When it comes to rivalries in the technology space, the face-off between Sony and Microsoft in the console gaming space is about as big as rivalries can get. As a result, when Sony announced its partnership with Microsoft in this very space, employees raised natural questions, and more than one eyebrow was raised. However, in what must be one of the rarer cases, despite initial skepticism, the partnership appears to suggest positive reactions from both companies, their investors and the industry in general.
The point here, as reported by Bloomberg, is Sony's latest partnership with Microsoft in the field of game streaming. The former has struck a multi-year agreement with Microsoft to use the Azure Cloud, one of the most sophisticated and robust Cloud hosting technologies in the world right now. This will be used to host PlayStation Now going forward, thereby giving Sony a sound platform to host game streaming on. The move to partner with a rival, which in turn is using the same piece of technology for its own service is surprising, but on the other hand, a very smart and calculated one.
Sony has been at the top of the hill in the gaming console space with its PlayStation line of consoles, holding the largest market share globally. Microsoft follows Sony in the industry at a close second with the Xbox, and hold significant market share and annual company revenue shares, respectively. While Sony could have been happy keeping it this way, what changed is the advent of internet-based game streaming. Ever since Google Stadia was announced, Sony has been steadily putting efforts behind improving its PS Now experience, and Microsoft too has been leaning towards streaming Xbox games with Project xCloud. While the commonplace usage of these services are not already around the corner, they present the prospect of driving gaming consoles extinct -- a scary proposition for Sony and Microsoft alike.
With streaming, the need for owning gaming hardware disappears. Instead, games are hosted and played on hardware based in data centers thousands of miles away. These are then beamed across the world through high bandwidth internet connectivity to any screen that a user pleases. The model is not particularly new -- Sony itself unveiled the basic premise of this technology with PlayStation Now back in 2012, but its rather lacklustre proprietary cloud technology, coupled with the general lack of good bandwidth in large parts of the world, has led to limited adoption. Still, Bloomberg reports that despite half-hearted adoption, Sony has gathered over 700,000 paying subscribers for PS Now, thereby giving a glimpse of the potential of this technology. With PlayStation sales and services driving a third of Sony's entire revenue, the company cannot afford to lose its biggest cash spinner.
It is for this, that partnering with a traditional rival makes sense. For Sony, Microsoft Azure presents a robust Cloud computing platform that is among the very best in the world. It also effectively outsources the maintenance of data hosting to Microsoft, hence being able to focus its efforts on how best to optimise and innovate on its gaming services. Microsoft, in the meantime, gets a high profile client for its Azure Cloud services, one which can become a collective answer to the looming threat from Google and Amazon, which too aims to enter the gaming space with its own AWS-based streaming service.
In the end, while Sony's decision to strike the agreement without consulting the PlayStation division led employees into a frenzy about whether its upcoming console's secrets might get spilt, Sony's hierarchy is essentially focusing on the long term future. The Bloomberg report states that by 2023, game streaming would account for only 2 percent of the gaming industry's revenue. Until then, Sony's upcoming PlayStation 5 would presumably have enough firepower to maintain the lead. Beyond that, is when the Sony-Microsoft partnership would really begin making sense.