Google Stadia and how Google is managed by monkeys

Business speaking

Let’s say we want to start a gaming streaming service, so we purchase a bunch of ps4 or Xbox, we connect to a server and we start selling the service.

Let’s say that each console costs $200 (it is practically manufacturing costs)

Our competitor charges $99 per year, so it must be our price.

Now. Each console could be used by only one customer at the same time, so if we have 100 customers, we need 100 consoles. We could rotate the consoles amongst other customers (mainly because it is hard to find a customer that will use the service 24 hours per day) but, in average, we need 100 consoles per 200 customers.

What if we have 200 customers?.

  • Console costs 100 x $200 = -$20.000
  • Subscription earning $99 x 200 = $19.800
  • Profit : -$200 (negative)

MEH

But there is more, we don’t buy a new console each year, so extrapolating for 3 years yields

  • Console costs 100 consoles x $200 console price = -$20.000
  • Subscription earning $99 x 200 customers x 3 years = $59.400
  • Profit : + $ 39.400

However, there are more costs.

We should host the console, we should pay the electric bills, infrastructure and such. It is a bit expensive. Usually, a dedicated server could start from $20-$30 per month and we are talking about a machine that was created thinking about efficiency.

  • Console costs 100 consoles x $200 console price = -$20.000
  • Subscription earning $99 x 200 customers x 3 years = $59.400
  • Infrastructure (electric bill) = 100 consoles x 3 years x 12 months x $20 = — $72.000
  • Profit : — $ 32.600 (negative again)

But there is more.

I have not included the cost of the personal, space for rent, insurances, interest loans.

However.

You could say that Google could build some magic server that could host 10 customers (or more) at the same time, maybe but it also increases the costs of the server, also the electric bill (but usually it’s proportional to the use). So, Google could use some magic server (powered by AMD) that decreases the costs. It could be slow for some games but profit is profit.

But … we need games!. And Google only developed (or purchased) a single tech demo and it is expensive AF

It is the reason why Sony and Microsoft could sell streaming service (and they are struggling with this market), in fact, they are hardly earning a penny from it (we could see it checking their balances and both services aren’t even visible as a single item but they are related with costs). Note: I checked and they are not earning!

And there is the last bad news… this profit (if any) is BEFORE TAXES

Note.

Let’s say Microsoft sells 1 console and 1 game.

The profit margin of the technology is around 10% (if not less), i.e. if a console costs $200, Microsoft earns $20 per console. It is a bit lower. But, for the console this number is even lower, sometimes it is negative (Microsoft and Sony sell consoles lower the production costs).

But, if Microsoft also sells a game, then the profit margin per game (it could vary) is around 30–80%. It is a big business but only if the game is sold. Why the high percentage?. Because the main costs (develop) is spend once and not per sale, so the goal is to develop a game and sells as many as possible. Let’s say the game costs $60, the profit is around $20 per game or the same than the console. But, customers don’t buy a console each month (but they could buy a game each month).

Sega found it years ago, they earned more selling Sonic than their consoles and it is funny that Nintendo hasn’t followed it.

So, the business is to sell games, not console and not (obviously) streaming AND IT IS A REAL GOOD NEWS IF YOU ARE A GAME DEVELOPER OR A GAME ARTIST.

Extra

But let’s check the competitor, or in inverse order.

Sony’s stream is as low as $99 per year and Sony is not earning a dime from it, but it established a basement for their or catalog/console and it leaves no space for a competitor.

Microsoft has an all you can eat service (not streaming) for $10 per month. Microsoft earns about $1 per subscription and it is a not a big deal but this service also recommends Xbox Live (an extra $10) and it is when Microsoft start earning. Sony has the same deal, it’s streaming service doesn’t require PlayStation Plus but it is recommended. So, the total costs are $20, not $10 but it is something that Microsoft and Sony could do.

But, let’s back to Sony’s deal. Sony doesn’t earn money with their streaming service. Accounting speaking it’s easy to know that in the balances but let’s say that Sony earns $2 per subscription (what is not real). Google could dream to earn the same but, Google doesn’t have the hardware, games or even the image.. Google has the infrastructure but that’s it.

People hate Epic Games, it is a douche of a company that it’s playing hard against Steam, but its strategy is working. What is its strategy? Exclusive deals.

Google even lacks of games, Sony and Microsoft have a robust catalog of games and they deal with other distributors.

Instead, it is in the arsenal of Google:

  • Ubisoft deal (not exclusive).
  • Maybe Doom Eternal (again, not exclusive).
  • And… that’s it!.

Hardware.

GPU-servers are nothing new, in fact it is a big market (mainly for render-farms but also for multimedia service) but it is insanely expensive. A single GPU could eats the same energy than a whole server rack but also it’s budget.

But let’s say Google buys Nvidia (Google is going with AMD but it is the same price). Nvidia P100 is highly popular, the performance is par with the Nvidia 1080 ti.

Its price (heavily discounted and in bulk) is $3000 (GPU only). A streaming service requires at least once per 3 customers and if we consider the life of the server 3 years then:

$3000/ (12 months x 3 years) = $83 per month to serve 3 customers paying $10 each one ($30 per month). Of course, it doesn’t match (and it is only the GPU).

AMD is way cheaper. In bulk, it is possible to obtain and proper AMD Vega (server ready) for $500 but it doesn’t give the same punch than a 1080 ti, so it needs at least 1 per customer (plus the whole server & electric bill).

$500 / 12 months x 3 years = $13.8 per month to serve 1 customer paying $10 each one.

Maybe Google could obtain an insanely best price and get it for half the price. But it is not even enough because this number is only for the GPU.

$500 only for the GPU.

Sony and Microsoft could move it’s business (in fact no, they are not generating profit) because they don’t sell a PC experience but a console experience, and they could use all the unsold-stock as a server.

Extra sales

Google indeed could sell extra stuff (DLC and whatnot) but again, Google has nothing to sell and companies profit when they sell their own stuff and not somebody else product (Ubisoft in this case).

Price

But let’s say that Google starts with $30, so it’s selling a service for x3 the price (in fact MS and Sony are charging $20, not $10 but it is something that Google couldn’t offer) of the competitors and it’s giving less. Nice.

Conclusion:

Google = monkeys — bananas. (monkey minus banana).

Final note and perspective:

Let’s say we have a superb server for gaming that it could hold 10 customers at the same time and it costs $5000 (note, we already calculated that it is still a bad deal and this price is for datacenter owners). The ratio is $500 per customer.

In comparison, a regular server (web server, business system and such), could hold easily 1000 concurrent users and costs $1000 a piece. The ratio is $1 per customer. Ok, let’s say the server costs $2000 (the price for the average joe), The ratio is $2 per customer

Also published on dev.to

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