Gaming On Cloud Nine
Cumulonimbus clouds are the highest-flying clouds around – the ninth highest to be exact. Cloud computing is flying high again these days as well. The seeds sown by the Application Service Providers (ASP) of the dot com boom have blossomed into the Software as a Service (SaaS) companies of today led by powerful, cheap core service offerings from companies like Amazon and Google. The entire industry is hard at work jockeying for position in the next hype cycle for what the IDC has dubbed a $42B market.
At this year’s Game Developer Conference, cloud computing took center stage in the form of an announcement from OnLive that they would be bringing to market a revolutionary on-demand video game service by the end of the year. Analysts immediately began predicting that the long-heralded demise of retail was at a quickening. Technologists and online game experts I spoke with during the conference scoffed at the feasibility and even the utility of OnLive’s claims.
Even the more bullish analysts don’t think OnLive will rewrite the rules of gaming overnight. But leaving aside the fickle realities of packet travel and consumer adoption for moment to contemplate the ifs, what are the potential implications in the short to mid term if OnLive does live up to the hype?
The landscape of the AAA title market in Asia will change. The server-based, microtransaction-driven FreeToPlay model that grew up in South Korea and now dominates most of the rest of Asia as well was a response both to high piracy and low (AAA game-capable) PC penetration rates. By housing the game on a metered server and players in net cafes, the model gained traction and widespread adoption. In markets under served by the console players, FreeToPlay was literally the only AAA game in town. Enter OnLive with its cheap hardware playable via a TV or low spec PC. In places like South Korea where home broadband is affordable and lightening fast, the ability to play AAA titles in the home could very well impact the net cafe set. Ripple effects to downstream players like payment providers seem likely as well as OnLive will doubtlessly handle billing. Japan, traditionally a very console-centric market, also has wicked fast Internet to the home as well as extremely high penetration of notebook computers. While content appropriateness and localization would continue to be a challenge, OnLive would address some structural issues and make it much more addressable market by PC game publishers. China’s high wireless broadband adoption rates paired with cheap hardware and a TV would also augur for higher rates of home gaming. SE Asia and India are not there yet from an infrastructure perspective but with the three major markets in position, if I were OnLive, I’d be looking to put some product marketing boots on the ground in Asia.
Game operating will further displace game publishing. Online gaming experiences (MMOs, FreeToPlay, social gaming, and to some degree Steam and XBLA) have SaaS running in their veins. Were it to be successful, OnLive would accelerate the considerable momentum that pure play online gaming already has. Streaming packaged product off a server is only the first step after all. In Asia in particular, there’s limited consumer value in streaming that which can be pirated for free. The longer term win in both product differentiation and margins will be in converting AAA franchises to long-standing, loyal global communities organized around a service model. This is a big deal as online game operating maps to a very different set of business realities that affect how product is built, delivered, and supported. Ever since I left EA several years back to join FreeToPlay innovator Three Rings, I have consistently been impressed at how these business model differences play out in product design, organizational structure, and personnel/skills. Our first game at Three Rings, Puzzle Pirates, recently celebrated its five year anniversary and is still going strong with a healthy community, ongoing updates, and item refreshes. The multi-year slow build and retain curve of an online service stands in stark contrast to the big first week sales spike of most packaged products. Launches, the life blood of packaged, are different beasts entirely in online. Depending on the community offerings surrounding the core technology, OnLive will catalyze traditional publishers to greater expermentation with the operator model.
The casual/hardcore line will blur but not disappear. Part of the broadbased appeal of casual games is their approachable, pick up and play nature. But, another part of it is that they’re available for trial or flat out free via digital download. How many “casual” players would spend more time on AAA games if they were more readily available? In the flavor of the future where OnLive comes as an option bundle with your cable subscription like a DVR, AAA title play would likely expand as casual players sample from the buffet. However, given that packaged games often require upfront time investments to learn complex controls, my sense is that a majority of casual players will continue to play lighter fare even in the face of universal availability.
This is all just wild premature speculation of course - it may yet turn out to be Phantom 2.0. Still, whatever happens with OnLive, there are strong winds blowing behind cloud gaming…
-Shanti
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