Facebook (NASDAQ:FB) recently acquired PlayGiga, a Spanish cloud gaming company that provides services in Italy, Argentina, Chile, and Spain. The tech giant didn't disclose the size of the deal, but an earlier report at Cinco Dias pegged the value at 70 million euros ($78 million).

This acquisition complements Facebook's other gaming efforts and indicates that it will chase Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google, Microsoft (NASDAQ:MSFT), Sony (NYSE:SONY), NVIDIA (NASDAQ:NVDA), and others into the nascent cloud gaming market. But will this expansion pay off?

Another brick in Facebook's gaming ecosystem

Three years ago Facebook introduced its "Instant Games" platform, which enabled users to launch lightweight games from the News Feed and Messenger. Last December, Facebook claimed that over 20 billion game sessions had been played across 5,000 titles, which formed the foundation of a gaming ecosystem within its own apps.

Two gamers play a video game.

Image source: Getty Images.

Last year, Facebook launched its own video game streaming platform, Facebook Gaming, to challenge Amazon's Twitch and Google's YouTube. Facebook Gaming's total number of active streamers grew 236% to 153,000 between the first quarter of 2018 and the second quarter of 2019, according to Streamlabs.

Facebook Gaming is still smaller than Twitch and YouTube Gaming, but Streamlabs notes that most of its growth comes from outside North America, with Asia, Latin America, and Europe being its strongest markets. That's why it made sense for Facebook to buy PlayGiga, a Spanish cloud gaming company that serves Europe and Latin America.

Earlier this year, Facebook merged its Instant Games and Gaming videos onto a single "Gaming" tab on its core app. It also remains invested in VR gaming through Oculus, which it acquired five years ago, and recently bought Beat Studios, the maker of the hit VR game Beat Saber. Facebook has shipped 2.6 million Oculus VR headsets so far, according to SuperData's latest numbers, and those numbers could continue rising as the market grows.

Facebook's extension into the cloud gaming market could eventually enable gamers to launch high-end games directly from Facebook's News Feed or Messenger. Merging those games with Instant Games and Facebook Gaming could create a cohesive ecosystem within its social network which lets gamers seamlessly play, stream, and watch games.

But it's a long uphill battle

In theory, cloud gaming streamlines gaming by eliminating the need for high-end local hardware, lengthy downloads, and constant updates. The game runs on a high-powered server, and the gamer only needs a high-speed internet connection to stream the gameplay back to their PC, mobile device, or console -- like an interactive video. That setup would allow games to be instantly accessed like Netflix videos via a subscription service.

A network of cloud computing connections.

Image source: Getty Images.

In practice, cloud gaming faces major obstacles to mainstream adoption. Gamers would need constant access to high-speed internet connections, and they could lose access to a game if a publisher pulls it from the platform. Many gamers who already own capable gaming PCs or gaming consoles also wouldn't be motivated to subscribe to a service.

That's why cloud gaming remains a niche market. Sony's PS Now, which was launched five years ago, has over a million subscribers, but that represents less than 1% of all PS4 consoles sold to date. Google Stadia's launch in November was poorly received, with gamers criticizing its technical problems and confusing business model, which requires customers to buy individual games (even ones they already own) to be stored and played on the cloud.

NVIDIA's GeForce Now cloud gaming service remains in a beta test, while Microsoft's Project xCloud probably won't arrive until late 2020. Meanwhile, both Microsoft's Xbox Series X and Sony's PS5 will sport high-end hardware for locally installed games when they launch next year, which indicates that neither gaming giant is ready to bet the farm on cloud gaming.

Despite all those hurdles, the global cloud gaming market of $45 million in 2018 could still develop at a compound annual growth rate of 41.9% from 2019-2025 and grow into a $740 million market, according to Valuates Reports, thanks to new gaming services and faster internet speeds.

The road ahead

It's unclear if Facebook plans to aggressively compete against PS Now, Stadia, or Project xCloud, but the growth of Instant Games, Facebook Gaming, and Oculus suggests that it has the momentum to launch a cloud gaming service.

If that happens, traditional gaming companies should watch their backs. Facebook serves over 2.8 billion monthly active users with its family of apps, and converting even a fraction of those users to cloud gamers could disrupt the growing market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.