Amazon Game Studios – Game off! Pt II.

Amazon Game Studios is suffering from a culture clash.

• Amazon is having a torrid time trying to make a name in the video game market highlighting how Amazon’s corporate culture can be ruinous for creative industries, meaning that it should probably stick to providing tools for making games (AWS) rather than the games themselves.
• Amazon’s game division was formed in 2012 and so far, very little has been produced which would have sent any of the independents into bankruptcy.
• I suspect that a large reason for this failure is the fact that the leadership of this division are long-term Amazon employees who when the division was founded, knew very little if anything about gaming.
• Based, on its performance to date, a cynic would argue that it still doesn’t.
• To be fair to Amazon, making good games is hard as Google has also found having just shut down its in-house game studio that was developing games for Stadia.
• Amazon’s success as a retailer is partially due to its early start in e-commerce but also due to its religious focus on the customer as well as frugality and performance data.
• For example, employees are expected to write 6-page documents in order to get any major decision approved and there is very little flexibility in the system for anyone that does not work well in this mould.
• Content creators and developers on the other hand are creative types who do not respond very well to rigid structures and a command-and-control environment.
• Amazon has done an excellent job of attracting talent (by paying way above the market rate) but not of keeping them because everyone who joins is expected to adapt to Amazon’s culture.
• The net result has been a vast amount of money spent (around $500m per year + acquisitions) but very little if anything to show for it as Amazon is paying upfront and is doing very little to incentivise the developers to create anything out of the ordinary.
• A substantial portion of the stable of games that have been in development has been cancelled following dreadful reviews and there seems to be very little chance that those that remain will ever see the light of day.
• My position for some time has been that game production is a sideshow and that the real intent should be to become the go-to place for gamers to develop their games (see here).
• This would explain as series of acquisitions and licence deals that Amazon has made over the last few years which are a good fit with the AWS business.
• It would also create an alternative to the duopoly that currently exists in gaming between Unreal Engine and Unity.
• The problem has been that the tool that Amazon created (Lumberyard) as an alternative is not a patch on its rivals meaning that Amazon’s games have been at a disadvantage before they even started.
• Consequently, I think that the whole operation needs an urgent rethink.
• Video games are now a major industry with revenues of over $150bn and there is space for a third player in the area of games development.
• Furthermore, combining this with the Twitch and AWS assets that Amazon already has, and which are very successful in their own right means that a turnaround is possible.
• The problem is that this turnaround may require a departure from the rigid culture that has made Amazon so successful in other areas to date.
• This will be a tough pill to swallow for Amazon’s management but failure to adapt to some of the unique requirements of game development could see this business quietly disappear.
• Amazon has been trading sideways for 5 months now which I think is a reflection of the fundamentals needing to catch-up with the dizzying valuation.
• As a result, the valuation of Amazon is well below its peak, but it still looks expensive compared to almost any other business out there that sells things to consumers for a living.
• I think it could go sideways at best for some time longer.