BIG TECH: Subscribing to Unownable Assets with Google Stadia, Apple News, and Taxes

Microsoft, PlayStation and Nintendo split the console gaming market today, with a strong focus on devices and online services. Those companies make money either by selling a piece of proprietary hardware (i.e., the console), exclusive software (i.e., the video game around which they may have IP rights), or through a store that takes a cut of third party developer revenue. Google announced that they are entering the market with a disruptive and orthogonal strategy. The firm plans to use its massive cloud infrastructure and AI advantage to deliver streaming gaming services through a subscription model.

What does this mean? Machines far more powerful than a local console or PC will run sophisticated 3D rendering engines on cloud servers optimized for visual graphics. AIs that optimize data center use and compression will package information transfer in ways that other video game streaming start-ups were simply unable to deliver. On sufficiently fast broadband, millisecond responses between a controller in a living room and a cloud service become possible. While such infrastructure is not ubiquitous, you can see the projected growth of 5G and LTE networks below -- suggesting that Google's vision can be meaningful across a large part of the world. Engaging with a high-end virtual world on a mass-produced cheap tablet becomes a reality. 

Let's talk about subscription. Subscription is the solution for monetizing unownable assets. Such assets may be prohibitively expensive in the aggregate and worthless on the margin. Take for example Spotify, which manages to sell you all the music in the world for $10 per month. An individual cannot afford all the music in the world, and yet the marginal song is worth absolutely nothing. Or take the upcoming Apple News subscription service, which gets around the paywalls of sources like the WSJ for $10 per month as well. A reader can't afford the paywalls for every premier newspaper in the world, even though the value of the marginal article is a donut.

We think similarly about citizenship -- taxes are the subscription cost to membership in a sovereign body, with its social protections, foreign policy, and monetary base. An individual cannot afford those on the margin, nor could those "products" be financed in a case-by-case manner. Or look at the developments in wealth management and roboadvisors, where Assets under Management based pricing (% of total) is beating commission based models (per transaction). AUM fees are a subscription to unlimited rebalancing across thousands of companies, packaged in free-to-trade ETFs on custodian platforms. We go down this road to highlight the right path to follow: all financial services in the aggregate are an unownable asset, but worthless at the marginal product. Price accordingly.

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Source: Polygon (Google Stadia), 9to5Mac (WSJ and Apple), NY Times (Apple News)