Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google recently revealed Project Stream, a cloud gaming platform for streaming high-end video games in the Chrome browser. Google began testing the platform on Oct. 5 by letting a "limited number of participants" play Ubisoft's Assassin's Creed Odyssey for free in Chrome.
Google stated that selected participants would need home internet connections of at least 25 megabits per second, as well as Google and Ubisoft accounts. Google posted a demo video on YouTube showing the platform streaming Assassin's Creed Odyssey at 60fps at a 1080p resolution -- which is comparable to the performance of a high-end gaming PC.
An unsurprising move
Google's move into the cloud gaming market isn't surprising. Reports about the project, previously called "Project Yeti", had already surfaced over the past year.
It's also arriving late to the party, since Sony (NYSE:SNE) already launched the world's largest cloud gaming platform with PS Now, and NVIDIA launched two versions of its GeForce Now cloud gaming platform for its Shield devices and PCs. HP also offers a cloud gaming service for its Omen gaming PC owners, while Microsoft recently started testing Project xCloud, a game streaming service for Xbox consoles, Windows PCs, and mobile devices which it plans to launch next year. Electronic Arts is also reportedly developing its own cloud gaming platform.
However, what sets Project Stream apart from those services is that it doesn't require the installation of any additional front-end software. Instead, Google can merely use Chrome, the most widely used internet browser in the world, as a launchpad for its cloud gaming platform.
Google's cloud gaming strategy
Google's total gaming revenue rose 32% to $5.3 billion in 2017 according to Newzoo, making it the world's seventh largest publicly traded game publisher by annual revenue. However, that figure -- which Google never officially confirmed -- would only have accounted for about 5% of Alphabet's total revenue last year.
Google generates that revenue by taking a 30% cut of paid apps and in-app purchases on Google Play. It previously took a 30% cut of subscriptions as well, but it recently lowered that rate to 15%.
Google's Android is already the most widely used mobile OS in the world, which gives it a firm presence in the mobile gaming market. But it doesn't have much of a presence in PC gaming, which remains a hot market thanks to popular free-to-play games like Fortnite and triple-A titles that require high-end hardware.
However, a key weakness in the PC gaming market is its fragmentation between multiple DRM (digital rights management) platforms -- like Valve's Steam, EA's Origin, and Ubisoft's UPlay -- which all require the installation of their own software platforms. This market remains fragmented because the competing digital storefronts frequently offer exclusive games or discounts.
That's why offering a subscription-based cloud gaming service for PCs, which would replace the competing platform model with a "Netflix for games," sounds so appealing. Launching a game on a single Chrome tab would also be much simpler than using Sony, NVIDIA, or HP's front-end software.
Project Stream could also enable Google to stream high-end PC games across PCs, mobile devices, and Android set-top boxes. This would simultaneously address its weakness in PC gaming, bridge the gap (or blur the line) between PC and mobile games, boost Alphabet's total gaming revenue, and set the foundations for a deeper integration of cloud games into the Google Play ecosystem.
If that happens, we could see Google offer both a la carte downloads and monthly subscriptions for Google Play games. Google could also stream the cloud games to YouTube Gaming, which could help the game streaming platform gain some ground against Amazon's Twitch.
A baby step in the right direction
Google's Project Stream opens up fascinating possibilities for the cloud gaming market, which could let gamers play high-end games on low-end hardware. However, the technology remains imperfect, and even established platforms like PS Now suffer latency issues. In addition, 1080p gaming probably won't satisfy high-end PC gamers, who often consider 4K gaming to be the new gold standard.
It's tough for cloud gaming providers to find the sweet spot for subscription prices, since video game sales are frequent (especially for digital downloads), and a $60 triple-A game could be played for a few months, making monthly subscriptions impractical. Therefore, Project Stream is a step in the right direction, but it probably won't move the needle for Google, or the nascent cloud gaming market, anytime soon.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Leo Sun owns shares of Amazon and HP. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Netflix, and Nvidia. The Motley Fool recommends Electronic Arts and Ubisoft Entertainment. The Motley Fool has a disclosure policy.