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Cloud and Subscription Services are the Future of Gaming

Last Updated September 23, 2020 1:13 PM
William Worrall
Last Updated September 23, 2020 1:13 PM

Some recent signs in the gaming and technology industries are pointing toward cloud and subscription services as being the future. Drops in hardware sales are being offset by a pretty sizable increase in subscriptions to several different services.

With the current generation of gaming hardware nearing its end, a drop in sales is to be expected. Indeed, a drop in the sales of Xbox hardware was recently posted in Microsoft’s financial report . A huge increase was seen in the number of people subscribing the both Xbox Live and Xbox Game Pass. Although Microsoft did not provide exact figures on the increase in subscriptions, they did make it clear that the relatively stable revenue for Xbox Content and Services was due to the increased subscriber count offsetting a loss in third-party sales from the same time last year.

This massive increase in subscriptions even managed to offset the loss in revenue from IAP (in-app purchase) games. These signs seem to indicate that the longevity of current models of monetization, such as IAP and loot boxes, may not be the stable money-maker they’re often thought to be.

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Services such as Microsoft’s Xbox Game Pass have contributed to keeping revenue stable. | Source: Microsoft

A Bad Day for IAP and Loot Boxes

Despite their popularity within the industry, IAP and loot boxes are often less popular with gamers. Loot boxes, in particular, have seen a heavy amount of regulation over the past few years due to their perceived negative effects on children and other players.

On the other hand, cloud and subscription services are increasingly popular across the board. PS Now saw an increase to 700,000  users earlier this year, while Microsoft’s own ‘Netflix for video games ‘ X-Cloud has been released to preview; in less than a month, it has gained over 10,000 downloads despite its limited release.

This doesn’t even begin to touch on services such as Xbox Game Pass and Xbox Live. By the beginning of this year, Xbox Live already had 64 million active subscribers and Game Pass has reached an all-time high. While recent exact figures on these services aren’t known, the recent financial report noted that the stability of ‘Content and Services’ was maintained by subscriptions despite a massive falloff in third-party sales from the same time last year.

Netflix - Subscriber Growth
Netflix has seen consistent growth since 2012, mostly in the international market. | Source: Statista

A Bright Future for Cloud and Subscriptions

The main takeaway from these figures and the overall trend of subscription and cloud services is that they seem to hold a more stable revenue stream than comparable methods of monetization. Drawing a parallel to other forms of media services such as Netflix has seen relatively consistent growth  year on year since their inception, showing the potential for this model of business.

If the cycle of hardware  sales growth leading to eventual shortfall shows anything, it is that the market is trending toward these cloud and subscription services more and more. With services such as Google Stadia and Project X-Cloud on the horizon, it is entirely possible that we will soon see companies moving away from hardware altogether.