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July 6, 2012

Sony Acquires Cloud Gaming Service

Robert Gelber

Cloud computing has become popular with organizations looking to reduce costs. A quick comparison between Netflix and Blockbuster shows how impactful the technology can be. This week, video game company Sony Computer Entertainment (SCE) announced it will acquire cloud gaming provider Gaikai Inc for roughly $380 million. This move may change the landscape of the gaming industry while instilling more confidence in cloud technologies. 

Console-based gaming has been around since the 1970s and was made popular by companies like Atari, Nintendo and Sega. Since then, most of the console manufacturers have fallen out of the market, leaving consumer tech giants Sony and Microsoft to fill the void. Like their predecessors, though, both still require end users to purchase specialized hardware (aka PlayStations and Xboxes) before getting their game on.

The console model can be a financial burden on both manufacturer and end user. Forbes explained that over the past decade, gaming companies have lost money on console sales:

When PlayStation 3 was released in November 2006, the company opined that it lost money on every unit sold. (Microsoft did the same thing when Xbox 360 was released in 2005.) As of February 2010, PlayStation 3 was still a monetary loser.

Both companies engaged in this activity because they were primarily concerned with the sale of games and increasing market share.

Over recent years, though, cloud service providers like Gaikai and OnLive aimed to deliver console-quality content without building high-end hardware. Users could access games with their existing devices, avoiding the need to purchase a proprietary unit. It’s essentially Netflix with controller. The model takes direct aim at the classic structure of in-home gaming, promising more flexibility and cheaper startup costs.

In Monday’s official statement, Sony hinted at delivering gaming content to various network-capable devices. Andrew House, president and group CEO of Sony Computer Entertainment Inc., said:

SCE will deliver a world-class cloud-streaming service that allows users to instantly enjoy a broad array of content ranging from immersive core games with rich graphics to casual content anytime, anywhere on a variety of internet-connected devices.

At first glance, video games may not seem to fit the standard cloud application mold, but they share a number of key attributes. The recent trend to network play has created a constantly shifting workload with users hopping on and off game servers. Also, compute intensive graphics rendering can be handled at the datacenter instead of an end user device.

Sony has been burned with changes in technology before and given the purchase of Gaikai, it appears they want to stay one step ahead. The company will most likely move forward with its next console, which has received some pre-announcement buzz on the Internet, but a Sony-backed streaming service can’t be far behind. The two delivery models, console and cloud, will exist side-by-side, but for how long? Will the network version obviate the popular PlayStation? Sony’s hedging its bets by preparing for either outcome.

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