OnLive Promises Hard-Core Gaming Minus the Hardware

The first tech media darling has already blasted its way through the clutter at the annual Game Developers Conference in San Francisco -- OnLive, the new company to come from longtime serial tech entrepreneur Steve Perlman.

Phrases like "game changer" are being tossed about to describe OnLive's technology, which essentially creates the new category of cloud gaming for play on computers and TVs. Forget about pricey consoles, fingerprint-smudged game discs and Xbox Red Rings of Death; a new video compression system developed by OnLive means the company's servers can host all the gaming technology like rendering and storage. All the gamer would have to do is log on and start playing. The company is promising no lag time on its streams.

OnLive will support PCs and Macs, but consumers will need to buy a paperback book-sized mini-console and accompanying controller if they want to play games in 720p HD on their big-screen TVs. No prices have been announced yet.

Creating the Buzz

OnLive had already given sneak previews to several technology journalists and was planning to make its official debut at a Tuesday evening (Pacific Time) press conference, but public relations spokesperson Tiffany Sterling told TechNewsWorld that the Hollywood trade publication Variety broke an embargo, so word began getting out early about Perlman's new initiative.

So is it the true game-changer for the gaming industry? Can a virtual gaming console, as some are describing OnLive's capabilities, put the fear of God -- or at least "Halo's" Master Chief -- into companies like Microsoft (Nasdaq: MSFT), Nintendo and Sony (NYSE: SNE)?

"They should either be afraid or seize the opportunity," Rob Enderle, principal analyst of the Enderle Group, told TechNewsWorld. "It lowers the cost of the console to almost nothing, and these guys all lose money on the consoles, so it eliminates the Playstation 3 problem off the bat. You could give consoles away for free for something like this. So they either embrace it or it's a go-out-of-business scenario. It depends on how they treat it."

It may take some time for cloud gaming to mature, but OnLive's development of its compression technology -- and the right pricing strategy -- effectively puts the gaming industry on Internet time, Enderle says.

The Effect on Gaming Software

Much of the media buzz surrounding OnLive revolves around the partnerships it is announcing at its debut. Those attending Tuesday's press conference will be able to watch demonstrations of games from eight of the industry's major software companies, including Electronic Arts, Atari, Ubisoft, Eidos, Take-Two Interactive and Warner Bros.

Why wouldn't those who make the games applaud the arrival of OnLive? "It potentially explodes their available audience, making it much larger," Enderle said. "It will give them access at a much lower potential cost, so this can do wonderful things for their revenue. It creates a market that for the most part is paying as they play.

"On the other hand, you have to keep those players happy. You really want to engage them and keep them playing." In that respect, Enderle says OnLive truly puts gaming and interactive entertainment on the same level as network television programming. When you add the potential for in-game advertising, which could result in free games thanks to a new funding source, "you could see a real melding of traditional media and this interactive stuff. This is just the beginning," he said.