Thursday, April 2, 2009

OnLive, OToy, and why the future of gaming is high in the cloud

For the last six months or so, I have been researching the idea of cloud computing for games, the technical and economic challenges, and the video compression system required to pull it off.

So of course I was shocked and elated with the big OnLive announcement at GDC.

If OnLive or something like it works and has a successful launch, the impact on the industry over the years ahead could be transformative. It would be the end of the console, or the last console. Almost everyone has something to gain out of this change. Consumers gain the freedom and luxury of instant on demand access to ultimately all of the world's games, and finally the ability to try before you buy or rent. Publishers get to cut out the retailer middle-man, and avoid the banes of piracy and used game resales.

But the biggest benefit ultimately will be for developers and consumers in terms of the eventual game development cost reduction and quality increase enabled by the technological leap cloud computing makes possible. Finally developing for one common, relatively open platform (server-side PC) will significantly reduce the complexity in developing a AAA title. But going farther into the future, once we actually start developing game engines specifically for the cloud, we enter a whole new technological era. Its mind-boggling for me to think of what can be done with a massive server farm consisting of thousands or even tens of thousands of densly networked GPUs with shared massive RAID storage. Engines developed for this system will look far beyond anything on the market and will easily support massively multiplayer networking, without any of the usual constraints in physics or simulation complexity. Game development costs could be cut in half, and the quality bar for some AAA titles will eventually approach movie quality, while reducing technical & content costs (but that is the subject for another day).

But can it work? And if so, how well? The main arguments against, as expressed by skeptics such as Richard Leadbetter, boil down to latency, bandwidth/compression, and server economics. Some have also doubted the true value added for the end user: even if it can work technically and economically, how many gamers really want this?


The internet is far from a guaranteed delivery system, and at first the idea of sending players inputs across the internet, computing a frame on a server, and sending it back across the internet to the user sounds fantastical.
But to assess how feasible this is, we first have to look at the concept of delay from a pyschological/neurological perspective. You press the fire button on a controller, and some amount of time later, the proper audio-visual response is presented in the form of a gunshot. If the firing event and the response event occur close enough in time, the brain processes them as a simultaneous event. Beyond some threshold, the two events desynchronize and are processed distinctly: the user notices the delay. A large amount of research on this subject has determined that the delay threshold is around 100-150ms. Its a fuzzy number obviously, but as a rule of thumb, a delay of under 120ms is essentially not noticeable to humans. This is a simple result of how the brain's parallel neural processing architecture works. It has a massive number of neurons and connections (billions and trillions respectively), but signals propagate across the brain very slowly compared to the speed of light. For more reference I highly recommend "Consciousness Explained" by Daniel C Dennet. Here are some interesting timescale factoids from his book:

saying, "one, Mississippi" 1000msec
umyelinated fiber, fingertip to brain 500msec
speaking a syllable 200msec
starting and stopping a stopwatch 175msec
a frame of television (30fps) 33msec
fast (myelinated) fiber, fingertip to brain 20msec
basic cycle time of a neuron 10msec
basic cycle time of a CPU(2009) .000001msec

So the minimum delay window of 120ms fits very nicely into these stats. There are some strange and interesting consequences of these timings. In the time it takes the 'press-fire' signal to travel from the brain down to the finger muscle, internet packets can travel roughly 4,000 km through fiber! (light moves about 200,000 km/s through fiber, or 200 km/msc * 20 msc) This is about the distance from Los Angeles to New York. Another remarkable fact is that the minimum delay window means that the brain processes the fire event and the response event in only a few dozen neural computation steps.

What really happens is something like this: some neural circuits in the user's brain "make the decision" to press the fire button (although at this moment most of the brain isn't conscious of it), the signal travels down through the fingers to the controller then on to the computer, which then starts processing the response frame. Meanwhile, in the user's brain, the 'button press' event is propagating through the brain, and more neural circuits are becoming aware of the 'button press' event. Remember, each neural tick takes 10ms. Some time later, the computer displays the audio/visual response of the gunshot, and this information hits the retina/cochlea and starts propagating up into the brain. These events connect, and if they are seperated by only a few dozen neural computation steps (120 ms), they are connected and perceived as a single, simultaneous event in time. In another words, there is a minimum time window of around a dozen neural firing cycles where events are propagating around the brain's neural circuits - even though it already happened, it takes time for all of the brain's circuits to become aware of the event. Given the slow speed of neurons, its simply remarkable that humans can make any kind of decisions on sub second timescales, and the 120 ms delay window makes perfect sense.

In the world of computers and networks, 120 ms is actually a long amount of time. Each component of a game system (input connection, processing, output display connection) adds a certain amount of delay, and the total delay must add up to around 120ms or less for good gameplay. Up to 150ms is sometimes acceptable, and beyond 200ms we get quickly into rapid, problematic breakdown in the user experience as every action has noticeable delay.

But how much delay do current games have? Gamasutra has a great article on this. They measure the actual delay of real world games using a high speed digital camera. Of interest for us, they find a "raw response time for GTAIV of 166 ms (200 ms on flat panel TVs)". This is relatively high, beyond the acceptable range, and GTA has received some criticism for sluggish response. And yet this is the grand blockbuster of video games, so it certainly shows that some games can get away with 150-200ms responses and the users simply don't notice or care. Keep in mind this delay time isn't when playing the game over OnLive or anything of that sort: this is just the natural delay for that game with a typical home setup.

If we break it down, the controller might add 5-20ms, the TV can add 10-50ms, but the bulk of the delay comes from the game console itself. Like all modern console games, the GTA engine buffers multiple frames of data for a variety of reasons, and running at 30fps, every frame buffered costs a whopping 30ms of delay. From my home DSL internet in LA, I can get pings of 10-30ms to LA locations, and 30-50ms pings to locations in San Jose. So now you can imagine lengthening the input and video connections out across the internet is not so ridiculous as it first seems at all. It adds additional delay, which you simply need to compensate for somewhere else.

How does OnLive compensate for this delay? The result for existing games is deceptively simple: you just run the game at a mucher higher FPS than the console, and or you reduce internal frame buffering. If the PC version of a console game runs at 120 FPS, and it still keeps 4 frames of internal buffering, you get a delay of only 32 ms. If you reduce the internal buffering to 2, you get a delay of just 16ms! If you combine that with a very low latency controller and a newer low latency TV, suddenly it becomes realistic for me to play a game in LA from a server residing in San Jose. Not only is it realistic, but the gameplay experience could actually be better! In fact, with a fiber FIOS connection and good home equipment, you could conceivably play from almost anywhere in the US, in theory. The key reason is that many console games have already maxxed out the maximum delay (when running on the console), and modern GPU's are many times faster.

Video Compression/Bandwidth

So we can see that in principle, from purely a latency standpoint, the OnLive idea is not only possible, but practical. However, OnLive can not send a raw, uncompressed frame buffer directly to the user (at least, not at any acceptable resolution on today's broadband). For this to work, they need to squeeze those frame buffers down to acceptably tiny sizes, and more importantly, they need to do this rapidly or near instantly. So is this possible? What is the state of the art in video compression?

For a simple, dumb solution, you can just send raw jpegs, or better yet, wavelet compressed frames, and perhaps get acceptable 720p images down to 1 Mbit or even 500Kbit for more advanced wavelets, using more or less off the shelf algorithms. With a wavelet approach, this would allow you to get 10fps with a 5Mbit connection. But of course we can do much better using a true video codec like H.264, which can squeeze 720p60fps video down to 5Mbit easily, or even considerably less, especially if we are willing to lower the fps in some places and or the quality.

H.264 and other modern video codecs work by sending improved JPEG key frames, and then sending motion vectors which allow predicted frames to be delta-encoded in far less bits, getting 10-30X improvement over sending raw JPGs, depending on the motion. But unfortunately, motion compensation means spikes in the bitrate - scene cuts or frames with rapid motion receive little benefit from motion compensation.

But H.264 encoders typically buffer up multiple frames of video to get good compression. OnLive has much less leeway here. Ideally, you would like a zero-latency encoder. H.264 and its predecessors have been designed to be used in video tele-conferencing systems, which demand low-latency. So there is already a predecent, and a modified version of the algorithm that avoids sending complete JPEG key frame images. Instead, using this low latency mode, small blocks of the image are periodically refreshed, but it never sends a complete JPEG key frame down the pipe, as this would take too long - creating multiple frames of delay.

There are in fact some new, interesting off the shelf H.264 hardware solutions which have near zero (1ms) or so delay, and are relatively cheap (in cost and power) - perhaps practical for OnLive. In particular, there is the PureVu family of video processors, from Cavium Networks. I have not seen them in action, but I imagine that with 720p60 at 5MBits/s, you are going to see some artifacts and glitches, especially with fast motion. But at least we are getting close, with off the shelf solutions.

But of course, OnLive is not using an off the shelf system(they have special encoding hardware and a plugin decoder), and improved video compression specific to the demands of remote video gaming is their central tech, so you can expect they have created an advancement here, but it doesn't have to be revolutionary, as the off the shelf stuff is already close.

So the big problem is the variation in bitrate/compressibility from one frame to the next. If the user rapidly spins around, or teleports, you simply can not do better than sending a complete frame. So you either send these 'key' frames at lower quality, and or you spend a little longer on them, introducing some extra delay. In practise some combination of the two is probably ideal. With a wavelet codec or a specialized H.264 variant, key frames can simply be sent at lower resolution, and then the following frames will use motion compensation to start adding detail to the image. The appearance would be a blurred image for the first frame or so when you rapidly spin the camera, which would then quickly up-res in to full detail over the next several frames. With this technique, and some trade off of lowering the frame rate or adding delay a bit on fast motion, I think 5Mbps is not only achievable, but beatable using state of the art compression coming out of research right now.

The other problem with compression is the CPU cost for compression itself. But again, if the PureVu processor is indicative, off the shelf hardware solutions are possible right now with H.264 at very low power, encoding multiple H.264 streams with near zero latency.

But here is where the special nature of game video or computer generated graphics allows us to make some huge effeciency gains over natural video. The most complex CPU task in video encoding is motion vector search - finding the matching image regions from previous frames that allow the encoder to send motion vectors and do effecient delta compression. But for a video stream rendered with a game engine, we can output the exact motion vectors directly. This is a potential problem in that not all games necessarily have motion vectors available, which may require modifying the game's graphics engine. However, motion blur is very common now in game engines (everybody's doing it, you know), and the motion blur image filter computes motion vectors (very cheaply). Motion blur gives an additional benefit for video compression in that it generates blurrier images in fast motion, which are the worst case for video compression.

So if I was doing this, I would require the game to use motion blur, and output the motion vector buffer to my (specialized, not off the shelf) video encoder.

Some interesting factoids: it apparently takes roughly 2 weeks to modify the game for OnLive, and at least 2 of the 16 announced titles (Burnout and Crysis) are particularly known for their beautiful motion blur - and all of them, with the exception of World of Goo - are recent action or racing games that probably use motion blur.

There is however, an interesting and damning problem that I am glossing over. The motion vectors are really only valid for the opaque frame buffer. What does this mean? The automatic 'free' motion vectors are valid for the solid geometry, not all the alpha-blended or translucent effects, such as water, fire, smoke, etc. So these become problem areas. Its interesting that several of the GDC commentors pointed out ugly compression artifacts when fire or smoke effects were prominent in BioShock running OnLive.

However, many games already render their translucent effects at lower resolution (SD and even lower in modern console engines), so it would make sense perhaps to simply send these regions at lower resolution/quality, or blur them out (which a good video encoder would probably do anyway).

But in short, the video compression is the central core tech problem, but they haven't pulled a miracle here - at best they have some good new tech which exploits some of the special properties of game video. And furthemore, I can even see a competitor with a 2x better compression system coming along and trying to muscle them out.

There's one other little issue which is worth mentioning slightly, which is packet loss. The internet is not perfect, and sometimes packets are lost or late. I didn't mention this earlier because it has well known and relatively simple technical solutions for real time systems. Late packets are treated as dropped, and dropped packets and errors are corrected through bit level redundancy. You send small packet streams in groups using bit association techniques such that any piece of lost data can be recovered, at the cost of some redundancy. For example, you send 10 packets worth of data using 11 packets, and any single lost packet can be fully reconstructed. More advanced schemes adaptively adjust the redundancy based on measured packet loss, but this tech is alreadly standard, its just not always use or understood. Good game networking engines already employ these packet loss mitigation techniques, and work fine today over real networks.

The worst case is simply a dropped connection, which you just can't do anything about - OnLive's video stream would immediately break and notify you of a connection problem. Of course, the cool thing about OnLive is that it could potentially keep you in the game or reconnect you once you get your connection back.

Server Economics

So if OnLive is at least possible from a technical perspective (which it clearly is), the real question comes down to one of economics. What is the market for this service in terms of the required customer bandwidth? How expensive are these data centers going to be, and how much revenue can they generate?

Here is where I begin to speculate a little beyond my areas of expertise, but I'll use whatever data I've been able to gather from the web.

A few google searches will show you that US 'broadband' penetration is around 80-90%, and the average US broadband bandwidth is somewhere around 2-3 Mbps. This average is somewhat misleading, because US broadband is roughly split between cable (25 million subscribers), and DSL (20 million subscribers), with outliers like fiber (2-3 million subscribers currently) and the DSL users often have several times lower bandwidth than the cable. At this point in time, the great majority of American gamers already have at least 1.5 Mbps, perhaps half have over 5 Mbps, and almost all have a 5 Mbps option in their neighborhood, if they want it. So OnLive is in theory will have a large potential market, it really comes down to cost. How many gamers already have the required bandwidth? And for those who don't, how cheap is OnLive when you factor in the extra $ users may have to pay to upgrade? And to point out, the upgrade really will be for the HD option, as the great majority of gamers already have 1.5 Mbps or more.

BandWidth Caps

There's also the looming threat of American telcos moving towards bandwidth caps. As of now, Time Warner is the only American telco experiementing with caps low enough to effect OnLive (40 Gigs/Month for their highest tier). Remember that using the HD option, 5 Mbps is the peak bandwidth, the average useage is half that or less, according to OnLive. So Comcast's cap of 250 Gigs/Month isn't really relevant. Time Warner is currently still testing its new policy in only a few areas, so the future is uncertain. However, there is one interesting fact to throw into the mix: Warner Bros, the Time Warner subsidary, is OnLive's principle investor. (the other two are AutoDesk and Maverick Capital) Now conser that Warner cable is planning some sort of internet video system for television based on a new wireless cable modem, and consider that Perlman's other company was Digeo, the creator of Moxi. I think there will be more OnLive suprises this year, but suffice to say, I doubt OnLive will have to worry about bandwidth caps from Time Warner. I suspect Time Warner's caps really are more about a grand plot to control all digital services in the home, by either direclty providing them or charging excess useage fees that will kill enemy services. But OnLive is definetly not their enemy. In the larger picture, the fate of OnLive is entertwined into the larger battle for net neutrality and control over the last mile pipes.

Bandwidth Cost

OnLive is going to have to partner with backbones and telcos, just like the big boys such as Akamai, Google and YouTube do, in what are called either transit or peering arrangements. A transit arrangement is basically bandwidth wholesale, and we'll start with that assumption. A little google searching reveals that wholesale mass transit bandwidth can be had for around or under 10$ per Megabit/s per month (comparable to end broadband customer cost, actually). Further searching suggests that in some places like LA it can be had for under 5$ per Mbs/month. This is for a dedicated connection or peak useage charge.

Now we need some general model assumptions. The exact subscriber numbers don't really matter, what critically matters are a couple of stats: how many hours a month does each subscriber play, and more directly, what is the typical peak fraction of users online at a given time. The data I've found suggests that 10 hours per week is a rough gamer average, or 20 hours per week for an MMO, 10% occupancy is typical for regular games and 20% peak occupancy is typical for some MMOs. Using the 20% peak occupancy means that you need to provide enough peak bandwidth for 20% of your user base to be online at a time - a worst case. In a potential worse case scenario, every user wants HD at 5 Mbits/s and the peak occupancy is 20%, so you need essentially a dedicated 1 Megabit/s for each user or $10/month per user in bandwidth cost alone. Assuming a perhaps more realistic scenario, the average user bandwidth is 3Mbps (not everyone can have or wants HD), peak occpuancy is 10%, and you get $3 per month in bandwidth cost per user.

Remember, in rare peak moments, OnLive can gracifully and slowly degrade video quality - so the service will never fail if they are smart. The worst case at terrible peak times is just a little lower image quality or resolution.

So roughly, we can estimate bandwidth will cost anywhere from $3-10 per month per user with transit arrangements. Whats also possible, and more complex, are peering arragnements. If OnLive partners directly with providers near its data centers, it can get substantially reduced rates (or even free) if the traffic stays with just that provider. So realistically, i think $5 per month in bandwidth per user is a reasonable upper limit on OnLive's bandwidth charges based on today's economic climate - and this will only go down. But 1080p would be significantly more expensive, and it would make sense to charge customer's extra. I wouldn't be surprised if they have a tiered charge based on resolution - as most of their fixed costs scale linearly with resolution.

Dataroom Expense

The main expense is probably not the bandwidth, but the per server cost to run a game - a far more demanding task than what most servers do. Lets start with the worst case and assume that OnLive needs at least one decent CPU/GPU combination per logged on user. OnLive is not stupid, so they are not going to use typical high end, expensive big iron, but nor are they going to use off the shelf PC's. Instead I predict that following in the footsteps of google they will use midrange, cheaper, power effecient components, and get significant bulk discounts. Lets start with the basic cost of a CPU/motherboard/RAM/GPU combo. You don't need a monitor and the storage system can be shared between a very large number of servers - as they are all running the same library of installed games.

So lets take a quick look on pricewatch:
Core 2 Quad Q6600 Cpu fan + - 4GB RAM DDR2 $260
GeForce GTX280 1 GB 512-Bit DDR3 602/2214 Fansink HDCP Video Card $260

These components are actually high end, far more than sufficient to run the PC versions of most existing games at 90-150fps at 720p, and yes even crysis at near 60fps at 720p.

If we consider that they may have researched a little longer and undoubtedly get bulk discounts, we can take $500 per server unit as a safe upper limit. Amortize this over 2 years and you get $20 per month. Factor in the 20% peak demand occupancy, and we get a server cost of $4 per user per month.

This finally leaves us with power/cooling requirements. Lets make an over-assumption of 600watt continous power draw. With power at about $0.10 per kilowatt/hour, and 720 hours in a month, we get roughly $40 a month per server in power draw. Factor in the 20% peak demand occupancy, and we get $8 per user per month. However, this is an over-assumption because the servers are not constantly using power. The 20% peak demand figure means they need enough servers for 20% of their users to be logged in at once - but most of the time not all of the servers are active. The power required would scale with the average demand, not the peak, so its closer to $4 per user per month in this example (assuming a high average 10% occupancy). Cooling cost is harder to estimate, but some google searching reveals its roughly equivalent to the power cost, assuming modern datacenter design (and they are building brand new ones). So this leaves us with around $12 per user per month as an upper limit in server, power, and cooling cost.

However, OnLive is probably more effecient than this. My power/cooling numbers are high because OnLive probably spends a little extra on more expensive but power effecient GPU's that save power/cooling cost to hit the right overall sweet spot. For example, nvidia's more powerful GTX 295 is essentially two GTX 280 cores on a single die. Its almost twice as expensive, but provides twice the performance (so similar performance per $) and draws only a little more power (twice as power effecient). Another interesting development is that Nvidia (OnLive's hardware partner), recently announced virtualization support so that multi-GPU systems can fully support multiple concurrent program instances. So what it really comes down to is how many CPU cores and or GPU cores you need to run games at well over 60fps. Based on what I can see from recent benchmarks, two modern intel cores and a single GPU are more than sufficient (most console games only have enough threads to push 2 CPU cores). Nvidia's server line of GPU's are more effecient and only draw 100-150 watts per GPU, so 600 watts is a high over-estimate of the power required per connected user.

But remember, you need a high FPS to defeat the internet latency - or you need to change the game to reduce internal buffering. There are many trade offs here - and I imagine OnLive picked low-delay games for their launch titles. Apparently Onlive is targeting 60fps, but that probably means most games usually get even higher average fps to reduce delay.

Overall, I think its reasonable, using the right combination of components (typically 2 intel CPU cores and one modern nvidia GPU, possibly as half of a single motherboard system using virtualization) to have the per user power cost down to something more like 200 watts to drive a game at 60-120fps (remember, almost every game today is designed primarily to run at 30fps on the xbox 360 at 720p, and a single modern nvidia GPU is almost 4 times as powerful). Some really demanding games (crysis), get the whole system - 4 cpus and 2 GPU's - 400 watts. This is what I think OnLive is doing.

So adding it all up, I think 10$ per month per user is a safe upper limit for OnLive's expenses, and its perhaps as low as 5$ per month or less, assuming they typically need two modern intel CPUs and one nvidia GPU per user logged on, adequate bandwidth and servers for a peak occupancy of 20%, and power/cooling for an average occupancy of 10%.

Clearly, all of the numbers scale with the occupancy rates. I think this is why OnLive is at least initially not going for MMOs - they are too addictive and have very high occupancy. More ideal would be single player games and casual games that are played less often. Current data suggests the average gamer plays 10 hours a week, and the average MMO players plays 20 hours per week. The average non-MMO player is thus probably playing less than 10 hours per week. This works out to something more like 5% typical occupancy, but we are interested more in peak occupancy, so my 10%/20% numbers are a reasonable over-estimate of average/peak. Again, you need enough hardware & bandwidth for peak occupancy, but the power & cooling cost is determined by average occupancy.

$10 per month may seem like a high upper limit in monthly expense per user, but even at these expense rates OnLive could be profitable, because this is still less than the cost to the user of running comparable hardware at home.

Here's the simple way of looking at it. That same $600 server rig would cost $1000-1500 for an end user, because they need extra components like a hard drive, monitor, etc which OnLive avoids or gets cheaper, and OnLive buys in bulk. But most importantly, the OnLive hardware is amortized and shared over a number of users. The user's high end gaming rig sits idle most of the time. So the end user's cost to play at home on an even cheap $600 machine amortized over 2 years is still over $30 per month, three times the worst case per user expense of OnLive. And that doesn't even factor in extra power expense for gaming at home. OnLive's total expense is probably more comparable to that of xbox 360. A $500 machine (include necessary periphials) amortized over 5 years is a little under $10 per month. And then xbox live gold service is another $5 a month on top of that. OnLive can thus easily cover its costs and still be less expensive than 360 and PS3, and considerably less expensive than PC gaming.

The game industry post Cloud

In reality, I think that OnLive's costs will be considerably less than $10 per user per month, and will be increasingly less over time. Just like the console makers periodically update their hardware to make the components cheaper, OnLive will be constantly expanding its server farms and always buying the current sweet spot combination of CPU's and GPU's. But Nvidia and Intel refresh their lineups at least twice a year, so OnLive can really ride moore's law continously. Every year OnLive will become more economical and or provide higher FPS and less delay and or support more powerful games.

So its seems possible, even inevitable that OnLive can be economically viable charging a relatively low subscription fee to cover their fixed costs - comparable to Xbox Live's subscription fee (about 5$/month for xbox live gold) . Then they make their real profit on taking a console/distributor like cut of each game sale or rental. For highly anticipated releases, they could even use a pay to play model initially, followed up by traditional purchase or rental later on, just like the movie industry does. Remember the madness that surrounded the Warcraft3 Beta, and think how many people would pay to play Starcraft2 multiplayer ahead of time. I know I would.

If you scale OnLive's investment requirements to support the entire US gaming population, you get a ridiculous hardware investment cost of billions of dollars, but this is no different than a new console launch, which is exactly what OnLive must be viewed as. The Wii has sold 22 million units in the Americas, the 360 is close behind at 17 million. I think these numbers represent majority penetration of the console market in the Americas. To scale to that user base, OnLive will need several million (virtual) servers, which may cost a billion dollars or more, but the investment will pay for itself as it goes - just as it did for Sony and Microsoft. Or they simply will be bought up by some big deep pocket entity which will provide the money, such as Google, or Verizon, or Microsoft.

The size and quantity of the datarooms OnLive will have to build to support even just the US gaming populations is quite staggering. We are talking about perhaps millions of servers in perhaps a dozen different data center locations, drawing the combined power output of an entire large power plant. And thats just for the US. However, we already have a very successful example of a company that has built up a massive distributed network of roughly 500,000 servers in over 40 data centers.

Yes, that company is Google.

To succeed, OnLive will have to build an even bigger and more massive supercomputer system. But I imagine Google makes less money per month for each of its servers than OnLive will eventually make for each of its gaming servers. Just how much money can OnLive eventually make? If OnLive could completley conquer the gaming market, than it stands to completely replace both the current consoles manufacturers AND the retailers. Combined, these entities take perhaps 40-50% of the retail price of a game. Even assuming OnLive only takes a 30% cut, it could thus eventually take in almost 30% of the game industry - estimated at around $20 billion per year in the US alone, and $60 billion world-wide, eventually turning it into another Google.

Another point to consider is that most high end PC sales are mainly used for gaming, and thus the total real gaming market (in terms of total money people spend for gaming) is even larger, perhaps as large as 100 billion worldwide, and OnLive stands to rake a chunk of this in and change the whole industry - further reducing the end consumer PC market and shifting that money into OnLive subscriptions, game charges, etc. part of which in turn covers the centralized hardware cost. NVIDIA and ATI will still get a cut, but perhaps less than they do now. In other words, in the brave new world of OnLive, gamers will only ever need a super-cheap microconsole or netbook to play games, so saving money on consoles and rigs will allow them to buy more games, and all this money gets sucked into OnLive.

Now consider that the game market has consistently grown 20% per year for many years and you can understand why investors have funnelled hundreds of millions into OnLive in order to make it work. And eventually, OnLive can find new ways to 'monetize' gaming (using Google's term), such as ads and so on. Eventually, it should make as much or more per user hour as television does.

Now this is the fantasy of course, but I doubt OnLive will grow to become a Google any time soon, mainly because Nintendo, Sony, Microsoft, and the like aren't going to suddenly dissappear, bringing me to my final point.

But What about the games?

In the end people use a console to play games and thus the actual titles are all that really matters. In one sense part of the pitch of OnLive - 'run high end PC games on your netbook' - is a false premise. Most of OnLive's lineup is current gen console games, and even though OnLive will probably run them at higher fps, this is mainly to compensate for latency. Video compression and all the other factors discussed above will result in an end user experience no better, and often worse than simply playing the console version. (especially if you are far from the data center) OnLive's one high end PC title - crysis - is probably twice as expensive for them to run, and will be seen as somewhat inferior to gamers who have high end rigs and have played the game locally. It will be more like the console version of Crysis. But unfortunately, Crytek's already working on that.

This is really the main obstacle that I think could hold OnLive back - 16 titles at launch is fine, but they are already available on other platforms. Nintendo dominated this current console generation because of its cheap, innovative hardware and a lineup of unique titles that exploit it. I think Nintendo of America's president Reggie Aime was right on the money:

Based on what I’ve seen so far, their opportunity may make a lot of sense for the PC game industry where piracy is an issue. But as far as the home console market goes, I’m not sure there is anything they have shown that solves a consumer need

What does OnLive really offer the consumer? Brag Clips? The ability to spectate any player? Try before you buy? Rent? These are nice(especially the latter two), but can they amount to a system seller?. Its a little cheaper, but is that really important considering most gamers already have a system? It seems that PC games could be where OnLive has more potential, but how much can it currently add over Steam? If OnLive's offerings expanded to include almost all current games, then it truly could acheive a high market penetration, as the successor of Steam (with the ultimate advantage of free trial and rental - which steam can never do). But Valve does have the significant advantage of having a variety of exclusive games built on the Source Engine, which all together (Left for Dead, CounterStrike, Team Fortress 2, Day of Defeat, etc) make up a good chunk of the PC multiplayer segment.

The real opportunity with OnLive is to have exclusive titles, which takes advantage of OnLive's unique super-computer power to create a beyond next gen experience. This is the other direction in which the game industry expands, by slowly moving into the blockbuster story experiences of movies. And this expansion is heavily tech driven.

If such a mega-hit was made, such as a beyond next gen Halo, or GTA, it could rapidly drive OnLive's expansion, because OnLive requires very little user investment to play. At the very least, everyone would be able to try or play the game on some sort of PC they already have, and the microconsole to play on your TV will probably only cost as much as a game itself. So this market is a very different beast than the traditional consoles, where the market for your game is determined by the number of users who own the console. Once OnLive expands its datacenter capacity sufficiently, the market for an exclusive OnLive game is essentially any gamer. So does OnLive have an exclusive in the works? That would be the true game changer.

This is also where OnLive's less flashy competitor, OToy & LivePlace, may be going in a better direction. Instead of building the cloud and a business based first on existing games, you build the cloud and a new cloud engine for a totally new, unique product, which is specifically designed to harness the cloud's super resources and has no similar competitor.

Without either exclusives or a vast, retail competitive game lineup, OnLive won't take over the industry.

1 comment:

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