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Lee Simmons

Gaming companies look to the cloud

by Lee Simmons | Dun & Bradstreet Editor

July 18, 2012 | 1 Comment »

Video game software manufacturers are increasingly looking to cloud computing in hopes of offsetting slowing console sales.

Cloud gaming technology streams games directly to Internet-connected devices, with the processing occurring on remote servers rather than gaming consoles. As a result, gamers can play fast-action, sophisticated titles through a Web browser on their laptops, tablets, smartphones, and even some TVs without installing software or purchasing specialized hardware.

Sony’s recent $380 million acquisition of game-streamer Gaikai underscores the potential of cloud gaming, although challenges remain. In particular, firms are challenged by running data centers that require power, cooling, quick Internet connections, and advanced graphics chips. In addition, cloud gaming has yet to prove real profitability.

“Despite attractions such as avoiding paying at least $99 for a game console, cloud gaming services have had a modest impact so far,” writes The Wall Street Journal‘s Ian Sherr. “Industry researcher IDC estimated that OnLive had about two million customers during the first quarter of this year, based on a survey of 1,500 U.S. gamers—not much of a foothold compared to console sales by Sony and Microsoft Corp., which have each exceeded 60 million units sold.”

Like other software segments, gaming firms are hedging their bets that while cloud computing requires some initial upfront investment, it will eventually rain profits.

The biggest issue is that the bandwidth isn’t quite there yet to deliver a gaming experience equal to running a local version of the game on one’s own hardware (PC or console). At the moment, it’s seen by many gamers as merely a good way to demo a game or catch up with old titles. That’s a major driver behind why we’re seeing limited success with it for now. In fact, to Gaikai’s credit, it was more focused on demo delivery than full games, unlike competitor OnLive (also a popular candidate for acquisition rumors), which has tried to build traction as a full-on cloud gaming service.

Although it’s tempting to compare it to cloud video streaming, there are significant differences that make sense of the lag in the acceptance of cloud gaming. The gist of the difference is in the demand in quality from the primary market (avid gamers as opposed to casual) and the ability of the technology to replicate the local experience in the cloud. The audience for video streaming is vast and less-exacting compared to the audience for cloud gaming. Also the *need* with video streaming is less demanding, as it’s just being viewed, not constantly, actively interacted with.

There’s a reason that you see every new video card benchmarked against the latest games. Gamers are feverish for ringing every ounce of performance out of hardware to get the best graphics a game has to offer. The cloud just hasn’t got the oomph to deliver that standard yet. Besides an unacceptable loss of graphical quality, latency becomes a critical issue in games that just doesn’t exist for video watching, especially when you throw multiplayer into the mix.

This tech has a long way to go, but it will get there, and Sony made a good move to grab one of the strongest players in the space. Rumors abound as to whether Microsoft or someone else might be looking to scoop up OnLive.

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