Netflix started as a competitor to Blockbuster. A more convenient way to rent movies which didn’t require driving all the way to the store. And then it evolved into an entertainment powerhouse.
There were two critical steps in this transition: a technical one and a business one. The technical one was the development of a high quality streaming service. Netflix took innovative steps developing their infrastructure, such as setting up appliances in ISPs throughout the world.
The business breakthrough was the development of a new model: the “all-you-can-watch” streaming service. The price point, flexibility, and convenience helped fill an unmet customer demand. And created a habit that made the service sticky.
Fast forward a few years, and now Netflix is a 150B billion dollar behemoth. They have produced a lot of proprietary content, but the bulk of the value that they have created comes from developing this business model at the right time.
We are now at a similar inflexion point for game streaming.
Game streaming is technically more complex than media streaming. Whereas in media the data flows in only one direction, for a game the data must flow in both directions. The actions of the player must be fed back to the game server, with a very, very low latency.
For a game to run at 60 frames per second, latency has to be below 16 milliseconds. This extremely low latency requires a network of data centers close to player areas. However, network latency is just one of the many challenges.
During the last few years multiple companies have been working on these challenges. And it seems the technology has reached a point where game streaming services are imminent.
This is probably one of the most significant shifts in the videogame industry. It will spark a new wave of innovation in gaming, and brand new technologies, as I recently wrote in the Google Cloud blog.
Similarly, there has been a gradual but very clear shift in the gaming business models. From a model in which physical disk sales dominated publisher revenues, to a model dominated by recurring revenues.
This confluence of factors has led many technology and gaming giants to develop their game streaming offerings. Google announced project stream, Microsoft and Amazon are reportedly working in their own offerings. EA announced a subscription service and is also working in the streaming component. All these and others join Sony, which has been growing their offering for a while.
We are still in the infancy of game streaming. However, if any of these companies manage to implement the Netflix playbook successfully we may see a brand new entertainment offering, and hundreds of billions of dollars of value creation.