Cloud Gaming

Cloud computing is making itself known to entrepreneurs eager to take advantage of its innovative technology; however it could also be considered disruptive technology to the traditional video gaming industry’s business model.

Steve Perlman and Mike McGarvey created a new online game distribution system called OnLive. Similar to movies on demand, this is gaming on demand. It allows users to play video games without ever having to install the game into their own PCs. Using cloud technology, OnLive stores a library of games on its own servers which will then directly stream into the user’s browser. This method will also allow users to play high quality games with just the bare minimum hardware requirements and stable internet connections. OnLive will take care of the technical side of things by upgrading and updating its hardware, thus enabling the user to play the latest games without ever having to upgrade their own system.

“OnLive presents a much more efficient and profitable distribution model than the standard retail structure. That's because the system is all digital, cutting down on physical distribution costs, and because it is designed to eradicate piracy and second-hand sales, both of which are banes of the publishers' existence“- Daniel Terdiman

The service can be streamed to smartphones, tablets, and televisions. Currently the company’s servers are hosted by 5 data center locations throughout North America. The closer the user is to one of these locations, the higher the quality of service.

So herein lies the problem, the quality of the stream depends on the user’s internet speed, reliability, and their distance away from the hosting server. Most broadband providers are not exactly 100% reliable in providing the quality service needed for OnLive to perform to the customer’s expectations. The quality of OnLive’s service currently relies heavily upon the user’s internet provider. Simply put, they lack the complementary assets of having widespread fast and reliable broadband providers.

While OnLive provides a new and perhaps more convenient way to get access to video games, it does not provide a higher quality of gaming for the user. Even with video compression, latency is still a huge issue that needs to be addressed. There is potential for this company to grow in the future, but first they must fix the limitations imposed by the users’ internet connection. Perhaps the company could focus on a niche market of individuals who are not technologically savvy enough or financially able to upgrade their own PCs.

What do you think? Do you feel that OnLive’s business model is viable enough to survive in the long run against its competitors?

OnLive demonstration video