it was pre-4G hitting mainstream markets while few console games had the internet appeal they do today. eSports would have been considered an absurd idea.

We cannot explicitly state what would happen to the gaming industry during a recession, as there is no precedent, but it is a safe assumption that it would not do very well.

What could happen?

Speculation is always a good bit of fun and should the gaming industry head towards uncomfortable times there certainly could be a dramatic amount of disruption.

There are of course multinational corporations who have profited from the shift to online gaming, but there are numerous start-ups who have shot to fame on the back of a viral hit. The likes of Angry Birds catapulted Rovio to fortunes, while Imangi Studios has experienced sustained success from less complex games such as Tempe Run.

Outside these blockbuster hits, there are thousands of developers who have profited handsomely from online gaming, ensuring the ecosystem is incredibly wide and diverse. Many of these companies are still private, spurred on by revenues flowing through the app economy. Should a recession halt this flow of cash, these companies would suffer.

Industry consolidation could be a reality, with multi-nationals snapping-up cut-price opportunities. Tencent is one company which has grown via acquisition, taking up stakes in the likes of Riot Games, Supercell, Activision Blizzard, Glu Mobile and Grinding Gears Games. Organisations like this must be licking their lips with a prospect of a recession; an opportunity to grow a digital empire through the acquisition of distressed assets.

Venture Capitalists will also have an eye on this area, though this would allow the start-ups to maintain some level of independence. They may have to hand over stakes at depreciated valuations to do so, however.

Interestingly enough, a recession could also present a significant opportunity for the ad-supported, free games. Online advertising demand might decrease, but it certainly wouldn’t disappear entirely. And consumers will still have to be entertained. This could supercharge a segment which is often overlooked in favour of more attractive cousins in the online gaming ecosystem.

Just enough but not too much

The fortunes of the online gaming industry are hanging in the balance somewhat. Yes, societal lockdown is benefiting this segment right now, but recovery will need to come before the inflection point.

The longer this lockdown persists, the greater the risk of a longer-term recession and a downturn for the online gaming segment. Just enough lockdown is a profit machine, too long could mean a very detrimental net loss.

Tencent profits as gaming surges during COVID-19 pandemic

The gaming industry might face similar production challenges as film and TV, but revenues are surging and few are profiting more than Hong Kong’s Tencent.

With more than 70 countries and territories around the world under lockdown protocols to combat the spread of COVID-19, backgammon and scrabble can only get you so far to fight off the boredom. The Netflix earnings call confirmed millions more are signing-up for video streaming subscriptions, and SuperData is suggesting the gaming segment is also benefiting considerably from this unique predicament.

For the month of March, gaming revenues across the world exceeded $10 billion, the most profitable monthly period on record. Mobile gaming took the lions share of revenues, though PC and console gaming also saw material increases in digital revenues.

Ranking of gaming revenue by category
PC Console Mobile
Dungeon Fight Online (Neople) Animal Crossing: New Horizons (Nintendo) Honour of Kings (Tencent)
League of Legends (Riot Games) FIFA 20 (Electronic Arts) Gardenscapes (Playrix)
Crossfire (Smilegate) MLB The Show 20 (Sony Interactive Entertainment) Candy Crush Saga (King)
Fantasy Westward Journey Online II (NetEase) Doom Eternal (Bethesda Softworks) Last Shelter: Survival (Long Tech)
Doom Eternal (Bethesda Softworks) Call of Duty: Modern Warfare (Activision) Pokémon Go (Niantic)
Counter Strike: Global Offensive (Valve) NBA 2K20 (2K Sports) Coin Master (Moon Active)
Borderlands 3 (2K Games) Grand Theft Auto V (Rockstar) Roblox (Roblox)
Half Life: Alyx (Valve) Fortnite (Epic Games) Monster Strike (Mixi)
World of Warcraft West (Activision) Tom Clancy’s Rainbow Six: Siege (Ubisoft) Clash of Clans (Supercell)
World of Tanks (Wargaming) Madden NFL 20 (Electronic Arts) Mafia City (Yotta Games)

While the fortunes of this segment are quite evenly spread throughout the ecosystem and the world, it should be worth noting that Tencent, the Hong Kong-based internet giant, is profiting considerably. Not only does it own Honour of Kings, an immensely popular mobile game in China, it has a 5% stake in Activision, 5% in Ubisoft, 40% of Epic Games, 84% of Supercell and 100% of Riot Games.

Few can compete with Tencent when it comes to throwing weight around the gaming segment. Looking at the last quarterly statement, revenues from online games alone accounted for $4.3 billion, just under a third of total revenues.

Across the gaming segment, console revenue rose 64% from February to March, PC revenue increased 56%, while mobile gaming revenue was up 15% year-on-year to $5.7 billion. This is a segment which is often ignored by the traditional connectivity industry, though it is quickly growing. Aside from these numbers, the fact that Twitch, a video platform for gamers, has grown to 15 million Daily Active Users (DAUs) also demonstrates this.

Facebook launches gaming app to take on Twitch

Facebook has launched its own gaming app to tap into the fortunes currently being claimed by the likes of Amazon’s Twitch, Microsoft’s Mixer and Google’s YouTube.

While it might seem like a foreign concept to the vast majority of those who are above the age of 30, streaming gaming content is fast becoming big business. Whether it is following organised competitions or individual gamers, millions of Generation Z members are logging onto the content streaming platforms. This is a major advertising opportunity for any company which can build a substantial userbase.

“Investing in gaming in general has become a priority for us because we see gaming as a form of entertainment that really connects people,” Fidji Simo, who leads activities for the gaming app, said in an interview to the New York Times.

“It’s entertainment that’s not just a form of passive consumption but entertainment that is interactive and brings people together.”

The original plan was to launch the app in the summer, though the dramatic increase in gaming during the coronavirus outbreak encouraged the team to bring the debut forward. Facebook Gaming is now available to download in the Google Play store, while the team is still waiting for approval from Apple and the App Store.

Similar to the aforementioned apps from internet rivals, the app will act as an aggregator of content such as commentary on gaming videos, tips and tricks, highlights or live streaming of organised competition and all other forms of user-generated content. This gaming voyeurism might sound unusual, but if you have a look at the numbers Twitch boast, there is a major advertising opportunity; this is the Walled Garden business model which made Facebook a financial heavyweight in another setting.

Founded in 2011 as a spin-off of the general-interest streaming platform, the business was acquired by Amazon in August 2014 for an eye-watering $970 million. This might seem like a huge investment, but the same was said about Google spending $1.65 billion on YouTube in 2006.

Over the last nine years, Twitch has grown substantially:

  • Four million unique content creators stream on the platform each month
  • There are 15 million daily active users on average
  • More than 600 billion minutes of content were streamed through the platform over the course of 2019

While the platform was originally developed for gamers, Amazon has also built a bridge between this platform and the Amazon Prime entertainment product. Watch Parties on Twitch allows content creators to build new content on top of the existing content in the Amazon Prime library, layering commentary over TV shows or movies. Although still in the testing stages, eventually the content creators will be able to do this live, potentially taking Amazon further into the sports world.

With these sorts of numbers, and potential to diversify the service into new fields, this is the foundations of the Walled Garden business model.

This is a simple model in theory but a complicated one to get right in practise, as demonstrable by the number of companies who have failed. First, a company needs to create a free platform for users which is engaging. Secondly, the platform owner charges third-parties access to this audience through advertising services. The platform owner theoretically remains in control of the data, meaning advertisers have to come back month-on-month, creating recurring revenue streams.

Facebook was the first to take this idea to mainstream and generate billions in profit from it, and while others have tried, success has been incredibly varied. Google, for instance, has achieved this dream-scenario with YouTube, but has failed numerous times to create its own social media platform. Twitter sits somewhere in the middle, as it has cultivated an excellent platform and userbase, but has often struggled to monetize.

The gaming world presents a new opportunity, as can be seen from the Twitch numbers, but this is perhaps only the tip of the iceberg.

Although the gaming segments have been growing healthily over the last few years, the COVID-19 outbreak has acted as an accelerator. Without school to distract children or pubs to lure adults, there is much more free time in the household; some of this has been directed towards gaming.

According to Newzoo, revenues in the global gaming industry have grown from $138.7 billion in 2018 to $152.1 billion in 2019, with the team forecasting this growth to continue through to $196 billion in 2022. The benefits from the coronavirus might only be temporary, though this is a segment which is growing rapidly regardless.

Google starts offering free access to Stadia

Rolling out over 14 countries, Google is offering free access to its cloud gaming platform to help with boredom as the world ponders how long the lockdown with persist.

The two-month freebie will be offered as Google attempts to scale its cloud gaming platform in the face of fierce competition from the likes of Microsoft and Nvidia. Users will have instant access to nine titles, and for those who have already signed-up, payments will be suspended for the period.

“We’re facing some of the most challenging times in recent memory,” Phil Harrison, General Manager of Stadia, wrote in a blog post. “Keeping social distance is vital but staying home for long periods can be difficult and feel isolating. Video games can be a valuable way to socialize with friends and family when you’re stuck at home, so we’re giving gamers in 14 countries free access to Stadia Pro for two months.”

This is likely to drive an increase of sign-ups for the business, though Google has already said it will apply controls to bandwidth to ensure unnecessary strain is not placed on local networks. Default screen resolution will be dropped from 4k to 1080p, and while most will not notice a significant drop in gameplay quality, there is an option to choose your data usage options in the Stadia app.

Although this is a pleasant announcement for Google, one which we sure many gamers will appreciate, but there is also an upside for the internet giant. This could be viewed as a promotional offer or free trial luring some users onto the platform who might not have been tempted before. Perhaps, some might be tempted to dip into their pocket for $9.99 after two months of gameplay.

MediaTek defends itself after benchmark cheating accusations

After reports emerged suggesting MediaTek has been cheating the benchmarking system, the chipset manufacturer has vehemently defending its position.

It has been alleged in AnandTech that MediaTek has been cheating the mobile enthusiasts with some clever code. In the firmware files, references were found tying benchmark apps to a so-called ‘sports mode’. When triggered (if a benchmark app has been initiated), features on the phone were ramped up to give the impression of better performance.

AnandTech claims the cheating was brought to light thanks to testing two different OPPO Reno 3 devices. The Reno 3 Pro (the European version) beat the Reno 3 (the Chinese version) in the PCMark benchmark utility, despite its Helio P95’s Cortex-A75 CPU cores being two generations older than the Dimensity 1000L’s Cortex-A77 CPU cores. And not only did the Reno 3 Pro has older MediaSet chipsets than the Reno 3 devices, it had half as many.

The difference in the test results were slightly unusual, though when a ‘stealth’ benchmark apps were used, the lower results were confirmed.

Why those in the industry feel it is necessary to cheat benchmarking tests is anybody’s guess. The negatives of being caught far outweigh the gains of impressing a few hyper-geeks, and the cheaters eventually get caught. It is embarrassing and some might ask whether they are a reliable partner. The chipsets in questions have been used in OPPO, Vivo, Xiaomi and Sony devices.

Following the original statement, which you can see at the foot of the article, an expanded blog post was offered to the industry.

“We do find it interesting that AnandTech has called into question the benchmarking optimizations on MediaTek powered devices, when these types of configurations are widely practiced across the industry,” MediaTek said. “If they were to review other devices, they would see, as we have, that our key competitor has chipsets that operate in the exact same way – what AnandTech has deemed cheating on device benchmarking tests.”

Although this is a very reasonable explanation, it is still a bit fishy. It is perfectly understandable for performance to be ramped up for some applications, but the fact the ‘sports mode’ has been linked to the initiation of a benchmarking app as well as other functions (gaming for instance) suggests the aim is to fool the tests. Most reasonable individuals would assume these tests are performed in ‘normal’ mode.

Whether this is an adequate explanation, we’ll let the court of public opinion decide, but it is somewhat of a flimsy excuse.

Original MediaTek statement:

MediaTek follows accepted industry standards and is confident that benchmarking tests accurately represent the capabilities of our chipsets. We work closely with global device makers when it comes to testing and benchmarking devices powered by our chipsets, but ultimately brands have the flexibility to configure their own devices as they see fit. Many companies design devices to run on the highest possible performance levels when benchmarking tests are running in order to show the full capabilities of the chipset. This reveals what the upper end of performance capabilities are on any given chipset.

Of course, in real world scenarios there are a multitude of factors that will determine how chipsets perform. MediaTek’s chipsets are designed to optimize power and performance to provide the best user experience possible while maximizing battery life. If someone is running a compute-intensive program like a demanding game, the chipset will intelligently adapt to computing patterns to deliver sustained performance. This means that a user will see different levels of performance from different apps as the chipset dynamically manages the CPU, GPU and memory resources according to the power and performance that is required for a great user experience. Additionally, some brands have different types of modes turned on in different regions so device performance can vary based on regional market requirements.

We believe that showcasing the full capabilities of a chipset in benchmarking tests is in line with the practices of other companies and gives consumers an accurate picture of device performance.

Microsoft to expand xCloud beta to Western Europe

After launching in the UK, US and South Korea, Microsoft has decided to rollout its services in an additional eleven markets.

Gaming has always been a staple in the Microsoft diet, thanks to Xbox and Game Studios in bygone years, but cloud gaming offers an opportunity to dramatically scale the business unit. This is a market development which could potentially lower the barrier of entry for consumers, as cloud services are less reliant on extortionately expensive consoles and upgrades. The rewards could be an expanded userbase and new revenues.

But Microsoft is not alone in pursuit of gaming fortunes. Google and Nvidia have their own platforms to challenge for the throne, while Sony and Nintendo lead numerous other firms chasing down the leaders. If Microsoft is to create a leadership position, it will have to be aggressive in its development and rollout of services.

The new markets for the beta are Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Spain and Sweden.

“Bringing the Project xCloud preview to gamers across Western Europe is a top priority for us,” said Catherine Gluckstein, GM for Project xCloud. “We know gaming is an important way for people to remain connected, particularly during these times of social distancing, but we also recognize how internet bandwidth has been impacted with strain on regional networks as large volumes of people responsibly stay home and go online.”

While it will not present as much of a problem for the network as popular streaming services, Gluckstein is right in that the team will have to be careful to ensure it is not placing undue strain on the networks. In Italy, Telecom Italia CEO Luigi Gubitosi partly attributed a 70% surge in traffic at the beginning of the Italian lockdown on gaming titles Fortnight and Call of Duty, where the online features are incredibly popular.

Although it is far too early to decide on who is winning the cloud gaming segment, consumer entertainment is an important area for Microsoft. Revenues across the last quarter declined for Xbox, though this was expected as a new console is ready to launch, but the team boasted of a new record for Xbox Live monthly active users and Xbox Game Pass subscribers more than doubled.

Recurring revenue is the Golden Goose for the digital economy and cloud gaming could be one of the more fruitful coops.

Google Stadia attempts to lure independents with Makers initiative

While Google has made quick progress in launching its cloud gaming platform, the main criticism is a lack of independent content creators. The launch of its Makers initiative hopes to correct this.

Announced during the virtual Google for Games Developer Summit, Stadia Makers will attempt to lure independent game publishers into the Google universe, adding depth and variety to the currently thin content library. If Google Stadia is to be a sustained success, this initiative will have to get off to a flying start.

“For this expansion of self-publishing, Stadia Makers is partnering with Unity, a team with a long history of building new platforms and gaming services hand-in-hand with the developer community,” the team said in a blog entry.

“Unity has worked with thousands of game developers over the years, and today, powers 50% of all new games with optimized support for Stadia and more than 25 other platforms.”

Since launching the platform in November 2019, 30 games have made their debut, while there are another 120 slated for release over 2020. As it stands, this is a thin library, and while it will certainly appeal to millions of gamers, if the platform is to meet the expectations of Google it will have to increase.

Cloud gaming has the potential to upset the status quo in the gaming industry, as the promise of decreased installation times and removing the need for on-console storage is attractive. By storing content on the cloud, instead of on consoles in the home, greater flexibility and agility is introduced to developers when it comes to updates and development, while new experiences can be introduced as some of the technical limitations of the consoles are released.

This has been the challenge for the gaming industry in the past. It is way too expensive to constantly upgrade the consoles and PCs to ensure the desired game performance. Streaming from powerful servers without the need to download or update is a significant advantage.

However, as Google is leading the world into the unknown, there are no prior experiences or precedents to benefit from; it will have to learn from parallel industries. The increasingly popular streaming segment, and Netflix in particular, could be used as an excellent example to learn from.

Similar to cloud gaming, subscription video-on-demand (SVOD) revolutionised the content world by creating a new dynamic in terms of the distribution of content. It digitised the accessibility of content, turning consumer habits upside-down in the process. And in the SVOD world, Netflix is the reigning champion. There are pretenders to the throne, but Netflix is realistically the only one who could claim the number one spot. But Why?

Firstly, it was first to market. Secondly, the pricing point was excellent. Third, the user experience can be matched by few others. And finally, the depth, breadth and quality of the content is arguably unmatched. In the platform world, content is king.

But what is critically important here is the democratisation of content creation. Netflix lowered the barriers of entry to offer more independent content creators a gateway to the consumer.

Whether it is blockbuster movies, edgy series, nostalgia driven shows, niche documentaries, ‘live’ comedy, hyper-localised entertainment or cult-content, the breadth and depth of the library appeals to everyone and anyone. The discovery function still needs work, which can frustrate consumers, but there is content for any fad, craving or guilty pleasure. Netflix has invested in content, encouraged variety and then doubled down year-on-year.

This approach works. It is expensive and somewhat of a slow burner in terms of profitability, but the Netflix financials are showing that patience pays off. Looking at the latest financial statement, Netflix revenues exceeded $20.1 billion, with net income of $1.8 billion, with 167 million subscribers. These are huge numbers, but there is still significant potential for growth outside the US where Netflix has 106 million customers.

First and foremost, Google can learn three things from Netflix; a sound pricing strategy, an excellent user experience and an extensive content library. These are the three areas Google should be heavily investing in immediately, but then it should also be taking note of the partnership programmes which the streaming companies are benefitting from.

Looking at the Disney+ go-to-market strategy in Europe, the team is heavily reliant on partnerships with connectivity companies to gain access to customers but also lean on the credibility these companies have developed in terms of billing. Google has already partnered with Verizon to gain access to new customers, and it should be looking for more partnerships with telcos around the world. Fortunately for Google, the telcos are very open to discussing relationships with the rowdy Silicon Valley residents.

With convergence, or bundling, strategies becoming much more prominent, the telcos are searching for new partners to add additional layers of value. Data is effectively a commodity nowadays, therefore, to improve loyalty and maintain ARPU, new services have to be built on top of the connectivity foundation in contracts. Content is the most popular today, though gaming could certainly factor into the equation.

It might not sound like the simplest of routes to success, but the prize at the end of the rainbow could certainly be worth it.

According to Global Web Index, currently 16% of gamers use cloud gaming services, though these are most likely to be among the top 25% of earners in their demographic. Markets and Markets, another analyst firm, suggests the worldwide cloud gaming segment could be valued at $306 million in 2019, but this will rapidly increase to $3.1 billion by 2024 thanks to the commercialization of 5G, the rise in a number of gamers, and the upsurge of immersive and competitive gaming on mobile.

The major financial rewards might be a few years down the line, but the COVID-19 pandemic which is forcing so many consumers indoors presents an opportunity. Without pubs, schools or parks to fill the hours, many potential customers will be searching for entertainment. The streaming companies are clearly benefiting today, though an effective engagement campaign could reap benefits for Google and its Stadia platform.

The cloud gaming segment could offer significant rewards for Google, though it will have to learn from Netflix if it would like to realise the full potential. Breadth and depth of content is critical, and to do that the independent content creators, not just the multinational game publishers, will have to be brought on board; scale is everything.

Who is set to benefit from the COVID-19 outbreak?

For millions of individuals and businesses, the threat of COVID-19 is financial ruin, but there are parts of the technology industry that are benefiting from the considerable changes forced on society.

The FTSE 100 Index is likely to close below 5,000 today, a 27% decline in a month, while the Dow Jones is currently down (at the time of writing) 31% over the same period. Economies around the world are being hit disastrously hard, but some will see gains out of this pandemic at least temporarily, if not permanently.

Cloud Computing

The cloud computing segment has been on the rise for years, though as more employees find themselves restricted to their homes more workloads will have to be migrated to the cloud to ensure the business can function as usual.

For the cloud companies, the coronavirus outbreak is effectively forcing some organisations through a very rapid digital transformation project, to embrace the cloud and mobility trends. From an IaaS perspective it means more money, from SaaS it means more engagement and PaaS more opportunity.

Amazon Web Services, Microsoft Azure and Google Cloud are the obvious beneficiaries as market leaders, though for companies like Oracle, who might be working with more traditional industries that have resisted evolution to date, new conversations about enabling the workforce will have to occur.

Interestingly enough, once these businesses have begun their journey towards a cloud-based business model and environment, it is highly unlikely they will go into reverse. This could be a catalyst for accelerating the already fast-blossoming cloud segments.

Video conferencing and collaboration

Although there is no substitute for a face-to-face meeting to progress and complete complicated projects, alternatives have to be sought today. Many businesses are encouraging more meetings to be conducted via video links rather than email to not only ensure effective communication but ensure well-being of employees. Contact with colleagues via video link is not perfect by any stretch, but it might assist some who are feeling the loneliness of remote working.

Microsoft is an obvious beneficiary here, it announced last week the number of daily active users for its Teams collaboration suite increased by 12 million, though there are many others who are financially better off also.

Zoom Video Communications, a remote conferencing services company headquartered in San Jose, has seen share price increase 130% since the beginning of the year, while more marketers are turning to companies like ON24 to purchase webcasting and webinar services to ensure lead generation projects can continue.

As mentioned above, some companies are being forced into a digital transformation project meaning some of the remote working capabilities might be retained in the long-term, but virtual alternatives are never going to be a complete replacement for face-to-face meetings, where we can subconsciously pick up non-verbal communication cues so easily.

Electronic payments

The likes of Visa, Mastercard and AMEX are already benefitting from long-standing trends where physical cash is quickly becoming a thing of the past, though the COVID-19 outbreak could accelerate this.

In the short-term, some shops are now only accepting digital payments, though as the total number of transactions are decreasing, so will revenues. That said, in the long-term it could force customers into adopting digital payments.

Although cash is quickly becoming a thing of the past, some from the traditional generations still resist the use of digital currency. The chequebook took years to fall out of common usage as banks and shops were still compelled to accept such payment when offered. The same could be said of physical cash; as long as some still want to use it, it will persist. But in refusing to accept physical payments, shops are forcing some individuals to adopt digital payments.

This is not a likely to be a permanent change for all, but it might be for some, both in terms of consumers who adopt digital payments and the shops who will now only accept digital currency.

Ecommerce

The more people are at home bored, the more likely fingers are going to venture towards the eCommerce apps to spend the money which has been saved from not going to the pub. Your correspondent’s household has turned into a satellite Amazon storeroom thanks to certain individuals in the flat.

Streaming, gaming and video content platforms

This is perhaps the most obvious example of a beneficial segment.

In terms of video streaming, parents will need to occupy children, while adults will also need entertaining as pubs, clubs, theatres, parks, beaches, holidays and gigs all disappear. Netflix is already immensely popular, but with more people stuck at home in the evenings, it may well become more so, but this benefit is not limited to the content king. All streaming platforms could benefit, while Disney+ is launching at a good time to capture the attention of European consumers.

In terms of video platforms outside of streaming, YouTube is enjoying particular success. Not only are there those who are trying to entertain themselves, but there is also millions of hours of information (some much more accurate than others) on the pandemic itself.

From a gaming perspective, this is back to the boredom conundrum. With the usual entertainment venues shut down, consumers will need to be entertained. The likes of Microsoft Xbox, Google Stadia and PlayStation are likely securing additional subscriptions as well as in-game purchases.

Savvy corporates

For those corporations who in a more fortunate cash position than others, the shock to the financial markets could be viewed as an opportunity. Softbank is a perfect example.

Today (March 23), Softbank announced it was selling off certain unnamed assets to fund a second share buyback programme. Combined with the first announced on March 13, Softbank will be able to retire 45% of Softbank shares which are currently on the open market.

Generally speaking, the fewer shares which are on the open market, the less exposed a company is to external influences. All you have to do is look at the conflict between Elliott Management and Twitter/AT&T/Telecom Italia to see what influence an activist investor can have on a business where share price has taken a decline. Share buyback programmes could be viewed as a way to protect a corporate strategy from short-term influences and aggressive investors.

Online grocery delivery

With the rush on supermarkets persisting as the days turn into weeks, online grocery delivery companies are seeing a surge in popularity.

Online shopping delivery service Ocado suspended its website last week, telling customers demand exceeded its capacity to deliver. The firm has said it would fulfil its orders and will soon reopen, with rations placed on certain food items. Share price for Ocado has surged this month, though it did decline once it announced it would temporarily stop taking orders.

The telecommunications industry

The telecommunications industry is critical to today’s society functioning seamlessly, though it has traditionally been ignored. Consumers have simply expected the internet to work without appreciating the importance of the telecommunications industry. Telcos are viewed as boring companies, paid little attention in everyday life.

Thanks to the number of people attempting to entertain themselves, work from home or access educational resources the telco industry has been thrust into the limelight. Authorities are putting in measures to protect these valuable assets, not only to ensure consumers are able to continue their daily lives but so emergency services can continue to function, or research labs can collaborate to create a vaccine.

The telco industry underpins the success of almost every element and facet of society, and now the networks are under pressure, everyone realises it.