Apple and Google are going to war over the future of gaming as the entire industry goes through a radical transformation (AAPL, GOOGL)

These subscription-based gaming services won't pose an immediate threat to established powers in the video game industry, but they do embrace the future of the business.
Companies like Microsoft , Electronic Arts , and Sony will have to keep pace with new technology and subscription models to avoid falling behind.
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The video game industry is in a period of transition, and it's not just because the next PlayStation and Xbox consoles are due out next year.

Rapid adoption of smartphones and global investments in online infrastructure have helped video games reach more than two billion players around the world, and the line between casual, free-to-play mobile games and traditional console games has been blurred beyond recognition.

According to a report from SuperData, video games generated $118 billion in revenue during 2018 and more than half of that ($61.3 billion) came from mobile games. In comparison, console games generated just $12.7 billion, and computer games generated $35 billion.

Now the tech giants who helped make this new era of video games possible are ready to take on larger roles within the industry.

Earlier this month, Apple launched a monthly subscription service offering more than 100 games across iPhone, iPad, and MacOS. In November, Google will launch Stadia, a brand new video game streaming platform that will compete with major consoles and PC releases.

While these services wont be will be an immediate threat to existing companies, they do highlight how the business of gaming could change in the near future.

Mobile gaming has changed the playing field

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"Fortnite"/Epic Games

The success of "Fortnite" highlights the importance of the mobile gaming market.

Video game companies spent decades marketing blockbuster releases and pricey console hardware to a niche community of technology enthusiasts, but the quality and accessibility of smartphone games have changed what it means to be a "gamer."

Apple App Store and Google's Play Store each host more than 300,000 games, and both companies earn between 15 to 30 percent from mobile purchases made using their respective stores. Nine of the top 10 grossing games in 2018 were free-to-play mobile titles that earn money through microtransactions.

"Fortnite," the year's highest-grossing game at $2.4 billion, proved that you don't need to sacrifice quality to embrace the mobile market.

"Fortnite" has more than 250 million registered players, and the game is free to play on nearly any device, including iPhone, Android, Xbox, PlayStation, PC, Mac, and the Nintendo Switch. While there are some differences in graphics and controls, "Fortnite" is the same across all of those platforms, and players can join their friends regardless of which platform they choose.

Apple Arcade offers the best of both worlds at a low price

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Apple

For $5 per month, the Apple Arcade subscription will allow players to play more than 100 games across multiple devices, including the iPhone, Mac, and Apple TV. Apple Arcade gives Apple a more direct way to monetize the millions of gamers using Apple devices, but also serves as a form of curation that could help elevate the iPhone as a gaming device.

Apple Arcade games will have no in-game ads or microtransactions, two of the most common business models for mobile games. While those methods have seen success, ad services that rely on personal data and microtransactions that allow excessive spending have also been common points of controversy for the mobile market.

Subscribers won't be able to play most of the premium games coming to the PlayStation, Xbox or Switch, but Apple company has hired developers to create new and exclusive titles specifically for Apple Arcade. These games are designed for all Apple devices with controller support in mind, offering more freedom than most mobile titles. Earlier this year The Wall Street Journal reported that Apple had invested as much as $500 million in Apple Arcade's launch.

While Apple is unlikely to see an immediate return on that investment, Apple Arcade will join a stable of services designed to keep customers committed to the iPhone and other Apple products for years to come.

Other companies are offering subscriptions too, but they dont have the same resources

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"FIFA 19"/EA Sports

Video game publishers like Electronic Arts and Ubisoft have their own monthly subscription services with a comparable number of games, but they lack two key advantages that Apple Arcade will rely on tons of capital and a captive audience.

"In the coming games market, the core metric will be engagement," SuperData cofounder Joost van Dreunen said in an interview. "Consequently, first-party content will serve as a loss leader to attract and retain players."

For third-party content providers, however, this is a far more risky proposition because, among other things, they run the risk of overvaluing their long tail. In fairness, how many people are really going to sign up for EA's service to play FIFA 2009?"

Stadia teases a future without consoles

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Google/YouTube

Google's new streaming platform Stadia will circumvent the struggle between consoles and mobile devices with brand new cloud gaming technology. Stadia uses a powerful computer to stream games directly to the player, whether they're using a computer, smartphone, or Chromecast device on their TV.

While Microsoft, Nvidia, and Electronic Arts have teased their own cloud gaming services, Google is confident enough to launch Stadia in November launch. Google says the service will be capable of streaming up to 8K resolution, and from our own tests, the service feels comparable to playing from a PlayStation or Xbox console.

If successful, Stadia could prove that expensive consoles are no longer necessary. However, because Stadia still requires players to buy premium games for the same price as traditional consoles, it doesn't offer many advantages to hardcore gamers.

Fresh competition will lead to rapid changes within the gaming industry

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Ben Gilbert/Business Insider

Though Apple and Google are bringing fresh competition, it'll be some time before Apple Arcade or Stadia can truly disrupt the video game industry. However, their willingness to invest in new technology and business models will help propel the industry forward as companies like Microsoft, Sony, Nvidia, and Electronic Arts work to meet the changing demands of a global audience.