Why Sony's ‘cloud’ pact with rival Microsoft is a game-changer

Bloomberg May 20 | Updated on May 20, 2019 Published on May 20, 2019

Faster internet speeds are starting to allow games to be played remotely, which is a threat to PlayStation   -  istockphoto

When Sony unveiled a cloud gaming pact with archrival Microsoft, it surprised the industry.

Perhaps no one was more shocked than employees of Sony’s PlayStation division, who have spent almost two decades fighting the US software giant in the $38 billion video game console market.

Last week, the companies announced a strategic partnership to co-develop game streaming technology and host some of PlayStations online services on the Redmond-based company’s Azure cloud platform. It comes after PlayStation spent seven years developing its own cloud gaming offering, with limited success.

Painful lesson

Negotiations with Microsoft began last year and were handled directly by Sony’s senior management in Tokyo, largely without the involvement of the PlayStation unit, according to people familiar with the matter.

Staff at the gaming division were caught off-guard by the news. Managers had to calm workers and assure them that plans for the company’s next-generation console weren’t affected, said the people.

That difficult moment is part of a painful lesson that Sony and many other technology companies are facing as the world’s leading cloud-computing providers become more powerful. If you aren’t spending billions of dollars a year on data centers, servers and network gear, you can’t keep up.

Faster internet speeds are starting to allow games to be played remotely without the need for a local machine. That’s a threat to PlayStation, which generates a third of Sony’s profits.

Who will win?

Microsoft’s Xbox faces a similar risk, but the software giant has the second-largest cloud service, so it has a strategic answer. The other leading cloud providers, Google and, are building their own cloud-gaming services.

Realising that his home-grown cloud service isnt going to cut it, Sony Chief Executive Officer Kenichiro Yoshida is being forced to collaborate, rather than confront his old gaming nemesis.

“Sony feels threatened by this trend and the mighty Google, and has decided to leave its network infrastructure build-up to Microsoft,” said Asymmetric Advisors strategist Amir Anvarzadeh. Why would they sleep with the enemy unless they feel threatened?

The key question is who really wins from the partnership. Most analysts agree that, at least in the short-to-medium term, it’s a positive for Sony. Cloud gaming isn’t ready for prime time yet.

Published on May 20, 2019
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