Could it be? Could there be another gaming system?















SAN FRANCISCO--Sony, Microsoft, and Nintendo, look out. Your traditional video game console business model may be in danger.
It's too early to tell how much danger, of course, but a start-up called OnLive announced a brand-new game distribution system Monday night that, if it works as planned, could change the games game forever.
OnLive, which was started by WebTV founder Steve Perlman and former Eidos CEO Mike McGarvey, is aiming to launch a system--seven years in the works--that will digitally distribute first-run, AAA games from publishers like Electronic Arts, Take-Two, Ubisoft, Atari, and others, all at the same time as those titles are released into retail channels. The system is designed to allow players to stream on-demand games at the highest quality onto any Intel-based Mac or PC running XP or Vista, regardless of how powerful the computer.
The system will also stream games directly to a TV via a small plug-in device, and players can use a custom wireless controller as well as VoIP headsets in conjunction with it.
Based here in San Francisco, OnLive timed its formal unveiling to this week's Game Developers Conference, where it will be showcasing the technology and 16 initial games it will launch with.
The service is currently in a closed beta, but is expected to go into a public beta this summer, and to launch this winter.
According to Perlman, OnLive's technology will make it possible to stream the games in such a manner--high quality, no matter what kind of system the user has--by virtue of a series of patented and patent-pending compression technologies. And instead of requiring users to download the games, OnLive will host them all and stream them from a series of the highest-end servers. Users will have only to download a 1MB plug-in to get the service up and running.
OnLive is hoping to capture a significant portion of the video game market share. In February, the industry posted one of its strongest months ever, with total sales of $1.47 billion, up 10 percent from a year ago. And in February, the Xbox, PS3 and Wii accounted for total sales of 1.42 million units.
An intended benefit of this infrastructure, Perlman and McGarvey explained, is that users will be able to play streamed games via OnLive with no lag, so long as their Internet connections meet minimum thresholds. For standard-definition play, that would mean a minimum 1.5 Mbps connection, and for high-def, 5 Mbps.
That's obviously an essential feature, as it's hard to imagine anyone paying for a service like OnLive, no matter what games are on offer, if the user experience is inadequate. But the company promises that as long as users have the requisite minimum hardware, operating systems, and Internet connections, they should be able to have seamless play.
The upshot of this infrastructure model, Perlman said, is that OnLive is somewhat future-proof, meaning that players won't have to upgrade anything to keep on playing games on the system years into the future. Instead, the upgrades will happen on the back-end, with the company regularly boosting the power of the servers it uses to host and stream the games.
And while demos always have to be taken with a grain of salt, CNET News did see a real-time presentation of OnLive on at least two different computers and on a HD TV. Game play was as smooth and lag-free as advertised
So far, OnLive has yet to make its business model public, but what seems likely is some form of subscription service, where players will pay a monthly access fee and then pay additional costs, depending on whether they want to play games once, or buy them for permanent play.
The company also said that it will probably offer free trials of some or all of the games it offers, allowing consumers to decide whether they want to buy. OnLive recognizes that some players may use those trials as a way of deciding whether to buy such games from traditional retail stores, but Perlman and McGarvey suggested that as long as people are interacting with the OnLive system, they'll be happy.
It's clear that OnLive is modeling its system at least somewhat after Microsoft's hit Xbox Live service. So fans of multiplayer games won't be on their own. Rather, they'll have full access to multiplayer features of games built for them. And another interesting social feature is one that will allow users to digitally watch others play games in real time. The company thinks that users will find it exciting to watch the best players in action, even if they themselves are only kibitzing.
Perlman said that the concept of spectating in online game systems is, in and of itself, not new, but that OnLive presents the first time players will be able to look in on what others are playing without owning the games themselves.
Another social feature in the Xbox Live mold is what are called "brag clips." These are essentially 15-second replays of game action that players can share with friends if they want to show off their prowess. This is possible, Perlman said, because OnLive is continually recording the last 15 seconds of action.
All told, McGarvey said, OnLive offers a full suite of standard social features including friends, clans, rankings, leader boards, tournaments and more.
From the outset, OnLive isn't partnering with any of the first-party publishers--Microsoft, Sony, and Nintendo, meaning that franchises like "Halo" or "Zelda" won't be available. And that makes sense, since those companies are hardly likely to want to sign up with a company whose very technology may obviate their longstanding business models.
That means, Perlman and McGarvey acknowledged, that many players who sign up for OnLive's service will still maintain their consoles, and continue to buy games for them. At least for the rest of the current generation of machines, they said. But come the next generation, all bets are off, they said.
And for the nine--to date--third-party publishers who have committed to being involved, McGarvey said, 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.
Indeed, McGarvey said that OnLive has gotten strong commitments of titles from the nine publishers. That means, added Perlman, that the planned launch this winter could be accompanied by the most titles of any new gaming system launch in history.
In addition, McGarvey said publishers are eager for the kind of raw data that OnLive can provide about players' usage of the games, including whether they like or dislike games, how much they play, how they play and so on. That data is hard for publishers to collect with traditional consoles, he argued.
Clearly, OnLive has set an ambitious goal: dethroning the console makers as the game industry's kings. And as is always the case with brand-new and publicly unavailable technology, it is far too early to know whether the company or the service can live up to that goal. But if its demo is any indication, OnLive is definitely onto something, and given that the company has been in stealth mode for so many years, it's possible that the console makers will be caught off guard.

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Few startups have a chance to revolutionize an industry. But if entrepreneur Steve Perlman’s OnLive lives up to its goals, the company will disrupt the entire video game industry — to the delight of both game publishers and gamers.
Perlman (right), a serial entrepreneur whose startup credits include WebTV and Mova, says his Palo Alto, Calif.-based company has developed a data compression technology and an accompanying online game service that allows game computation to be done in distant servers, rather than on game consoles or high-end computers. So rather than buying games at stores, gamers could play them across the network — without downloading them.
Perlman first told me about his plans two years ago. But he managed to keep the whole project secret until today. OnLive plans to show the technology live on Tuesday night at the SF Museum of Modern Art. Over time, Perlman says the company will unveil more interesting projects, features, partners and investors.
“This is video gaming on demand, where we deliver the games as a service, not something on a disk or in hardware,” Perlman said. “Hardware is no longer the defining factor of the game experience.”
[update: See reaction to OnLive from the GDC here.]
A bunch of major game publishers are backing the idea, which is simple but hard to believe. If you compress game data so much that it can be sent instantaneously over the Internet, then you no longer have to compute that data in a game machine. You can compute the data in a very powerful Internet server and then send the results to be displayed in the home. That’s a pretty big earthquake in a $46 billion worldwide industry ruled by three hardware makers who sell powerful consoles.
The problem with this server-centric approach, which has been talked about for a long time, has always been that the computing power required to process a game has been growing by leaps and bounds, while the ability to compress data hasn’t been growing at nearly the same rate. By vastly improving compression and reducing the computing power required to do compression, Perlman has turned the situation around.
The concept was originally evangelized as the “telecosm” by George Gilder in the pre-bubble days of the 1990s. Gilder thought that the Internet would “hollow out” the PC, meaning that Intel and Microsoft would become less important because their products would become commoditized. If you could spread processing loads across broadband connections, that would obviate the need for a powerful PC in the home. That is, you could do a lot of computing in the centralized Internet server, pass that data over fast Internet pipes, and do very little processing in the client-side computer in the home. Back then, a lot of people felt Gilder was out of touch with reality. Larry Ellison, Oracle’s chief, tried selling a Network Computer, but it never got of the ground. The idea has now evolved into cloud computing.
As consumers began to demand data-heavy software such as video over the Internet or high-end games, people needed more powerful PCs. Fast computers in the home made up for relatively slow broadband connections. But Gilder’s idea could now make a comeback, thanks to OnLive’s ability to compress data 200-fold, as well as the fact that broadband is more pervasive and the demand for ever more powerful computers has stalled. (We know that last point is true in part because $400 Netbooks, which aren’t full-fledged laptops, are selling fast).
Last week, Perlman showed me a demo of the technology. He was playing Crysis, one of the most demanding 3-D shooting games ever made, running on a simple Mac laptop and also on a rudimentary game console, known as a micro-console, which does almost no computing but merely displays the images on a TV in either standard or 720p high-definition. The graphics ran smoothly.
OnLive’s technology has the potential to move beyond games to the broader level that Gilder was talking about. It could eventually sweep through all forms of entertainment and applications, providing the missing link in helping the Internet take over our living rooms.
With OnLive, players can join each other in the same multiplayer game, regardless of whether they have a PC, Mac or OnLive’s own micro-console (a simple box with minimal processing power) connected to a TV. Such cross-platform game play usually isn’t possible.
Big game publishers and developers — Electronic Arts, THQ, Take-Two Interactive, Codemasters, Eidos, Atari, Warner Bros., Epic Games and Ubisoft — have agreed to distribute their games through the OnLive network, bypassing traditional retail game sales in an effort to reach people who don’t buy game consoles or expensive game computers.
To address naysayers who think this can’t be done, given all of the Internet’s trade-offs, OnLive will show 16 games being played live on the floor of the Game Developers Conference this week in San Francisco. The game service is expected to be available before the end of the year. If this sounds to you like the interactive TV hogwash of the 1990s, like Time Warner’s Full Service Network, it is indeed very similar. The difference this time is that this looks like the real thing.
Cool game services
In the live demo, Perlman showed me how the user interface is built around a grid of clickable windows, with any one of them running video clips as previews for what’s behind the window. You can select a window to play a particular game or watch a demo. After playing a game, you can share video with players of the most interesting sequence in your game in a window dubbed “Brag clip.” You can also be a spectator and watch how the most skillful players in the rankings play the game. Or you can chat via voice headset with your friends.
Versions of these social features are available in a few games now. Halo 3, for instance, had the “Brag Up” feature built in. But with OnLive, every game can have these features. OnLive plans to charge users a monthly subscription fee, much like Microsoft charges for its Xbox Live online service. The company can also save publishers a lot of money and share in some of the extra profits.
“OnLive . . . will be very well received in the marketplace and it is a good fit with our strategy of bringing our games to consumers on the format of their choice,” said Kevin Tsujihara, President, Warner Bros. Home Entertainment Group, in a statement. The top executives of THQ, Ubisoft, and Take-Two Interactive offered similar praise for the service.
Will you ever have to buy a new game console and computer upgrades?
Mike McGarvey, (top photo, left) chief operating officer of OnLive, said the new technology “breaks the console cycle where a gamer has to buy a new machine every few years.” If this happens, the obvious losers are Microsoft, Sony and Nintendo.
Beyond console makers, makers of PCs and high-end chips will be affected. The micro-console is so simple it has a custom chip but very little else. It is a lightweight box that has a universal serial bus (USB) power connector, a high-definition multimedia interface (HDMI) connector to hook up with a TV, and an Ethernet jack for a broadband connection. You can plug a standard PC game controller or computer mouse into it.
Losers would include the makers of high-end chips such as Intel, Advanced Micro Devices and Nvidia. However, Perlman noted that Nvidia will benefit to a degree because OnLive’s data centers use high-end graphics chips in their servers. Nvidia has been a development partner in helping to create the server technology.
How does it work?
The secret sauce in OnLive’s technology is its compression algorithms. On the home device, the only software component OnLive needs is a one-megabyte plug-in for a standard Internet browser. That code is enough to decompress the data and display it. Normally, decompression takes much more hardware.

Perlman hasn’t said much about exactly how it works. One clue: the algorithms change the structure and order of Internet data, or packets, so they can sail through the Internet. A packet can make an entire round trip in 80 milliseconds, a very short amount of time compared to other Internet traffic that travels through hardware that either compresses or decompresses the data.
A lot of people have chased after the Holy Grail of games delivered and played via the internet. But they have been stymied either by slow computing power or by broadband choke points. Infinium Labs promised something similar years ago with its Phantom gaming console, but the company failed. Trion World Network chief executive Lars Buttler has talked about doing server-based games, but it isn’t clear if Trion — which hasn’t described its technical details — has the same kind of technology OnLive has demonstrated. Trion is building its own games, while OnLive is building a platform for all game makers instead. On Monday, Denis Dyack predicted that cloud computing games are just around the corner, even though he didn’t know about OnLive.
Sony enabled the entire base of PlayStation 3s to be used in Stanford University’s Folding@Home project, which takes the spare processing power of connected PS 3s and uses them collectively to solve tough scientific problems. But Sony didn’t have the compression technology that OnLive uses to effectively send a lot of data over a broadband connection at very fast rates. So while Sony had the same idea, it didn’t have the means to do what OnLive can do.
To use OnLive, all you need is a broadband connection running at two megabits a second for standard graphics or five megabits a second for high-definition graphics. Those data rates are well within the speeds of most broadband connections. (One report said 71 percent of U.S. homes have two-megabit per second or faster Internet connections). The compression is so good that players can play games even if their homes are as much as 1,000 miles away from the server. For now, OnLive needs only five data center locations to be able to cover the entire country.
Of course, there are some limitations. The technology isn’t quite good enough to be able to do 1080p resolution, which is the highest available on game consoles and TVs. That’s because it would require broadband speeds of up to 10 megabits per second. Countries such as Japan have those speeds, but you have to pay a premium for that kind of service in the U.S.
Fighting game piracy and enabling episodic updates
One nice side-effect of OnLive’s service for game publishers and developers is that it promises to cut down on piracy. Since there’s no call for users to download games to their computer or console, there’s nothing to copy or steal. Gamers simply buy a subscription or rent a game online. McGarvey estimated that currently for every $60 game sold, game piracy results in $12 in lost revenues for the publisher or developer.
Game publishers could also frequently update their games on OnLive by changing the code running on the servers. If one part of a game is too hard, the publishers can simply patch that part and then everyone will play the new version the next time they log in. Publishers can also pull the plug on games that aren’t selling well without taking a big inventory hit. And they can add new episodes of popular games quickly, much like the TV networks cancel unpopular shows and add episodes for successful pilots.
Effects on retailers
Retailers and purveyors of used games could be cut out of the picture entirely.
Typically, a game publisher keeps only about $27 for every $60 game sold. Retailers keep $15 and then keep all of the revenues when a used game is resold. About $7 goes to the game console owner. Services such as Valve’s Steam cut out the retailer via digital distribution, but it requires powerful computers, fast connections, and lots of download time. McGarvey said that OnLive will dis-intermediate retail. He said that while OnLive will take a cut of what users pay for games on the service, it saves publishers so much money that it can help the game creators raise their profits dramatically.
OnLive’s history
OnLive has been in stealth mode for seven years. I first learned about it two years ago and have been anxiously waiting to see whether the company pulls of its mission. Perlman said it took a lot of work to get the technology done, but almost everyone he has shown it to has jumped aboard as a partner. The company has received funding from Warner Bros., Maverick Capital and Autodesk.
Perlman scored big when he sold WebTV, an early Internet appliance, to Microsoft in 1997 for $425 million. He went on to found Rearden, a startup incubator (named after the Hank Rearden character in the Ayn Rand novel Atlas Shrugged) that did deep research and development. His goal was to do the kind of long-term research that venture capitalists and even big companies have shied away from.
He worked on a set-top box dubbed Moxi and sold that to Paul Allen’s Vulcan Ventures. Then he created Mova, which captures human faces with imaging technology so they can easily be turned into animated faces in movies or video games. Mova is now a subsidiary of OnLive, which spun out of Rearden in January, 2007. Mova’s facial animation technology was behind the aging of Brad Pitt in the Oscar-winning film The Curious Case of Benjamin Button. At that point in the development, Perlman was convinced the technology would work.
The company had to do a lot of fundamental work, resulting in more than 100 patents or patent applications. The patent filings amounted to more than 5,000 pages, Perlman said. The company also hired more than 100 people and acquired top talent, including Tom Paquin, executive vice president of engineering and the former engineering head at Netscape. McGarvey also spent 12 years in the video game industry, most recently as chief executive of Eidos, which he sold in 2005.
It may seem hard to believe. But I’ve seen it work. Perlman’s got a good track record. He has invested heavily, as have some very big media companies. The game publishers are behind him. And he’s showing off 16 working games this week. Perlman has a grand plan. But the little pieces of it that he has already shown are going to turn the game industry, and perhaps everything else, upside down.
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What if you could stream games, any game, over a decent broadband connection to your PC or Atom-based netbook at the same quality as the PS3? Would you walk away from your beloved console? That's the of hope of Palo Alto-based OnLive. But this is much more than empty rhetoric -- OnLive's been dropping jaws of the press who've seen it working this week. GameDaily dubbed the play "fantastic" after seeing Crysis streamed "smooth" off a server to a plain ol' MacBook laptop. See, OnLive claims to have perfected the interactive video compression technique so that latency is low enough to support on-line multi-player setups. Broadband connections of 1.5Mbps (71% of US homes have 2Mbps or greater) dials the image quality down to Wii levels while 4-5Mbps pipes are required for HD resolution. At the moment, OnLive is showing 16 high-end titles at the Game Developers Conference (GDC) in San Francisco and expects to be able to release new games within the same window as traditional retail launches. The games can be played on "any PC (Windows XP or Vista) or Mac" without the heavy cash-burden of a high-end graphics card, fast disk, quad-core proc, and truck-load of memory. Otherwise, OnLive plans to release what it calls a MicroConsole with Bluetooth (for voice chat) and optical audio-out that can be connected to your HDTV over HDMI -- pricing has not been announced but it will cost less than a $250 Wii. There's a community element too, of course, with OnLive reps boasting about it operating on an "unprecedented scale." This includes the ability to join live games at any point, the creation of "brag clips" that saves the last 10 seconds of game play for sharing, as well as leaderboards, rankings, and the rest. And if you think publishers will never buy in to the model, think again: Electronic Arts, Ubisoft, Take-Two Interactive, Warner Bros. Interactive Entertainment, THQ, Epic Games, Eidos, Atari Interactive and Codemasters are already on-board. Expect OnLive to launch this Winter with monthly subscriptions available in "a variety of different pricing packages and tiers, competitively priced to retail." Damn.
Update: GameDaily's quote of 1-ms latency is in reference to encoding/decoding video, not Internet delay, obviously. Added a few more pics including one of the MicroConsole to the gallery.

Will OnLive change gaming as we know it? Or will it go the way of other promised on-demand game services — into the ether? OnLive, a new streaming game system announced at last week’s Game Developer Conference, was arguably the biggest news of the show. Built by Steve Perlman, the guy who created WebTV (and sold it for a cool $500 million to Microsoft), OnLive promises to stream games live, over the Internet, with no lag. Let me say that again: No lag. That’s a bold claim. If you’ve ever done a video conference at work or a Skype call, you know what lag looks like.
The holy grail of gaming?
If true, OnLive could be the holy grail of gaming. It lets publishers give the finger to GameStop and other retailers, and distribute their games directly to consumers. It would eliminate piracy. And it makes the console war a moot point. Perlman says he was initially inspired to create OnLive for this very reason. The successive generations of consoles are becoming way too pricey for consumers — evidenced, he says, by the $400 PlayStation 3’s struggle to gain widespread traction. “If you can’t achieve the next-generation game systems by building hardware for the home, because it’s just way too expensive … where are you going to build it? It has to be in the cloud,” he says. It's in the cloud
Cloud computing is a concept that’s gained widespread interest thanks to Google Apps and other Web-based software. It means, in essence, that you can use applications and software over the Internet, without pesky discs or downloads. OnLive extends this concept to games. This isn’t the first time that a company has tried to free gamers from the shackles of — hardware and software. The long-promised “Phantom” on-demand game service was just that an apparition. Trion World Networks — whose name evokes images of some fictional “Austin Powers”-esque conglomerate — has raised $100 million for its server-based, real-time games. But OnLive, which goes into public beta this summer with a targeted end-of-year launch date, could be the first product to market. Network log jams made worse?
OK, but wait a second here. If OnLive shifts the burden to the Internet, won’t that make network log jams even worse? Service providers like Comcast are already screaming bloody murder about high network usage — some ISPs are even charging customers that go over data-transfer limits. But Perlman says that unlike peer-to-peer systems, which swamp ISPs limited traffic, “OnLive is only high-bandwidth downstream, with only a trickle upstream.” Still, naysayers — and they are vocal — pooh-pooh this crazy notion of lag-free, on-demand gaming. They point out that today’s online games are only sending player data across the transom — and those games experience hiccups all the time. 'Not your father's servers'
Ah, but OnLive’s different, says Perlman. The system takes input from your controller (or keyboard) and connects the player to the OnLive service. Then, lickety-split, the service’s custom game servers — “these aren’t your father’s servers,” he jokes — render your game graphics. A super-secret video-encoding technology shoots back low-latency video, running Barry Sanders-like patterns through whatever routers and firewalls you’ve got going, and — bam. It’s like playing off a disc, says Perlman. Still, he’s not expecting gamers to abandon their consoles en masse. “People have made a huge investment in those things and we expect them to play out that investment for a long time.” Initially, he says, OnLive will be, as he puts it, “additive.” Michael Pachter, an analyst with Wedbush Morgan, agrees that OnLive isn’t going to steal away massive market share anytime soon. “I don’t think these guys are getting 20 percent of the market tomorrow, I think they’re getting half a percent of the market within a year-and-a-half of launch,” he says. “And I think that’s meaningful enough to signal to us, directionally, that digital distribution is here.” No announcement on price
As for the cost of the system, that hasn’t been announced. Perlman says that the subscription fees will be comparable to what Microsoft’s charging for Xbox Live ($50 per year), and the MicroConsole will either be sold at a price “vastly less expensive than the ($250) Wii,” or given away with a long-enough subscription. Despite this being a potentially money-saving proposition for gamers, not all are welcoming the OnLive announcement with open arms. Nick Breckon, of the enthusiast site ShackNews, wrote that he saw “blocky pixels” playing “BioShock” over OnLive, and proclaimed it “unquestionably inferior to playing from a disc.” Those who commented on blog postings ranged from cautiously optimistic to nastily disdainful. The publishers are excited, though — Electronic Arts, Ubisoft, Take Two Interactive and Warner Brothers among them — are jumping on board with OnLive. The only notable holdout is Activision Blizzard, publishers of “World of Warcraft” and “Call of Duty,” two extremely popular multiplayer games. And, of course, OnLive isn’t going to get a crack at console-exclusives such as “Halo” or “Metal Gear.” _______________________________________________________________________________________________ SOURCE: IGN
A very interesting gaming service called OnLive was introduced at the Game Developers Conference in San Francisco last night. OnLive consists of a small browser plug-in that lets you play games online, with all the heavy lifting done by OnLive’s servers – effectively meaning that if the service can live up to its promises, you’d have yourself a gaming platform that never gets obsolete and can be played on lower-end hardware.
These aren’t your simple browser-based games, either. These are full-fledged titles from the likes of EA, Take-Two, Ubisoft, Eidos, and more. Some of the games demoed were Crysis, Burnout Paradise, and Grand Theft Auto IV.

Clearly we can identify the one overriding limitation of such a service already: bandwidth. Apparently OnLive has built some crazy video compression algorithms and is able to push out 60 frames per second in standard definition over a 1.5mbps connection and 720p over a 5mbps connection. There’s apparently an unnoticeable one millisecond of lag time between what you see and what happens on the server.
If you don’t want to be tied to your computer to play games, OnLive will be offering a router-sized hardware device called the MicroConsole which has USB inputs and HDMI output. It appears that the device will either act like a thin client between your computer and internet connection or have a simple web browser built into it and be able to function on its own.


Since everything’s being played live in real time, you’ll be able to do a bunch of social networking stuff and you can even watch other people playing games if you’re not sure whether or not you want to join a multiplayer game in progress. There’s also a feature called Brag Clips, which lets you save ten-second clips of various in-game accomplishments to share.
OnLive will apparently be a subscription type service, although pricing hasn’t yet been revealed. You’ll be able to play games for a certain amount of time or buy them outright for unlimited plays. Perhaps one of the best features of OnLive is that there aren’t any loading or install times and you can theoretically play high-end games on relatively dumpy computers.
The service is in closed beta right now and will be in an invitational beta over the summer with a planned public release in the winter.
















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