Microsoft (MSFT - Free Report) and Sony Corp. (SNE - Free Report) , two dominant names in the gaming console industry, recently signed a memorandum of understanding (MoU). Per the deal, the companies will explore the utility of Azure cloud computing capabilities to provide immersive gaming experience to the end user.
The companies will also work on enhancing video game and other content streaming services by enhancing software development.
Moreover, the collaboration aims to enhance Sony’s image sensors by utilizing Azure’s AI capabilities. Infusing AI into sensors, by adding intelligent capabilities, is expected to drive adoption among enterprise customers.
Following the news, shares of Microsoft were up 2.3% yesterday. Notably, Microsoft stock has returned 35.9% in the past year, outperforming industry’s rally of 29.3%.
Microsoft’s Exposure to Cloud & Gaming: A Key Catalyst
The adoption of cloud technology is becoming mainstream in the gaming industry as it has the capability of handling several challenging technical and graphical problems in streaming high-end games.
In fact, per latest IHS Markit data, “consumer spending on cloud gaming content subscriptions reached $234 million in 2018 and is forecast to grow to $1.5 billion by 2023.”
Microsoft is leaving no stone unturned to integrate cloud capabilities of Azure into its gaming segment. This is allowing the company to innovate its gaming domain beyond exclusive gaming content on X-box consoles.
We believe Microsoft’s domain expertise in gaming and strength in Azure sets it apart from peers in both cloud and gaming sectors. The same also positions the company well to capitalize on the cloud gaming market.
Notably, Azure already aids prominent companies like Wizards of the Coast, Rare and Ubisoft to host multiplayer game servers and monetize exciting gameplay in a secure infrastructure.
Although, both Sony and Microsoft compete in the console market, growing popularity of cloud gaming can be seen as a compelling point in bringing the two together.
While Sony is expected to benefit from Azure’s AI, edge and cloud computing capabilities, the deal is a big win for Microsoft.
Both the companies are expected to evolve and make a mark in the rapidly growing cloud gaming market.
Gaming Space Buzzing on Breakthrough Developments
The gaming market is projected to hit $174 billion by 2021 from $134.9 billion estimated in 2018, per a report by Newzoo. Increasing allegiance to video streaming services also deserves a special mention in this regard.
Additionally, the gaming market generated revenues worth $136 billion in 2018, per an IDC report as revealed by CNBC, which reflects that the figure is growing at a rate of 15% every year.
These growth prospects are attracting several tech giants with significant cloud exposure in the industry. The positive outlook strengthens the prospects of the latest deal. However, it is difficult to ignore the intensifying competition in the space.
Notably, Alphabet’s (GOOGL - Free Report) division Google announced gaming platform, Stadia, a browser-based video game streaming service, at 2019 Game Developers Conference (“GDC”). Stadia, slated to be launched later this year, will enable users to stream games online on any devices like smartphones, laptops, desktops and tablets. This development is perceived as a direct challenge to the console market.
Coming to Amazon (AMZN - Free Report) , which already offers video game streaming services via its Twitch platform, is aggressively pursuing the development of a cloud gaming service which will help users play games while eliminating the need for download.
Meanwhile, Microsoft anticipates Azure’s availability scale across 54 regions globally to strengthen its upcoming “Project xCloud streaming technology,” targeted at providing an immersive gaming experience. Notably, with Project xCloud, users can stream games across major device options with suitable latency levels.
Although Sony doesn’t have dedicated cloud platform, it dominates the console market. Further, Sony has PlayStation Now, a cloud gaming subscription service, which offers streaming of a huge library of video games on PlayStation 4 (PS4) and gaming PCs.
As gaming market evolves from consoles to subscription-based cloud gaming, it would be interesting to see how the complementarities between Microsoft and Sony lead to innovative strategies.
Currently, Microsoft carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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