Microsoft and Sony's surprise game streaming alliance is a shocker, and it raises an uncomfortable truth about the cloud wars (MSFT, SNE)

Sony CEO Kenichiro Yoshida Microsoft CEO Satya Nadella

On Thursday, Microsoft and Sony made a joint announcement that they would "explore joint development of future cloud solutions in Microsoft Azure to support their respective game and content-streaming services."
This partnership came as a big shock: They've been fierce rivals since the first Microsoft Xbox challenged the Sony PlayStation 2 in 2001.
However, it makes a lot of sense: The next big thing in gaming is cloud streaming, and it's difficult and expensive to build a cloud platform that can hang with those from Microsoft and Google — both of whom have their own cloud gaming services on the way.
It's just another example of how cloud computing makes for strange bedfellows, given that basically only three companies — Microsoft, Google, and Amazon — have enough cloud cred to present a viable, modern cloud infrastructure.
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On Thursday, Microsoft and Sony shocked the world with a joint statement that they would be teaming up — and on video gaming, no less, where the two have been fierce rivals ever since the original Microsoft Xbox picked a fight with the Sony PlayStation 2, way back in 2001.

In their own words, "the two companies will explore joint development of future cloud solutions in Microsoft Azure to support their respective game and content-streaming services," with the promise of more specifics to come in the future. They'll also work together to integrate Microsoft's Azure AI technology with Sony's ubiquitous image sensor business.

It's exciting times, right at a pivotal moment in the gaming industry.

The imminent launch of cloud gaming services like Microsoft xCloud and Google Stadia promise to stream even the most graphically intensive video games to any device, anywhere — from a game console down to the humblest of smartphones — by leveraging the computer processing brawn of the tech titans' massive data centers. Now, it seems, Sony is turning to Microsoft and its Azure cloud to get in on the action.

Xbox vs Playstation

It's really tempting to read a lot into this announcement: Have the two arch-rivals really put their beef behind them? Will you be able to play Xbox games on a PlayStation, or vice versa?

Let's not jump to conclusions. Over at Ars Technica, Kyle Orland has a convincing breakdown of why that's unlikely, mostly because the next Xbox and PlayStation are both already preparing for a not-so-distant launch, and it wouldn't make a lot of sense for either company to invest so heavily in rival hardware if they were planning on laying down their arms and embracing a joint cloud service.

Instead, here's my reading of this announcement: Sony needs Microsoft's help, because there's a lot keeping it from competing toe-to-toe with Microsoft xCloud, Google Stadia, or, eventually, Amazon's own planned game streaming service. And so, it had to turn to Microsoft, a competitor, to help it keep pace with the rest of the industry.

A little background

It's worth noting here that Sony has offered PlayStation Now, a game-streaming service, since 2014 — well before current Microsoft gaming boss Phil Spencer had his current job. To build PlayStation Now, Sony shelled out $380 million for startup Gaikai in 2012, and then opened its checkbook again for OnLive in 2015. However, PlayStation Now has never been a huge hit, despite Sony's investment. In February, Engadget said it "still isn't good enough."

It's also worth noting that around the same time that Sony launched PlayStation Now, it was reported that the company was "urgently seeking ways to build an infrastructure" to support its cloud ambitions. To make it happen, it was reported, Sony had sought contracts with data center facility providers to boost its capacity.

This gives a hint as to what might be driving Sony towards this Microsoft partnership.

It ain't easy bein' cloud

One of the big reasons why Microsoft, Amazon, and Google are able to succeed in this cloud market — where companies like Dell, VMware, and Cisco have all backed down — is that they invested heavily in building their own data centers, and then further invested in making them as efficient and powerful as humanly possible.

Indeed, at Microsoft, former chief software architect Ray Ozzie gets the credit for convincing then-CEO Steve Ballmer that the company would never get anywhere in the internet age without owning its own data centers, despite the massive expense involved.

Now, under the leadership of CEO Satya Nadella and cloud boss Scott Guthrie that investment is paying off: Microsoft has data centers all over the world, all running applications large and small, both for the company itself, and on behalf of the customers of Microsoft Azure.

Project xCloud, Microsoft

At the same time, Microsoft has tasked its leading researchers and engineers with finding new, innovative, bleeding-edge ways to improve efficiency, get more power, and even run the cloud in more eco-friendly ways. More recently, the company has launched Azure Game Stack, a package of services to help game developers capitalize on everything Microsoft has learned from operating Azure for about a decade now.

We haven't heard anything new about Sony's cloud infrastructure in a while. But it's hard to imagine that Sony's infrastructure is at the same scale as Microsoft's, let alone as efficient or as powerful. We don't know if Sony will use Microsoft to beef up PlayStation Now, or to build an entirely new gaming service, but it's not strange at all to think that the company might want Microsoft to at least partially power that future.

Strange bedfellows

A weird effect of all of this is that the cloud has made for some strange partnerships, and some even stranger counter-partnerships.

Apple, for example, has been reported to use both Amazon Web Services and Google Cloud to power its iCloud service. Sony, too, could choose to use multiple clouds, if it isn't already.

On the flip side, Walmart famously asked its partners to stop using Amazon Web Services, as a line in the sand in the online retail wars. Target made its own move away from AWS at around the same time.

In gaming, though, there aren't many places for Sony to turn if it wants a cloud partner who won't also be a competitor. Google has its Stadia service, while Amazon is rumored to be working on its own game streaming service. DigitalOcean, probably the largest independent cloud platform, doesn't have the same scale as its competitors.

Since Sony can't avoid the reality of competition, its best bet is probably to embrace it — by choosing a company that it at least understands and respects, thanks to their years of long competition.

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