Article

What impact will OnLive have on video game retail?

The "games-in-the-cloud" service could disrupt game retail the way Netflix did movie retail - if consumers embrace it.

November 22, 2010 by James Bickers — Editor, Networld Alliance

For the past eight years, eight executives with pretty impressive resumes — among them the developer of QuickTime and one of the founders of Netscape — have poured their energies and an untold amount of venture capital into a technology and a product called OnLive, which takes video games away from PCs and consoles and moves them into the cloud.

Last week, the company finally started taking pre-orders for its $99 set-top box (it ships next month), and the buzz surrounding it is considerable, with many in the game community dubbing it "Netflix on-demand for video games."

Traditionally, someone wanting to play a new video game goes to the store, buys a piece of software, and runs it on their machine. Services like Steam, Xbox Games on Demand and Direct2Drive changed that model slightly over the past several years by eliminating the trip to the store. OnLive attempts to change the process even more drastically: Games are installed and reside on the company's gargantuan servers, and users connect to them — and play them remotely — via high-speed Internet.

"We're seeing the evolution of digital media," said Joe Bentley, vice president of engineering for OnLive. "It started with music, then film. Recently we've seen e-books. The downloading of games is not new, but we've taken a different approach. We've made it instant."

Gamers who buy a product using a service like Steam or Xbox Games on Demand initiate the purchase and make the payment, then wait for the game to download to the local machine and install. Because OnLive games are already installed and running on the company's servers, there is nothing to download or install — purchase or rent a game, and it starts playing immediately.

"Consumers like instant satisfaction," Bentley said.

Under the hood of OnLive's technology

OnLive lives or dies on the strength of the user's broadband connection — no high-speed Internet, no OnLive service. The quality of the gaming experience will depend on the quality of the connection as well. The central reason the service works is because the processor-intensive graphics rendering takes place on the remote server, then the audio and video data is sent over the Internet to the gamer's machine. The gamer makes a move or presses a button, and that information is sent upline to the server, which calculates the game's reaction, processes the graphics and sends it back. All of this has to happen in less than a millisecond, or the gamer will perceive a "lag" between their inputs and the screen's reaction.

Whether or not that kind of connection quality will scale has been a big source of skepticism about OnLive among gamers, but Bentley says the company has figured out how to make it work.

"What we've done is bought peering agreements with a lot of the major telcos and ISPs," he said. "When you play on Comcast, you're going to connect through a Comcast IP address and stay on their backbone. You'll never be on the public Internet. We can optimize the route."

And with a recent PEW Internet survey showing that roughly two-thirds of U.S. adults have access to a high-speed Internet connection at home, the service should be widely available to a broad spectrum of gamers.

As for the set-top box, it's a tiny and sleek black unit that comes with one controller. It's got a standard Ethernet connection and outputs video up to full 1080p. Most reviewers so far have been surprised by what they find — tech blog Engadget called the box "pretty badass," while leading video game news site Kotaku said "it could change the way we play games."

For more than a year, OnLive has allowed PC and Mac gamers to access the service on their computers — and there is little question that it works, and works amazingly well. Retail Customer Experience tested the first-person shooter "Borderlands" on a three-year-old Dell Latitude, a machine which does not meet the game's minimum requirements. In other words, a retail copy of the game would not have run on this machine. Using OnLive, the game played flawlessly, at full speed, with only the tiniest bit of discernible lag.

And that points to another impact OnLive could have on retailers: Not only could it get more console gamers to make their purchases and rentals from home, it could allow PC gamers to upgrade their machines less often.

The OnLive business model and the competition

OnLive's pricing is tiered, and those tiers are going to be evolving in the coming weeks. Almost all of the games on the service have a 30-minute free trial; $5.99 gets you a three-day rental, $8.99 gets you five days, and prices vary for an outright purchase.

The company has also announced an "all-you-can-play" tier, which is where the Netflix comparisons come in: For one monthly fee, customers get unlimited access to play a certain selection of titles. Bentley said that selection is analogous to Netflix's "Watch Now" library, which consists mostly of older material with select new releases rotated through.

Ostensibly, the company with the most to lose from an OnLive success story is GameStop, the world's largest video game retailer with 6,500 stores. So far, though, GameStop is staying relatively tight-lipped about the upstart company.

"We have looked at their business model and continue to look at it," said Chris Olivera, divisional vice president of corporate communications for GameStop. "We have other assets, including our own digital companies and our bricks-and-mortar stores, that we are focusing on. We have no comment, other than to continue to observe them and their business model."

Larry Plotnick, CEO of Play N Trade, the largest retail video game franchise, isn't losing sleep over OnLive. He thinks the product will have limited appeal, and will never win the hearts of hardcore gamers who want to own their games.

"The question mark for this holiday is, 'Will there be interest in the marketplace for it?' and my belief is no," he said. "I just don't see it having a broad enough appeal to make a significant impact. Could they sell 10,000 or 20,000 units? Potentially. But for an industry that is $30 billion in North America alone, I don't see it making a dent in the market."