Discover more from The Product Principle
Google Stadia: A Probably Flawed Business Model, but a Benchmark for Product Shutdown
How Google's cloud gaming service started, operated, and ended—the economics behind it, and what other product companies can learn from what happened.
👋 Hey, it’s András here! Every two weeks, I write about product management concepts, hot takes, and frameworks to help you build better products. Subscribe to get each article delivered to you when it’s published!
Google Stadia, the search giant’s cloud gaming experiment, has lived for 3 years and 2 months since its launch in November 2019. Even though the product didn’t get the mass adoption the company was hoping for, its shutdown should be a benchmark for other companies and product managers: refunding most purchases, letting users keep usable hardware for free, and compensating game developers.
What led to the sunset, and was Google’s gaming business model ultimately flawed from the beginning? In this article, we take a look at how the service started, what promises it made, the economics behind it, and key takeaways from the shutdown process.
A lot of promises, a spotty track record
Upon launch, Google detailed a lot of ambitious plans for Stadia: launch a game from a YouTube ad, the ability to jump into exact game moments via a link, the Google Assistant helping players beat games, shared multiplayer worlds, 8K resolution, and more.
The company certainly set high expectations for itself.
Something that might have been needed to differentiate itself from rivals at launch, but also something that had trouble living up to. Google could not deliver even half of these promises in the end. But it indeed delivered a solid gaming experience with not too many bugs—as long as players had a decent internet connection and latency.
And Stadia improved the service’s accessibility a lot over time.
The cloud gaming service started with a subscription-only option limited to 14 countries, costing either $10 per month or a $130 hardware bundle with 3 free months included. But in 2020, it introduced a free tier (pay once for a game, then unlimited play in high-definition resolution) and expanded to 22 territories with a big European push.
Beyond convincing game studios to port their work over to Stadia or release exclusives, Google even tried to create its own internal game studio, SG&E. However, that was shut down in early 2021, hinting that the company might be winding down investments for the product and refocusing the service as a technology experiment. Which the search giant eventually confirmed in early 2022, repackaging its technology as a white-label product.
And in September 2022, after trying to enhance, tweak, and repackage its offering, Google announced that it’d shut down the consumer version of Stadia this January.
But before we get to that, let’s have a closer look at Stadia’s business model.
The challenge to scale
Google faced the classic ecosystem challenge: in order to get more users to its service, it needed more content. But to convince game studios to bring their content, it needed more users. (Remember the Windows Phone app ecosystem’s challenge?)
And the search company failed to get to scale on both fronts.
Stadia featured roughly 300 games just before the shutdown. This could have been enough, but the catalog mainly contained games from indie developers beyond a handful of well-known titles. In contrast, Nvidia’s “GeForce NOW” supported 1500 titles while also working with a different business model—more on that later.
Google didn’t communicate any player or revenue numbers for Stadia, so we can only estimate what the service reached at its peak. Based on media reports, the department’s leadership aimed for 1 million active users by the end of 2020, which it missed by ~25%, putting active users somewhere around 750k. Among these, a forecasted 160k “pro” subscribers.
For comparison, GeForce NOW had 20 million registered users in late 2022, which are, of course, probably not all actively paying customers.
Google likely needed the scale to offset its investments in Stadia. While the company had mature streaming tech before from YouTube, building up a game streaming service must have required a significant effort.
By calculating with 1 million users purchasing two game titles for $30 each for every year, and an additional 200k yearly subscribers, Google could have generated $84 million yearly revenue.
And out of that, the search giant could have kept only $25 million—dividing the revenue number with the standard industry revenue split formula of 70-30%.
Even if this had been a yearly figure (and the reality was probably lower), it wouldn’t have been enough to fund further development profitably while maintaining the servers and other running costs. And this number, next to the company’s $257 billion revenue for 2021, can seem like a rounding error.
In addition, Stadia’s business model might have been flawed from the beginning.
After the rollout of the free tier in 2020, users were granted unlimited playtime of a Stadia-purchased game. And the prices were comparable to other game stores, with the exception that all others required an adequate gaming computer to play with those titles. So Google bundled in its streaming tech for free, indefinitely. Or that was the plan.
Meanwhile, Nvidia’s competing service:
was able to work with already-owned games (or let users purchase new ones),
monetized the streaming tech ($10 per month for the same access that Google offered for free),
and introduced some additional technical limitations.
And for the game studios, the setup didn’t require significant adjustments. It likely worked out of the box if their titles were compatible with other platforms. Nvidia figured out that for a scalable business model to work, there should be a lower barrier to entry for both players and game partners. And that additional set of functionalities Google dreamed of just added complexity to both parties.
Stadia’s graceful shutdown
In September 2022, Google announced that it was shutting down Stadia:
“…while Stadia's approach to streaming games for consumers was built on a strong technology foundation, it hasn't gained the traction with users that we expected so we’ve made the difficult decision to begin winding down our Stadia streaming service.”
And the news was interesting not just because the search giant was axing another of their services but also due to how its cloud gaming ecosystem has worked:
Stadia sold digital copies of games only available through its interface and technology. To a degree, it’s comparable if the Google Play store would shut down, leaving users unable to update or use their phone apps—just on a smaller scale.
So what would happen with users who’ve purchased games via the platform?
It’s a tricky question. Google chose the better but more expensive route, refunding all purchases for games and add-ons since the launch of its service. With one exception: subscription fees that enabled 4K streaming and game discounts were not returned.
On top of this, the company even committed to refunding all hardware purchases that were bundled with the game service at any point, including Chromecasts and game controllers. Heck, Google even went so far as to enable a long-requested Bluetooth support for controllers via a browser update to avoid them becoming e-waste.
The company did more than a fair job of satisfying users. But they were probably expected so to avoid losing customer trust or an additional investigation into Google’s market dominance.
Players got decent refunds (sometimes even multiple thousands of dollars), and they got to keep working hardware that can be used for video streaming or gaming.
On the other side, Google took the monetary fall for game studios. The company paid its share to them from the revenue-split agreement while also refunding end-users the total purchase price. The only disadvantage studios might have experienced is if the Stadia porting costs were more expensive than the incoming revenue from the platform.
Or if they’ve developed an exclusive.
A prime example to follow
While Stadia might have had a flawed business model, the way how it executed its product shutdown is remarkable. There are a couple of lessons in the decisions made that are useful to consider for other companies, especially in product roles:
When starting a new product, think about possible doomsday scenarios. What would happen if there is no product-market fit and the product needs to be sunset? The Stadia team likely had a script for that, considering the nature of the business.
Communicate clearly and frequently. Do not let rumors spread before an official announcement, and provide a complete answer to key questions. Google shared concrete steps it will take, outlining the shutdown process. It didn’t have all the details but provided deadlines for addressing those points.
Make customers as happy as reasonably possible. The company has customers using different services of theirs, so it cannot afford to ruin its reputation. While making everyone happy is impossible, try to do justice by considering what you’d expect from the other side. And that often means going beyond what’s strictly required by the law.
For the Stadia shutdown, Google respected its former motto: don’t be evil.