Apple's (NASDAQ: AAPL) latest big announcement was full of streaming news. First, the company announced a new video streaming service to compete with the likes of Netflix and Amazon Prime Video. Then, Apple presented its new gaming platform, which will no doubt draw comparisons to Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) recently-announced Stadia platform.
But Apple's gaming platform is not exactly like Stadia. In fact, it's a little different than all of the existing platforms, including Stadia, Sony's PlayStation Now, and planned and fledgling services from Electronic Arts and Activision Blizzard, among others.
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Apple's new video game streaming service
The new Apple service is called Apple Arcade, and it's a subscription gaming service. When Apple Arcade launches this fall, Apple says that subscribers will be able to play more than 100 games using the Apple Arcade app on various Apple devices. There are no ads and no in-app purchases, and users can play offline, too.
Apple Arcade's potential competitors are subscription services, too. But what Apple Arcade does differently might be more important than what it does similarly.
How Apple Arcade is different
In its announcement, Apple was careful to mention that Apple Arcade would allow offline gaming -- a seeming dig at rival Google, which will require users to maintain a speedy internet connection in order to use its Stadia cloud gaming service.
But this seeming advantage is also an important and telling detail about the nature of Apple Arcade. Unlike its rivals, Apple Arcade will not, it seems, be a cloud gaming service. In cloud gaming services, the computational heavy lifting is done on cloud servers (hence the need for an internet connection). If Apple Arcade games will run offline, that means that Apple Arcade will only feature games that can run on mobile devices.
That's a curious choice, given that the rest of the crowd is emphasizing the potential of cloud gaming to run AAA games on lightweight hardware. Apple isn't offering a way to play games that are bigger than your iPhone could ever run before -- this is just a subscription service full of mobile games. As Leo Sun asked right here at the Motley Fool: What's the point?
Apple's curious strategy
Apple's strategy is interesting at first glance, and downright puzzling upon closer inspection. Mobile games are very lucrative, but that's largely because they've mastered the free-to-play model that makes heavy use of microtransactions -- small purchases that enhance the gaming experience and increase the player's odds of winning (to the chagrin of some video game fans). Mobile games can also make money with ads. Apple Arcade will not have ads or microtransactions.
In some ways, the free-to-play model anticipates the subscription one -- free-to-play games acclimate video game fans to not paying directly for their games on a per-game basis, and the microtransaction model encourages a video games-as-a-service culture that leads to developers updating and improving games long after release. But with mobile games in particular, the transition from a free-to-play/microtransactions model to a subscription model seems like it will be a rocky one. It's not an exaggeration to say that hit mobile games like Supercell's Clash of Clans are built around microtransactions, in terms of both game design and business model.
Not all mobile games are simple microtransaction-bait, of course. One of last year's top mobile games was PUBG Mobile -- it was the third-most downloaded mobile game of the year. That's an online game that was originally available only on PC and consoles. The fact that it can even run on modern mobile devices is a reminder that Apple's choice to limit its streaming service to "mobile games" doesn't mean quite what it would have meant back when Flappy Bird and Temple Run were the pinnacle of mobile gaming performance.
Still, there is no comparison between the processing power of an iPhone and the cloud servers that will run Stadia. Apple is betting that offline gaming and a mobile focus will allow it to compete with AAA video game streaming -- or at least afford it a niche lane with consumers. It's an interesting move, but not a very inspiring one.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Stephen Lovely owns shares of Amazon, Apple, and Netflix. The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Netflix. The Motley Fool is long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.