Amazon (AMZN -2.99%) recently pulled the plug on Crucible, a high-budget video game it had been developing for six years, stating it didn't see a "healthy, sustainable future ahead" for the third-person shooter.

Amazon Game Studios initially launched Crucible in May, but pulled it back into a closed beta in June after receiving negative reviews. Many critics claimed Crucible borrowed elements of popular multiplayer games like Fortnite, Overwatch, and League of Legends, but failed to blend them into an appealing new experience.

Back in 2016, Amazon Game Studios announced the development of three high-budget games: Breakaway, Crucible, and New World. Amazon canceled the team-based brawler Breakaway in 2018, so the cancellation of Crucible leaves its MMORPG New World as its last major video game standing.

Amazon says the Crucible team will help develop New World, which had already been delayed from this August to next spring. Do all these cancellations and delays indicate Amazon's gaming ambitions are in trouble?

Amazon's "Crucible".

Image source: Amazon Game Studios.

Amazon's gaming strategy

Amazon initially established Amazon Game Studios in 2012 to develop tablet-oriented games for the Amazon App Store. In 2014, it announced it would start developing PC games, then expanded the division by buying Double Helix Games and hiring several well-known game designers. It also bought the top game streaming platform Twitch that same year.

Amazon Game Studios revealed its three launch games at TwitchCon two years later, but some major cracks appeared after the cancellation of Breakaway. Last year, it laid off dozens of developers and scrapped several unannounced games.

It also partnered with Leyou, a Chinese game publisher, to develop a free-to-play MMORPG based on Lord of the Rings. That shift toward cost-cutting partnerships, along with the cancellations of its two highest-profile games, suggests New World could be Amazon's last chance to gain a foothold in the crowded video game publishing market.

Amazon's "New World".

Image source: Amazon Game Studios.

Amazon has been letting beta testers stream New World on Twitch, where it initially attracted more viewers than Crucible. However, the game could still struggle to attract mainstream gamers for three simple reasons: The MMORPG market is crowded, the graphics and gameplay already look dated (due to its long development cycle), and New World's core gameplay -- which urges gamers to colonize a "fictional" land-based on British America in the 1600s -- has already sparked debates about racist tropes.

Focus on cloud gaming instead

Amazon's first-party games are still stuck in the mud, but its gaming ecosystem continues to expand with Twitch and Luna, the cloud gaming service it unveiled last month.

Luna will compete against Alphabet's (GOOG -5.03%) (GOOGL -5.04%) Google Stadia, Microsoft's (MSFT -3.58%) Project xCloud, and NVIDIA's (NVDA -6.80%) GeForce Now, and it's bringing some fresh ideas to the table. Luna offers its games on different channels, which are mainly separated by publishers and require individual subscriptions. Each channel offers unlimited access to a set library of games.

By comparison, Stadia only offers access to a user's purchased games and occasional free games for Pro subscribers. xCloud provides access to a core library of streaming games, and GeForce Now only lets gamers play games that were previously purchased from a partnered publisher.

There's no way to tell if Luna will succeed in this fledgling market, but it already plans to integrate the new platform with Twitch's streams. Amazon Game Studios could gradually roll out its new first-party games on its own Luna Plus channel, which offers access to over 50 games for $5.99 a month.

Therefore, it's likely that Amazon postponed the launch of New World to give Luna some time to gain more users. If New World doesn't gain significant momentum in the mainstream MMORPG market, Amazon might promote it through Luna instead. It could also bundle Luna Plus with its Prime membership plans.

What does Crucible's failure mean for investors?

It's unclear how much Crucible cost to make, but the average "triple A" game can cost $60 million to $80 million to develop and launch. That would represent a massive flop for most game publishers, but it's a drop in the pond for Amazon, which is expected to generate $368.9 billion in revenue this year.

Therefore, Amazon's video game efforts won't meaningfully boost or reduce its revenue -- which mainly come from its e-commerce marketplaces and cloud services -- anytime soon. Instead, Amazon's video games represent an expansion of its broader ecosystem alongside its streaming music and streaming video efforts. It's already established footholds in the music and video markets, but it's clearly struggling to expand in the cutthroat video game market.