Imagine what it will be like: Google attacking the $140 billion video game industry later this year, and going head to head against Nintendo, Sony, and Microsoft.

There's lots to keep an eye on, from how Google plans to tackle the mother of all chicken-and-egg problems with its no-console system (meaning: building a giant video game platform with no gamers yet on board), to the potential Achilles' heel that many skeptics say Google hasn't yet addressed (bandwidth caps).

But, in a complicated twist of events that nobody could have predicted, it seems Google now has a sudden and significant advantage over Nintendo, Sony, and Microsoft--at least when it comes to selling to U.S. customers.

And in a way, they have President Trump to thank for it.

Two Words: Trade War

Here's the genesis. This all bounces a bit like a Ping-Pong ball between competitive advantages and disadvantages, so I'll try to keep it as simple as possible:

  • The key difference between what Google is offering with Stadia and everything else on the market is that there's no console to buy. No matter what device you're using to read this article, you should be able to play Stadia games on it. Exception: no iPhones, at least to start. (Advantage: Google.)
  • However, there's a problem: A no-console platform means constant data streaming, and most customers don't have unlimited data. Google's response has been to say that they expect Internet service providers will simply increase the amount of data they allow customers to use--which sounds like a very risky assumption. (Advantage: everyone else.)
  • But the real wildcard is that Nintendo, Microsoft, and Sony manufacture 96 percent of their video game consoles in China. The U.S. and China are currently locked in a bitter trade war. Now, Nintendo, Microsoft, and Sony say that during 2019 and 2020, they suddenly expect their sales to take a giant hit as a result. (Advantage: Google.)

$840 Million!

In fact, these three giant competitors teamed up to write to the Trump administration, asking it to back off on the tariffs.

In a letter to the Office of the United States Trade Representative last month (.pdf link), Nintendo, Microsoft, and Sony asked the government to remove "video game consoles" from the final list of products from China that the Trump administration is taxing:

"A price increase of 25% will likely put a new video game console out of reach for many American families who we expect to be in the market for a console this holiday season.

For those purchases that do go forward despite tariffs, consumers would pay $840 million more than they otherwise would have, according to a recent study prepared for the Consumer Technology Association by the independent economic group, Trade Partnership."

It all works out to a double-whammy advantage for Google Stadia:

  • Since Google doesn't have consoles, it's totally immune to the tariff pressure on importing consoles from China.
  • Meanwhile, if the tariffs do price consoles out of reach for many U.S. families, it stands to reason that they might take a closer look at the no-console Google Stadia.

Conveniently for Google, it's announced it plans its first Stadia release in November, just before the holiday season.

Oh, and there's another insight about yet another Google advantage in the Nintendo/Sony/Microsoft letter. It's something that I think people who watch this do realize, but it's striking nonetheless. 

Specifically, it's about how Google is only competing in the profitable part of this industry.

In video games, the consoles are a low-margin product. In fact, in their letter to the Trump administration the three manufacturers cite times when they've even sold consoles at a loss. 

The real moneymakers are the games themselves.

Google Stadia again has no consoles. It's only in the crazy high margin part of the market: the games themselves. 

Beyond Our Control

So, who can tell what will happen? It's possible the big video game makers will convince the U.S. government to exempt video game consoles from Trump's tariffs.

Or, it's possible that the whole trade deal will be resolved.

And I think Google still faces a very big challenge on the bandwidth issue. It's still hard to imagine big ISPs like AT&T, Comcast Xfinity, Verizon, and Spectrum simply raising caps for their customers.

But big product launches often turn on timing--and circumstances that were beyond the control of anyone directly involved.

If Google truly lucks out here--if it launches its no-console video game platform at exactly the same time that its console-bound competitors are facing serious tariff pressure--then it could wind up looking pretty darn smart as a result.