Running a cloud infrastructure is something Google is good at. Making AAA games is not. It is entirely consistent with a deep belief in the product for them to reallocate resources toward partnerships rather than trying to spin up a AAA game studio internally.

That's not wrong but I think they've put themselves in a tricky position here: this requires companies to make a non-trivial commitment to their platform. There haven't been any new deals or increased partnerships announced to make this look less like they're just giving up on the idea, and anyone thinking about partnering with them has to be wondering about the odds of getting much return on their investment relative to the risk of Google changing direction again.

Google is good at infrastructure but they're not uniquely so and all of their competitors are better at building platforms. They have competitors from both of the dominant console vendors, dominant cloud service, and nVidia. Whatever technological edge they believe they have is going to be a tough sell, especially since both AWS and Microsoft can match or exceed their cloud infrastructure and all three services are available to any publisher who wants to roll their own.

This understates the impact of the move. Everyone already was aware that Google was better at running cloud infrastructure than at making AAA games when they started their internal studios. This looks considerably worse than having never tried to make games in internal studios.

Something like Stadia requires customers to believe that it won't go away. Google, given their long history of mediocre commitment to projects, already had considerable skepticism for Stadia from Day 1. Shuttering their internal studios is just one more signal to skeptical customers that Google really doesn't know what they are doing and doesn't care.

Totally agree this is what is happening and Google may be dense enough to believe this is a winning strategy (or a way to salvage their investment). But this is not how you create a competing gaming console, or gaming platform, or whatever Stadia is. Worse, this is a pivot, which also signals Google is ready write-off the entire exercise. That doesn't give consumer and publishers a lot confidence in viability of Stadia.