What is cloud gaming?

First demonstrated in 2000 by G-Cluster, but only now coming into its own, cloud gaming is a cross-generational on-demand gaming service. 

Traditional games run 'on-premises' by inserting a game cartridge or disc into a console or by downloading game software onto an individual system. Cloud gaming allows games to be stored directly on remote servers, and then the visual interface is streamed directly to a user's device (similar to digital content streaming services).

A significant amount of the gaming population has already moved from disc-based games to digitally downloaded ones, and with the major console developers now releasing digital only systems, cloud gaming looks set to be the next step in gaming evolution and an honest disruptor to the gaming industry.

What are the advantages of cloud gaming?

Advantages for consumers 

• Content is accessible via a stream service on demand without having to be downloaded and installed locally which means games are accessible from any device and any location.
• There are no download and installation times, making cloud-based games a smoother pick up and play experience.
• There are no hardware requirements regarding CPU, GPU or system storage. The traditional limitations that hardware requirements place on video games are eliminated.

Advantages for industry

• Cloud games can offer a stronger level of cybersecurity than downloaded games because they store information on remote servers and in virtual storage spaces.
• There are significantly reduced bandwidth costs as, traditionally, companies may be required to pay higher costs when traffic is high, even though 90% of their server space may be unused when traffic normalises. Cloud systems are able to partition out their resources dependent on what is actually being utilised.
• Developers can make games which pull in significant numbers from microtransactions across large swathes of the gaming population.  This is because cloud gaming is potentially more accessible to everyday consumers than traditional video games and can integrate well with Games as a Service (GaaS). 

What are the challenges for cloud gaming?

There are still a number of infrastructure issues that may delay rapid take up of cloud-based gaming:

• Gaming service providers must make significant investment in both data centres and server farms across various locations in order to seamlessly host and stream software to what could be a global player base. This could be far more than costs associated with the traditional gaming model.
• For users, the service is entirely dependent on their internet connection, with reliable, high-speed services most suitable for cloud gaming. These services can be expensive, difficult to access or unreliable and a dropped connection which interrupts the stream does not make for an enjoyable gaming experience.

Double edged sword – the legal challenges

Despite the growth opportunities in the cloud gaming market, there are a number of obstacles that may prevent developers from fully embracing it.

Monetisation and gambling

Cloud-based gaming theoretically goes hand in hand with microtransactions and GaaS, purely due to its innate accessibility and marketability to the wider population. Over the last few years, we've seen issues around 'loot boxes', the most widely used form of microtransaction, popularised by franchises such as Activision's Call of Duty or EA Sports' FIFA. 

Some bad publicity has been matched by regulatory disapproval and loot boxes have been a regular topic of governmental discussion from the UK, to the Netherlands and Canada. 

If cloud-based gaming grows its market share, and increases the availability and accessibility of certain games to a wider market base, then we may see regulators inspect monetisation methods in even closer detail to assess whether or not they are mimicking gambling-type practices or unfairly impacting consumers.

Children

Children are some of the biggest purchasers of in-game products and loot boxes, which has focused debate on whether video game companies are inducing children to gamble by including paid for loot boxes.  Special rules apply to protect children from gambling and as cloud gaming is potentially more accessible to children, they become increasingly important.

Another issue is that targeted advertisements are ubiquitous in cloud gaming, including on smartphones – Facebook's cloud gaming service revolves around mobile games.  Companies relying on in-game ads and collecting personal data, whether to target ads or for other purposes, need to be aware of additional rules which apply to gamers under 18. 

In the UK, the Children's Code introduces statutory principles which businesses must comply with if they are providing digital services which may be accessed by under-18s.

Cloud-based gaming's increased reach may exacerbate the growing conundrum for video game developers: they need to balance monetisation of cloud-based offerings to children against the risks associated with increased regulatory oversight and a greater risk of reputational damage.

Personal data

A trait of traditional on-premises gaming is that it can be used almost completely anonymously without any concern about how data may be recorded and repurposed (although there are often registration requirements to download games). 

The nature of cloud gaming means that companies will have much greater access to data, from adults and children, domestic and international. Crucial to the success of cloud gaming is using this data responsibly and in compliance with data protection legislation which may be more of a challenge for small developers and publishers.  

Future growth?

The first half of the 2010s saw limited growth in the cloud gaming market with only a few options being provided by the likes of Gaikai and OnLive, although Sony's purchase of OnLive and rebrand into PlayStation Now in 2015 laid down a significant marker for the industry. 

In 2019 Google released its in-house cloud gaming service, Stadia, while Microsoft released Xbox Cloud Gaming in 2020 as part of its wider Xbox games service, powered by Microsoft Azure. In September 2020, Amazon also announced its own yet-to-be released cloud gaming platform called Luna, to be powered by Amazon Web Services. Perhaps unsurprisingly, even Facebook has produced its own cloud gaming platform, focusing on mobile games.

It is telling of the potential in this market that these companies have all become involved in cloud gaming technology in a relatively short space of time. Reports estimate that the market could be worth upwards of $4.8 billion in 2023, a significant increase from an estimated 2019 value of $170 million.

This growth projection is driven by a number of factors: 

• Traditional gaming consoles and PCs are regularly upgraded or require updates, putting pressure on consumers to follow that curve and requiring them to spend more. Cloud gaming streams directly to a consumer's device, allowing gamers to play video games regardless of their device specifications. 
  
  This easy accessibility and low barrier to entry is creating a major shift in attitudes towards video games.  As a result, the market is less restricted to the typical millennial generation and take up ranges from children as young as four and five, through to adults in their sixties, so a vast increase in 'casual' gamers is anticipated. 
• Smartphones are a significant contributor to the games market, but their cloud gaming offering currently suffers from technological issues including bandwidth, video compression and latency, especially on 4G technology. The growth of 5G technology looks set to resolve many of these difficulties.

To actualise this projected growth, the industry must iron out its reliability-based kinks and position itself as a credible alternative to traditional gaming services. Part of this will be technological, ensuring that their services are optimised to provide consistently high-quality gameplay experiences to consumers. 

The traditional gaming industry is too entrenched among everyday gamers to be completely replaced by cloud gaming, at least not in the short to medium term, but cloud gaming services don't need to replace traditional gaming to be profitable.  Marking themselves out as an alternative by providing high-end video games which appeal to the casual gamer and capitalise on ease of access and use will unlock potential.