Alphabet's (GOOG 0.69%) (GOOGL 0.77%) Google launched its cloud gaming service Stadia on Nov. 19, and the initial reviews weren't kind.
Paul Tassi wrote on Forbes.com that it's a "technical, conceptual disaster," due to its frequent lag and "baffling" business model. The Washington Post's Gene Park called it "unplayable at times, magical in others," while The Verge's Sean Hollister lamented that the paid service was "just a beta." Ars Technica's Kyle Orland echoed that sentiment, declaring that Stadia was "too limited and too unreliable, for too little benefit."
That rough start wasn't surprising, since Stadia represents a very early step into the nascent cloud-gaming market. However, Stadia's messy launch indicates that it will likely face an uphill battle against Microsoft (MSFT 0.85%) and Apple (AAPL 0.48%) in the growing gaming-as-a-service market.
Not the "Netflix of gaming"
When Google introduced Stadia earlier this year, many gamers expected the "Netflix of gaming" with an unlimited library of streaming games. Instead, it turned out that Stadia was just a cloud-based locker for purchased games.
The paid version which just launched this month, Stadia Pro, lets gamers buy games (with exclusive discounts on select titles) and stream them at up to 4K screen resolutions at 60 frames per second with 5.1 surround sound, for $9.99 a month. Subscribers will also periodically receive free games, starting with Destiny 2: The Collection.
The free version, Stadia Base, will launch next year and allow gamers to stream games at up to 1080p screen resolution at 60 frames per second with stereo sound. However, Base users won't have access to any discounts or free games.
Stadia runs on Google's Chromecast Ultra, newer Pixel phones, and the Chrome browser on laptops and desktops, and offers a catalog of 44 current and upcoming titles. But only one title -- Coatsink's Get Packed -- is exclusive to the platform.
It's easy to spot Stadia's flaws. Gamers can't transfer purchased games over to Stadia -- they need to buy them again from Google's store. A lack of exclusive games leaves it vulnerable to Sony's and Microsoft's next-generation consoles in 2020. The service also won't work properly on spotty internet connections. All these issues suggest that it's simply easier for gamers to stick with digital downloads on PCs and consoles.
Why Stadia will lose gamers to Microsoft and Apple
To make matters worse, Microsoft and Apple both offer gaming services which are arguably more appealing than Stadia.
Microsoft's Xbox Game Pass, which was launched two years ago, offers unlimited downloads of over a hundred games for just $9.99 per month. It subsequently expanded that service to include PC games and introduced Xbox Game Pass Ultimate, which bundles Game Pass with an Xbox Live Gold subscription for $14.99 per month.
Microsoft doesn't disclose its total number of Xbox Game Pass subscribers, but Video Games Chronicle pegged the number at 9.5 million earlier this year. Microsoft also recently claimed that Game Pass members played 40% more games (including non-Game Pass titles) than nonmembers.
That's why it wasn't surprising when Microsoft recently announced plans to merge its own cloud gaming service, Project xCloud, into the Game Pass and Live ecosystem in the near future. That merger could create a much more cohesive gaming ecosystem than Stadia.
Apple doesn't offer a cloud gaming service, but its new Apple Arcade platform offers unlimited downloads from a library of over 100 games for just $4.99 per month. This service -- which runs on iPhones, iPads, Apple TVs, and Macs -- offers a solid mix of new and original games for both casual and serious gamers.
Apple Arcade's business model is also much easier to understand than Stadia's, and all of its games work offline. Apple also doesn't allow ads and in-app purchases in Apple Arcade games, which ensures that players experience full games instead of microtransaction-riddled "pay to win" games.
What does this mean for Alphabet investors?
Stadia's clumsy start won't dent Google's near-term growth since it still generates most of its revenue from ads. However, Stadia could eventually join Google's graveyard of dead services if it doesn't streamline its business model and attract more developers soon.
If that happens, all of Google's lofty promises about Stadia becoming a new all-in-one cloud-based platform for gaming, broadcasting, and viewing could go up in smoke. Meanwhile, Microsoft and Apple could move forward and conquer the gaming-as-a-service market.