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Cloud gaming is set to reshape the video gaming industry in the upcoming years, allowing a much broader base of users to stream high-fidelity games (those with advanced graphics and complex game mechanics) on any device without the need for expensive gaming consoles or PC hardware. The cloud gaming market projects to expand by a 44% CAGR through 2030, driven by rapidly improving high-speed internet infrastructures, evolving commercial models, and improved user experiences. Beyond the gaming experience, cloud gaming will also transform all levels of the video game value chain.
We predict that in 2025, both gaming consoles and PC hardware sales will decline, as consumers choose to spend instead on displays and streaming devices. 2025 will be a critical year for building cloud gaming capabilities across the value chain, and players must consider carefully where to invest.
How does cloud gaming work?
Cloud gaming encompasses various technologies that leverage the cloud to deliver all or part of the gaming experience. The most significant of these is cloud streaming. Cloud streaming has two components: running central processing unit (CPU) and graphics processing unit (GPU) intensive video games on powerful remote servers, and streaming the gameplay to users’ devices. By shifting the considerable computing power required for gaming to the cloud, cloud streaming makes it possible to play high-fidelity games on any device with a display and an internet connection.
Why is cloud gaming the future?
Cloud gaming offers vastly improved accessibility and cross-platform integration. It reduces consumer barriers to entry by eliminating the need for expensive hardware such as consoles or PCs, making high-quality games more affordable and available to a wider audience—though ongoing subscription prices will likely increase as cloud hosting and delivery costs are embedded within. This shift presents an opportunity for traditional PC and console game developers to expand their offerings on platforms such as smartphones, which account for ~50% of the global gaming market. Additionally, cloud gaming aligns with current trends for seamless cross-platform experiences, allowing players to easily transition between devices while maintaining gameplay progress.
What challenges does cloud gaming face?
Despite its promising outlook, cloud gaming continues to face both technological and commercial constraints. On the technology front, necessary internet speeds, low latencies, and virtualization software are not yet widely available to allow for mass adoption. But 5G availability and fiber-optic infrastructure are advancing at pace, and AI and machine learning are continuously optimizing video compression and reducing buffering times, further improving the overall user experience. We therefore believe the technology constraint will soon be solved.
The transition to the right cloud-friendly commercial models, however, will prove more challenging. More specifically, four entities make up the large majority of games consumed on consoles and PCs (Microsoft, PlayStation, and Nintendo for consoles, and Steam on PC). While they are gaining momentum by bundling cloud gaming options with higher-end content subscription service offerings, these companies have not yet reached a tipping point. Cloud gaming will only see mass adoption once these storefronts incentivize it more effectively.
Xbox and PlayStation have offered cloud gaming for several years, but their focus has been on expanding cross-platform reach rather than reducing customer costs by eliminating console hardware. On Xbox Live, customers must subscribe to the most expensive “premium” plan to access cloud gaming. Steam, which makes most of its revenue by taking a percentage of one-time purchases rather than a subscription model, only offers cloud gaming via peer-to-peer, in which one player acts as the server and others connect to that player. To make a larger change, Steam would need to change its revenue model.
What may finally incentivize game distributors to prioritize cloud gaming is evidence that the average revenue per user (ARPU) for cloud games seems to be on the rise and set to surpass all other gaming mediums, apart from mobile, by 2027. Once the commercial model problem has been solved, we expect a rapid shift from traditional to cloud gaming, with an adoption curve similar to that of video streaming—where over a period of 10 years, Netflix completely wiped away Blockbuster’s advantage, leading to the latter’s demise.
Our prediction for the cloud gaming market in 2025
The cloud gaming market could reach $64 billion by 2030 (and $140 billion by 2032, according to Market.us), and continue to rise from there. We predict a marked shift in consumer spending in 2025, as gamers eschew traditional hardware to instead spend on streaming devices and displays.
Game developers, publishers, and distributors alike must focus on setting themselves up for success in both the immediate and long term to prepare for the cloud gaming revolution. Technological challenges will soon be resolved, allowing those who solve the commercial model problem to jump ahead in this lucrative, burgeoning industry.
