@Antwan3K: @slimdogmilionar:
Ehh, I'm a bit late but I'll just explain things and put them in perspective, both on known and speculative rumblings in various circles.
1)PS Now as it exists now has two components. The original deployment consisted of PS3 blades in rack servers in RackSpace locations. The second iteration consists primarily of AWS (Amazon) servers running PS4 VMs at low rez and framerate. The 720P/30fps cap on PS4 streamed games. They also have download for PS4 because of what I will discuss later on.
2) MS cannot run Xbox games on existing Azure hardware. They need to have AMD based high performance GPU solutions to accomplish this. The would need to either buy the servers or built their own. The chose to put Xbox S blade servers in just like Sony originally did with PS3.
3) The reality is that even if they only had 1 million initial users (2.5% of their total user base) they would still need to have enough servers to accommodate them. Currently the Xbox S blades are built with 8 XBS chips allowing 8 concurrent users and estimated at between $1500-$2000 a piece. Even at the these incredibly low-end spec estimates you are still talking close to a quarter billion just to get enough server to service 2.5% of your user base. This is a hefty investment no matter how you slice it. To put this another way, it would cost them 1 Billion dollars for every concurrent 4 million users. Moving their entire user base to cloud would cost more in servers than the entire xbox divisions revenue in a year. This is not cheap.
4) The Memorandum of Understanding isn't a binding agreement or anything really than an exploration. Sony still partners with Amazon and Rackspace and likely would continue to do so even if a deal were reached. This isn't an either/or scenario because Sony never planned to build this infrastructure alone and only uneducated fanboys would have made that assumption. Sony by and large partners for much of their infrastructure it was always just a question of who. The memorandum only specifies future projects so it appears Sony will continue its partnerships with Amazon and Rackspace for the time being. But in the case of MS, Sony helping to contribute to building the expense of the servers and infrastructure is mutually beneficial and I will explain with industry average numbers later.
5) The Memorandum of Understanding is consistent with a second rumor running on reddit and in development circles. The Xbox Anaconda chips were built for a dual purpose for both the high-end Xbox and to serve as the basis for their xCloud and AI service. Cloud AI requires much of the same hardware such as very high-end GPUs. The problem is that people are claiming the Anaconda was not designed only for gaming and thus suffers slightly from having AI specific enhancements which may not directly translate to gaming. Developers (rumored) are reporting better performance on PS5 kits due to this. PS5 & Xbox Next are (rumored) in the same realm of power but with Xbox Anaconda chips being used for three purposes. In the Xbox itself, in their future xCloud servers, and for cloud AI use.
6) This creates a complex multi-business unit problem. Sony needs a cloud service which has the hardware they need. Microsoft needs to do the same. They could build it together allowing Sony to gain access to these servers at a reduced cost while Sony in turn actually ends up subsidizing the hardware production of the Next Xbox chips. The alternative would be that Sony continues to work with other cloud vendors at much higher rates who may not even have the hardware needed. While MS takes on the cost of all these projects alone meaning they could have a slightly less gaming specific console for the same or slightly higher price, also building out their cloud servers at whatever it will likely cost at the time (Probably upwards of $5000 a server at least). If Sony official partnered with MS they would also run the risk of losing market share in the console space as MS would be able to lower prices or compete a bit better as their production costs would be partially subsidized by Sony.
7) How this all shakes out is primarily based on Sony's cloud business model. Currently we can estimate Sony's initial costs in 2014 were around $1.25 per hour of gaming. This is the industry standard. Since then we can surmise that Sony has since reduced its streaming (at least PS3 streaming) to around $0.75 or below per hour. Well below the industry standard. To receive a PS4 equivalent streaming devices, the industry rate is $1-$1.50 per hour of streaming which is also why Sony heavily promotes PS4 downloads because downloading the file a single time is actually cheaper for them. For specs of what we assume will be the next gen variant, the industry standard price per streaming is about $1.50-$2.50 per streaming hour. Let's say Sony decides to partner with MS and work out a deal where Sony continues its existing rate of $0.75 per streaming hour on the high end servers. MS can use the same servers and rather than it costing them $1-$1.25 per server in costs, they can deduct the money Sony pays them and significantly reduce their net costs. Meaning the same servers that cost Google/Amazon $1.50 to run now only cost Sony and MS $0.75 each to run because they share them.
8) However again this is all based on rumor and available information at this time. In this scenario, Sony would gain savings in cloud infrastructure but at the risk of allowing MS to be more competitive in the console space. In order for this to work, cloud gaming would need to be viable enough to for Sony to decide to partner with MS at the risk of helping lower their manufacturing costs and potentially increasing their market share in the console space. In addition, it would require that Amazon or Google do not come back and offer Sony a similar or better deal. Google could easily come in with a similar deal but with less risk because they have no intention of competing with Sony in the home console space.
Anyway, this is way way way more complex than a single post can put together but there is a lot of potential either way with just as many questions.
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