Microsoft (MSFT -1.27%) plans to include its cloud gaming service xCloud as a free feature for Xbox Game Pass Ultimate subscribers in September. The bundle will include access to Xbox Live, the Xbox Game Pass service, and xCloud for $14.99 per month.

Xbox Game Pass already offers unlimited access to over 100 games via digital downloads. But with xCloud, Microsoft will allow gamers to directly stream those games to Xbox consoles, PCs, tablets, and phones. The xCloud service will initially stream current-gen Xbox One games, before being upgraded to stream Xbox Series X games next year.

Microsoft's announcement wasn't surprising since xCloud was widely expected to complement Xbox Game Pass and Xbox Live. But that upcoming bundle spells trouble for Alphabet's (GOOG -1.10%) (GOOGL -1.23%) Google Stadia, which still hasn't gained much momentum in the cloud gaming market after its launch last year.

Microsoft's xCloud running on a smartphone.

Image source: Microsoft.

What happened to Google Stadia?

When Google initially revealed details on Stadia last March, it sounded like the "Netflix of games" -- a subscription-based platform that served up unlimited streaming access to a large library of games. Google also declared the platform would be seamlessly integrated with YouTube, and allow viewers to join the games they were watching.

But when Google officially launched Stadia last November, it clearly wasn't the Netflix of gaming. Instead of offering unlimited access to a library of games, gamers needed to purchase games individually (even ones they already owned) to play them on Stadia. Stadia Pro subscribers, who paid $10 a month, occasionally received free games -- but they were mostly older cross-platform titles.

Stadia wasn't integrated with YouTube at launch, and its limited Google Assistant commands, poor support for wireless controllers, and lack of exclusive games and 4K streaming on browsers disappointed gamers. Basic features, including family sharing and buddy pass, were also postponed.

Google subsequently fixed many of those launch issues, including its long-awaited integration with YouTube, but the general consensus was that Stadia wasn't a fully baked platform yet. Google hasn't revealed any user numbers for Stadia yet, but Ars Technica noticed only a few thousand gamers had logged scores on Thumper, a free game for Pro subscribers, earlier this year.

"Assassin's Creed Odyssey" running on Google Stadia across multiple platforms.

Image source: Google.

A recent article from The Verge, entitled "Google Stadia is a Lonely Place," also noticed the Stadia version of the popular battle royale game PUBG was populated with bots instead of human players. Those reports, along with Google's well-documented habit of aggressively launching new products but abandoning them shortly afterward, suggest Stadia could be in serious trouble.

Why Microsoft's xCloud could crush Stadia

Microsoft's Xbox Game Pass, which was launched three years ago, has also been referred to as a "Netflix-like platform." It didn't offer on-demand streaming, but its unlimited downloads made it an appealing alternative to Stadia's a la carte purchases.

During its conference call in April, Microsoft revealed Xbox Game Pass had over 10 million subscribers, representing roughly a fifth of its estimated installed base of 48.2 million Xbox Ones. By offering xCloud as a free perk for Xbox Game Pass Ultimate subscribers, Microsoft could convince lots of gamers to stream its library of games instead of downloading them.

Microsoft also recently launched a PC version of Xbox Game Pass for Windows 10 users, which offers access to over 100 PC games. Microsoft already allows Windows 10 users to locally stream Xbox One games to their PCs, so bundling xCloud with the PC version of Game Pass would represent a natural extension of that ecosystem and bring the two platforms closer together.

Lastly, Microsoft recently killed off its Mixer game streaming platform and migrated its users to Facebook (META -4.13%) Gaming. That move could pave the way for xCloud's integration with Facebook's massive social network and counter Google's plans to marry Stadia with YouTube.

A missed opportunity for Google

The success of xCloud could significantly strengthen Microsoft's gaming business, which generated 9% of its revenue last year, ahead of its Xbox Series X launch later this year.

Stadia's failure wouldn't significantly hurt Google, which still generates most of its revenue from online ads, but it would mark another missed opportunity for the tech giant. Unless Stadia gets its act together, refines the platform, and rethinks its a la carte business model, it could be rendered obsolete by xCloud later this year.