The impact of technology in the gaming industry

Coleman Fung Institute for Engineering Leadership

Gaming-on-Demand
IEOR 171 Technology Leadership Spring 2011
Project

April 19, 2011

Authors: Michael Chen, Hanrun Guo, Regine Labog, Jonathan Mui, Ma Than Than Thaik
Instructor: Ikhlaq Sidhu

Abstract
With technology moving towards faster servers and faster networks, businesses have begun to shift
towards the cloud. The gaming industry is showing signs of movement in the direction of this trend.
Computer hardware has finally reached the point where servers can store and run resource-intensive
video games and transmit them across the Internet to low-end hardware that would be otherwise
incapable of playing the game itself. This is a new frontier pioneered, not by established industry leaders,
but rather by young start-ups with a vision for the future. For the most part, the technology has already
been proven. What’s left is to see where this technology will head and how much it will impact the current
industry landscape.

Table of Contents
GAMING-‐ON-‐DEMAND
.........................................................................................................................................
1

ABSTRACT
..............................................................................................................................................................
2

TABLE
OF
CONTENTS
..........................................................................................................................................
3

INTRODUCTION
....................................................................................................................................................
4

1.
HISTORY
OF
VIDEO
GAMES
..........................................................................................................................
4

2.
THE
CURRENT
MARKET
................................................................................................................................
6

PART
A:
GAMING-‐ON-‐DEMAND
.....................................................................................................................
10

1.
WHAT
IS
GAMING-‐ON-‐DEMAND?
.............................................................................................................
10

2.
BARRIERS
TO
SUCCESS
...............................................................................................................................
11

3.
GAMING-‐ON-‐DEMAND’S
BUSINESS
MODEL
..........................................................................................
15

4.
ADVANTAGES
.................................................................................................................................................
17

5.
DISADVANTAGES
..........................................................................................................................................
20

6.
THE
FIVE
FORCES
MODEL
..........................................................................................................................
21

CONCLUSION
.......................................................................................................................................................
25

ABOUT
UC
BERKELEY
CENTER
FOR
ENTREPRENEURSHIP
&
TECHNOLOGY
................................
26

..................................
26

ABOUT
THE
COLEMAN
FUNG
INSTITUTE
FOR
ENGINEERING
LEADERSHIP

Introduction
The growth of the video game industry has exploded in the past decade with the advent of superior
graphics cards, a growing community of game developers, as well as an increased interaction between
video games and the Internet. These new developments have set the stage for a new online service, which
liberates the user from conventional game consoles, called Gaming-on-Demand. Users can play high-end,
graphics intensive video games on any computer or television with just an Internet connection.

We hypothesize that Gaming-on-Demand will be a game changer that could take over a substantial
market share of the video game industry and eliminate the need for console manufacturers and specialty
game stores.

1. History of Video Games
By definition, a video game is “an electronic game played by means of images on a video screen and often
1
emphasizing fast action. ” With the invention of the "Cathode-Ray Tube Amusement Device” by Thomas
2
T. Goldsmith Jr. and Estle Ray Mann , the video game industry has been around since 1947. Since then,
there have been many changes technologically, socially, and economically. The first video games were
often associated with arcade games, a single or multi-player coin-operated entertainment machine usually
installed in public businesses. The greatest initial success, and what history may call the actual start of
the industry, came with Atari’s Pong, the first video game to reach mainstream publicity. Since then,
people have tried copying Pong’s success and developing the next big sensation.

1.1. Changes in Technology

While the earliest platforms may have been on large antique systems, (such as the cathode ray tube and
mainframe computer), video game platforms with the help of better integrated circuits and other
technologies have gone on to expand onto many others such as arcade, handheld, console, and PC.

Typically, an arcade platform is a specialized electronic device completely dedicated to a video game,
usually placed in a publicly accessible area. A handheld platform is a lightweight and portable electronic
device with its own screen, speaker and control system. A console platform is a dedicated system built
with the main intention of playing video games; it is typically connected to a video and audio device and a
control system. A PC platform is as its name implies: a personal computer capable of playing video games
but not necessarily built solely for that purpose. There are also many other electronic devices for which
video games have been made, including PDA’s, calculators, and mobile phones. These mobile devices are
the newest platform genre to enter the market.

Another technological change, aside from hardware development, is the Internet. The Internet created
many new opportunities for the video game industry, enabling features such as multi-player games for
users separated by a significant distance.

Software and game development have changed since the start of video games as well. During the earlier
stages of video gaming, the game designer was in charge of the whole production process: programming,
graphics, and sounds. Game development didn’t fully mature to what it is today until later in the century.
In 1977, the video game industry experienced its first crash due to an influx of obsolete consoles that sold

1
"Video Game- Definition and More from the Free Merriam-Webster Dictionary." Dictionary and Thesaurus - Merriam-Webster
Online. Web. 19 Apr. 2011. <http://www.merriam-webster.com/dictionary/video+game>.
2
Cohen, D. S. "Cathode-Ray Tube Amusement Device - The First Electronic Game." Classic Video Games -- Information about
Classic Games, Classic Arcade Games, Classic Console Games, and Classic PC Games. Web. 19 Apr. 2011.
<http://classicgames.about.com/od/classicvideogames101/p/CathodeDevice.htm>.

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at a loss . As a result, the market price for quality consoles was ruined. In 1983, the video game industry
suffered its second crash. This time it was due to poor game development. Developers were put on
impossibly short schedules, and games were not produced to an acceptable quality. It was even discovered
that, sometimes, more game cartridges were made than consoles sold, as in the case of the game Pac-Man
for the Atari 2600. Since the two crashes, the industry, as well as the quality of its products, has matured.
By the 1990’s, the industry was back on track. Nowadays, there are teams of people working on games
with sufficient budgeting and resources, as well as very capable platforms for their games.

1.2. Changes in Society

When the first video game was developed, it was created purely as a past time for the guests of a lab’s
waiting room. During the early stages of the industry when it was difficult to produce many games, they
were primarily geared towards the young male audience. However by 2010, the demographics became
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greatly diverse. To illustrate this, here are some statistics of 2010:

67% of American households played video games
60% of the gamers were male and
40% were female.
53% of all Americans over 18 play video games.
97% of all American teens play video games.
34: the average age of a gamer
12: average number of years a gamer has been playing video games
273.5 units of video games were sold in 2009
58% of online players are male, 42% are female
41% of Americans plan on buying a video game
8: average hours a week spent playing video games.

Video games are growing to become a more accepted activity for the average person and are becoming an
integral part of American culture. Video games reach out to all parts of society, regardless of gender, age,
or ability. While games were once only modeled towards the young male, it is now produced for all ages
and generations. As the first generation of video game players grew older, they raised families with video
games and consoles in the household. This effect has multiplied the pool of gamers exponentially.
Technology helped develop games that lowered the learning curve, allowing the young as well as the old to
play.

1.3. Changes in Economy

The video game industry has been steadily growing since its birth and has showed no sign of stopping.
Despite the crashes in 1977 and 1983, it is contributing more and more to the nation’s economy. It is
unlikely that the poor game development that caused these crashes will happen again due to preventative
measures such as improved practices and increased funding for projects. The industry is growing at a
strong rate as well; “(The) industry’s December 2009 sales alone reached $5.53 billion. By comparison, as

3
"History of Home Video Game Consoles." Buzzle Web Portal: Intelligent Life on the Web. Web. 19 Apr. 2011.
<http://www.buzzle.com/articles/history-home-video-game-consoles.html>.
4
"Essential Facts about the Computer and Video Game Industry." The ESA. Web. 19 Apr. 2011.
<http://www.theesa.com/facts/pdfs/ESA_Essential_Facts_2010.PDF>.

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recently as 1997, the industry generated $5.1 billion over the entire year” . The video game industry
possesses many opportunities, and history shows that it is here to stay.

2. The Current Market

2.1. Economy

For the year 2010, the Global Domestic Product (GDP) of the United States was $14.72 trillion ($14.33
6
trillion in 2009), with a GDP per capita of $47,400 and a five year growth rate of 1.4% . In that year, the
video game industry was responsible for $4.9 billion of the nation’s GDP, with an average growth rate of
7
10.6% for the last five years . In comparison, the music industry’s contribution for 2009 was only $6.3
8
billion, with a ten-year average growth rate of 8% . In 2011, the video game industry is expected to
9
continue growing at a rate of about 8.3% for the next five years . All in all, while many other industries
may be suffering from the recent economic turmoil, the video game industry remains strong even during
bad economic times. The music and movie industry lack the resilience of the video game industry, which
is expected to be grow steadily and become a strong contributor to the US economy.

2005 2006 2007 2008 2009
Annual Sales (in billions of USD) $7.0 $7.4 $9.5 $11.7 $10.5
Annual Percent Change N/A 5.7% 28.4% 23.2% -10.3%
Annual Sales (in millions of units) 226.3 240.7 267.8 298.2 273.5
Annual Percent Change N/A 6.4% 11.3% 11.4% -8.3%
Sources:
1 - http://www.Theesa.com/facts/pdfs/VideoGames21stCentury_2010.pdf
Figure 1: US Computer and Video Game Sales (2005-2009)

2.2. Businesses

As of today, there are various ways to acquire video games as well as their platforms. In July 2010, the
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NPD group estimated that 48% of PC game sales were downloads off the Internet . For the most part, it
is not possible to buy from the original manufacturer and game developers. Instead, consumers purchase
from authorized re-distributors. The most popular way of obtaining gaming merchandise includes buying
from general retailers or specialized stores via Internet or brick-and-mortar stores. Each of these re-
distributors typically derives characteristics from four different genres.

5
"The Entertainment Software Association - The Transformation of the Video Game Industry." The Entertainment Software
Association - Home Page. Web. 19 Apr. 2011. <http://www.theesa.com/gamesindailylife/transformation.asp>.
6
"CIA - The World Factbook." Welcome to the CIA Web Site — Central Intelligence Agency. Web. 19 Apr. 2011.
<https://www.cia.gov/library/publications/the-world-factbook/geos/us.html>.
7
Siwek, Stephen E. "Video Games in the 21st Century." www.theesa.com. Web. 19 Apr. 2011.
<http://www.theesa.com/facts/pdfs/VideoGames21stCentury_2010.pdf>.
8
Goldman, David. "Music's Lost Decade: Sales Cut in Half in 2000s - Feb. 2, 2010." Business, Financial, Personal Finance News -
CNNMoney.com. 02 Feb. 2010. Web. 19 Apr. 2011. <http://money.cnn.com/2010/02/02/news/companies/napster_music_industry>.
9
Thormahlen, Casey. "Video Games in the U.S." www.ibisworld.com. Mar. 2011. Web. 19 Apr. 2011.
<http://www.ibisworld.com/industryus/industryoutlook.aspx?indid=2003>
10
Martin, Joe. "Downloads account for 48 percent of PC game sales." bitgamer 22 Jul 2010: n. pag. Web. 19 Apr 2011.
<http://www.bit-tech.net/news/gaming/2010/07/22/downloads-account-for-48-percent-of-pc-game/1>.

Brick-and-mortar:

The traditional way to acquire games and their operating platforms would be to go to a local
brick-and-mortar store such as BestBuy or Target, inside of which they would have a section for
videos game related products already stocked and available for purchase. These stores are not
entirely dependent on their sales of video games; instead they also produce revenue from other
products.

Online:

Another version similar to these brick-and-mortar stores are online retailers, e-commerce stores.
One of the biggest examples would be Amazon, where customers can buy from a huge selection of
products and have it shipped to them from a warehouse not necessary close to the customer. They
have the convenience of direct to home fast shipping.

Specialty brick-and-mortar:

There are also specialized businesses that only sell gaming products. GameStop is on such
example of specialty brick-and-mortar store that primarily sells gaming products. Specialty brick-
and-mortar stores largely depend on the video game industry for its revenue.

Specialty Online:

Gamefly is an example of a specialty merchant with the properties of an online retailer. Specialty
online retailers operate like other online retailers in that they don’t store their inventory at
locations local to the customer but instead hold larger warehouses that ship orders as they’re
made. They are different from online retailers because their product selection is much more
specific to a certain genre.

Business can benefit from either brick-and-mortar and online stores or both. Having one does not restrict
from incorporating the other model and benefits. Businesses have developed hybrid plans to take
advantage of the many options. But for the purpose of this analysis, only these four scenarios will be
discussed.

2.3. Business Models

Evaluating the success of the four types of re-distributors helps predict the success of new businesses for
the video game market. Their business models and recent performance will be good indicators.

Brick-and-mortar:

These businesses are bound by the cost of having multiple storefronts in many locations. They
also have the additional cost of employees. The headquarters decide what products will be sold at
their stores. Most inventory is kept in stock at the store and is replenished frequently. Customers
can purchase the items currently offered in the store instantly.

Online:

The Internet commerce business differs from the brick-and-mortar businesses with the main
difference that they do not have the cost of keeping a physical store site or the expense of hiring
employees to run the store and the rent for the building. Instead, they use their websites as their
storefronts and have a larger centralized back-end system to deal with product order and
placements, and all other services that may have been offered in a physical store. Their products
do not necessarily have to be available in a location near the customer or even available at all.
Items are kept in better shipping locations and are moved once the orders are complete.
Purchases are not delivered immediately to customers, as in the case for brick-and-mortar. Since
these stores don’t have physical store site, they save the extra expense and avoid the opportunity
cost that they otherwise would have had for holding inventory on-site.

Specialty Brick-and-mortar:

These businesses are very much the same as a typical brick-and-mortar with the exception of a
much larger variety of video game products. They sometimes offer buy-back programs and sell
used products.

Specialty Online:

Specialty Online companies such as Gamefly have a unique online business model that does more
than just sell video games. Much like Netflix, Gamefly receives its main source of revenue comes
from their subscription based rental service, (during which consumers have the option to
purchase products after trying out the products). Their rental service is successful because like
Netflix, they offer a back catalogue service. This means they rent out 6+ month old games, which
are significantly cheaper than new releases more often and, consequently, have better life cycles
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on their products and lower costs for obtaining and maintaining games

Revenue Net Income ($ in
Company ($ in billions) Profit ($ in billions) Growth (Revenue) billions)
*BestBuy (2009) 49.694 13.086 10.39% 1.317
*Target (2009) 67.390 20.805 3.11% 2.920
*Amazon (2010) 34.204 5.909 39.56% 1.152
GameStop (2010) 9.4737 2.5397 4.36% 0.408
GameFly (2009) 0.101 N/A 19.80% 0.0016

* This reflects all departments (e.g. Amazon includes Books, Movies, etc.…)
Sources: (See Footnotes)
Figure 2: Financial Reports of Leading Game Distributors

We can see from growth and data on these large, established businesses that the marketing is going well
for them and there is still much opportunity to grow.

11
Lee, Hower. ""CLIFF NOTES" S-1S (PART II): GAMEFLY." AGILEVC - LEE HOWER. 26 Feb 2010. Web. 19 Apr 2011.
<http://www.agilevc.com/venturesome-archives/2010/2/26/cliff-notes-s-1s-part-ii-gamefly.html>.

2.4. Problems and Opportunities

The gaming industry of today is, surprisingly, still bound by brick-and-mortar store distribution system
despite the leaps made in network technology. There are still many problems in the gaming industry
today.

Firstly, in order to play hot, newly released games, customers must either purchase the games in stores
like GameStop, or order the games online at distribution websites like GameFly and Amazon. It is an
inconvenience for the customers who do not live close to these brick-and-mortar stores to purchase
games. Another inconvenience of brick-and-mortar stores is that they are not open all the time, every
day. These stores have limited open hours as well as a limited inventory, so customers are bound by the
store hours and even when they do not have the game in stock. If instead customers order their games
online, companies like GameFly can deliver the games to the gamers in a few days depending on the
customer’s location. However, if gamers prefer the option to play the game right away, Gamefly will not
be satisfactory.

Secondly, there are a variety of gaming consoles in the video game industry as of now. If a gamer wants to
play a PlayStation 3 game and a Wii game, he will have to buy both gaming consoles to do so. This is a
huge expense for gamers in middle-income families.

Thirdly, the ability to play high-end games is hampered by a computer’s specifications. This means
gamers must upgrade their computers with new graphics cards and additional RAM because most of the
newly released and ground-breaking video games require more advanced processor, large memory, and
progressive graphic card.

Fourthly, if players get stuck at a difficult part in a game, they have to try to get past it helplessly or to
research and find out how they can move forward online. No current console allows players to see how
other players tackle a part of the game or watch their friends play a game or vice verse.
Last but not least, there are a lot of piracy issues in the current game industry. Game developers and
publishers lost millions of dollars every year due to piracy. So far, there is not a good solution to solve the
piracy problem.

2.5. Where does Gaming-on-Demand fit in?

Gaming-on-demand satisfies the needs of the market with its cross-platform functionality, on–demand
game delivery, instant upgrades, and availability to play from any location that can access the Internet.
Some new start-up companies take advantage of this technology, such as OnLive, Gaikai, and OTOY, and
they lead the Gaming-on-Demand revolution for the video game industry.

OnLive has developed a product that satisfies the needs of the current market. They have created an
affordable console that possesses cross-platform functionality and the ability to upgrade instantly. Its
game service allows players to buy or play their games anytime and reduce the influence of distance from
gamers to brick-and-mortar stores. If a game is released, anyone, regardless of distance, can access it
because the only requirement is an OnLive account. This instant game-delivery to its players, as well as
the multiple platforms players can use to access OnLive games, free the player from the boundaries that
products of the current market are offering.

Gaikai has developed the technology to meet the needs of the video game industry. With Gaikai, players
can obtain trial, hands-on experience before buying the games. This trial gameplay facilitates demos for
the latest games and will increase marketing capabilities leading to a boost in video game sales.

Part A: Gaming-on-Demand

1. What is Gaming-on-Demand?

Gaming-on-Demand is a cloud-based game service that allows users to stream games directly from the
Internet. This eliminates the hassle of installing games and upgrading gaming devices so that a user can
play a newly released game. The games themselves are stored on servers owned by providers like OnLive
and streamed to a gamer via the Internet. This way, a user only needs a rapid Internet connection to start
using the service.

1.1. OnLive
OnLive is a Gaming-on-Demand provider. OnLive is a service that does not require users to have a
specific platform but only requires their customers to install a software application on their computers to
connect to the severs in order to utilize their service. The games that OnLive provides are stored on its
server and sent to its end users through broadband Internet.

OnLive's physical product consists of a wireless controller and a MicroConsole TV adaptor, which can be
12
used to connect a television directly to the server . This allows a player to use OnLive with their TV
instead of their computer. In addition, OnLive is capable of running on either a Windows or Mac
operating system.

1.2. Gaikai
Gaikai is a game streaming service. Gaikai offers their customers the ability to play many PC and console
game demos for free without the need of any installations or downloading of games or any additional
13
software . It offers users the chance to try games on the browser before they actually make purchases. In
other words at the end of the free trial, consumers will have a choice to make a purchase from an online-
store, local store, and etc. If the consumers choose to not purchase a game offered on Gaikai and but
continue playing in the browser, Gaikai offers a pay-as-you-go plan so that the user can continue playing
the game. Gaikai profits from the developers for advertising their games and from the users if they choose
to play further using Gaikai’s services.

1.3. Otoy
Otoy is another Gaming-on-Demand provider. The company is still in the process of development. This
company has not defined exactly how they would do the business yet, but they are aiming to provide the
same services as OnLive and Gaikai. In addition, Otoy is also planning to provide the service that could
14
run on Mac, PC, Linux, iPhone, iPad and any mobile devices that has web browser

12
Welcome to OnLive.com. 13 Apr. 2011 <http://www.onlive.com/corporate/plugin>.
13
Gaikai Video Game Advertising Network | Play Video Games Online. 15 Apr. 2011 <http://www.gaikai.com/>.
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"OTOY Launches Open Streaming in Q2 2010." OTOY. 18 Apr. 2011 <http://www.otoy.com/media/press/launch.html>.

2. Barriers to Success
2.1. Technological Requirements

Figure 3: The traditional client server architecture for gaming requires a powerful client machine to play games at maximum
settings. Communication with the server is minimal.

The concept of online multiplayer gaming is not new. Online gaming has grown ever since consumers
could connect to the web faster than the old 56k modem would allow. The concept was simple and based
on a traditional client-server model. Clients would connect to a single server and could communicated to
each other through the Internet at that single point. Since clients were running a local copy of a game on
their computer, they only needed to communicate a minimal amount of information (location, items,
etc.…) to the server.

Gaming-on-Demand’s multiplayer system introduces a whole new set of technological barriers. No longer
is communication minimal. With Gaming-on-Demand, entire streams of high quality video are sent from
the server to the client. Analysis of a Gaming-on-Demand system can be broken down into three sections:
the client, the Internet connection, and the server.

Figure 4: With Gaming-on-Demand, there is no longer a need for a workhorse client machine. Even netbooks, tablets and mobile
devices will be able to handle streaming games.

With a Gaming-on-Demand infrastructure, client requirements are more relaxed. All a user needs is a
modern day computer capable of playing HD video. In the case of OnLive, client subscribers only require
lightweight client software regardless of the computational intensity of the game. Others, such as Gaikai,
simply require a modern browser with the latest version of Adobe Flash. Whether the clients are on a Mac
or PC, they will all have the same experience. Barriers to entry for the client are minimal if not nil.

The only real limitation on the client side is the Internet. Gaming-on-Demand services typically
recommend having 5Mbps of bandwidth to obtain the best user experience. Some services work down to
2Mbps, although with less quality. Although bandwidth requirements seem high, they are actually not out
of reach for the average US household. In the third quarter of 2010, the overall average connection speed
in the US was 5.0Mbps. Surprisingly enough, the US ranked 12th in Average Mbps during this survey. The
potential for adopting Gaming-on-Demand in these other developing economies and countries is
promising. This trend is only increasing as it has since 2008.

Figure 5: The graph above shows worldwide bandwidth speed over each quarter. Note that there is a general upward trend toward
higher bandwidth, especially in North America. [http://www.akamai.com/html/technology/dataviz5.html]

Server side requirements are more complex needing massive server farms specialized for graphics
processing. This is different from traditional server farms, which focus on CPU speed. It boils down to the
ability of graphic processors to compute matrix math more efficiently. Although server farm specifications
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are typically trade secrets, in an interview with develop-online.net , Gaikai explained that their demo
servers utilized the latest Intel six-core processors along with the then cutting edge GTX 470s. Not only
does a Gaming-on-Demand service need high-end hardware, but it also requires cutting edge encoding
algorithms that are kept as trade secrets.

Despite the excitement over this technology, there has also been deep skepticism. Richard Leadbetter of
Eurogamer.net points out several contentions about OnLive’s Gaming-on-Demand service. He argues
that OnLive could not possibly offer the high quality gaming it claims at such large scales. However,
several CTOs from large developer companies, like Electronic Arts, have taken a look at OnLive and
believe that the technology is viable. They have even entered content agreements with OnLive in support.

15
Crossley, Rob. “Gaikai’s reality check.” Develop 11 Jun 2010: Web. 17 Apr 2011. <http://www.develop-
online.net/features/900/Gaikais-reality-check>.

Second, he argues, OnLive counts on the datacenters to not only offer 720p, 60fps gameplay, but also to
encode the video output so that the player can receive the visuals at a rate of 1.5MB/s for standard
definition and 5MB/s for high definition (HD). To compare these statistics, YouTube has encoding farms
that take a considerable amount of time to produce their current, offline 2MB/s, 30fps HD video. OnLive
claims to do the encoding real-time through a PC plug-in card at 5MB/s on top of surround sound.
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However, in and MTVPlayerBlog interview with OnLive founder Steve Perlman, he notes that OnLive
has a good footing in the market due to the special, patented encoding techniques they use to deliver
blazing fast games. Also, YouTube is not in the business of encoding video quickly. They are simply in the
business of serving rendered videos.

Leadbetter later goes on to argue that latency will be a huge factor in OnLive’s success. This is very true.
The amount of data transferred between the server and client is more using OnLive’s infrastructure than
the typical client-server infrastructure. However what he ignores is whether that latency is relevant to the
user. Perlman noted in his interview that OnLive uses encoding technology and latency optimization to
remove perceived latency, a very important difference. The server side difficulty won’t be focused so much
on the capability of supporting but rather on the cost to achieve such technical feats.

2.2. Business Barriers

As a pioneer of Gaming-on-Demand, OnLive does not face the barriers of entry into an old market, but
rather faces barriers of creating a whole new market. The gaming community is not a heterogeneous mix
of players where one only plays a Wii one day or an Xbox. Instead, the gaming community partitions its
players by whichever medium (game console or computer) they choose to play, but with the occasional
overlap when a game is available on two different consoles or if one player has two consoles or more.
However, OnLive’s content partners are developers from a hodgepodge of different computer and console
games and its market is, in effect, the whole gaming community. The biggest business barrier for Gaming-
on-Demand is the ability to acquire hot content that can attract console and PC gamers.

Due to Gaming-on-Demand’s recent entry into the video game industry, it only offers a limited selection
of video games in its library. OnLive’s lag prevents it from placing high-end PC games such as World of
Warcraft and Starcraft on its list of available games. In addition, the games that OnLive is releasing have
been on the market for at least longer than two months. OnLive’s ability to stream any console game over
the Internet is limited by the exclusive contracts that popular game developers have with their respective
console makers. For example, Nintendo has built its empire on the over 200 Mario Bros. games released
17
in the past 15 years . It is unlikely that Nintendo will hand over any of those titles to its competitors in
Gaming-on-Demand. For Microsoft and Sony, creators of the Xbox and the PlayStation, even if Gaming-
on-Demand were to acquire any of their games, it would be after a long legal battle that gives both
companies enough time to offer new services that could compete with Gaming-on-Demand. As of yet,
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OnLive has not been able to showcase any of the top 20 games sold in 2011 in any platform . Also, with
the start-ups already competing within Gaming-on-Demand (Gaikai and OnLive) for video game titles,
Gaming-on-Demand will most likely be separated by its games just like Microsoft, Sony, and Nintendo
were. With that, Gaming-on-Demand is less likely to overtake the console and PC market share and more
likely to create its own niche of gamers.

Netflix parallels OnLive as a trailblazer for the Video-on-Demand platform and, although it offers instant
television from multiple stations, has a partnership with HBO/Starz. Gigaom has outlined Netflix’s
19
approach to acquiring visual content for its Video-on-Demand services . First, Netflix takes proven,

16
Totilo, Stephen. “OnLive Interview: Founder Says Console Makers Can’t Compete Until 2022.” Develop 24 Mar 2009. Web. 17
Apr 2011. <http://multiplayerblog.mtv.com/2009/03/24/onlive-interview-founder-says-console-makers-cant-compete-until-2022/>.
17
"Mario." Wikipedia, the Free Encyclopedia. Web. 19 Apr. 2011. <http://en.wikipedia.org/wiki/Mario>.
18
Mazel, Jacob. "Top Selling Q1 2011 Games by Platform / Multiplatform & HW Trends - VGChartz." Video Games, Charts, Articles,
News, Reviews, Community, Forums at The VGChartz Network. 9 Apr. 2011. Web. 19 Apr. 2011.
<http://www.vgchartz.com/article/85478/top-selling-q1-2011-games-by-platform-multiplatform-amp-hw-trends/>.
19
Lawler, Ryan. "Netflix’s Three-Pronged Approach to Content Acquisition." Gigaom 06 Apr 2011: n. pag. Web. 19 Apr 2011.
<http://gigaom.com/video/netflix-content-acquisition/>.

popular content to attract mainstream users. Second, it acquires a large number of cheap titles, which it
then recommends to viewers based on their previous choices. Finally, Netflix finds projects that they
believe will be a hit and signs them on before the price of the show increases. In comparison, OnLive has
done the same and chosen hot new games like Assassin’s Creed by Ubisoft to lure mainstream gamers.
OnLive then acquired lesser-known games, but from multiple genres, so that the mainstream players
would find a reason to continue with the service. Finally, OnLive offered its Software Developer Kit and
20
tools to independent game developers allowing them to easily distribute their games to a market
composed of either PC, Mac, or television (with the purchase of a MicroConsole). Normally, users have to
wait months before a game available on PC is available for Mac. Now, game developers can use OnLive as
the middleman to enable cross-platform functionality for their video games. This saves time for users who
no longer have to wait for a game to be converted from one platform to another as well as resources for
game developers who can use it to focus on producing new games.

Additionally, companies looking to get into the gaming-on-demand services will face tough legal
21
opposition. OnLive recently received approval of a patent on gaming-on-demand at the end of 2010 .
There will many legal proceedings, contracts, and law suits in gaming-on-demand as a result of this
patent. Recently, T5 Lab, a startup, claimed that they should own the patent because they applied for this
patent earlier than Perlman. Entry into the gaming-on-demand market will not be easy work for
22
competing companies .

3. Gaming-on-Demand’s Business Model
3.1 Current Gaming-on-Demand’s Business Model
With the rise of Gaming-on-Demand, companies have created various business models to earn revenue on
their products.

The trial game system allows users to try out the game prior to making a purchase. Gaikai has developed
23
streaming technology that allows gamers to test play the game with just one click . It is currently working
with other game developers and publishers to provide the instant gaming experience to its customers. Its
key feature is that players do not need to download or install any software to play the game. With Gaikai,
gamers will no longer have to risk spending money before purchasing the game.

Plans Rates ($)
3-day Pass (one game) 2.99-6.99
5-day Pass (one game) 6.99-10.99
Full PlayPass (one game) 9.99-59.99
Subscription (40 games) 9.99/month

Sources:
1 - http://www.onlive.com/games/featuredgames#shaun_white_skateboarding
Figure 6: The pricing model of OnLive

20
"OnLive Offers Indie Game Developers a “Direct-To-Consumer” Channel on TV, PC and Mac." OnLive 15 Sep 2010: n. pag. Web.
19 Apr 2011. <http://www.onlive.com/corporate/press_releases/onlive_makes_sdk_available_to_indies_print>.
21
Takahashi, Dean. "Rivals Beware: OnLive Says It Has a Fundamental Patent on Cloud-based Games | VentureBeat." Tech News
| Innovation News | Money News | VentureBeat. 14 Dec. 2010. Web. 18 Apr. 2011.
<http://venturebeat.com/2010/12/14/rivals-beware-onlive-says-it-has-received-a-fundamental-patent-on-cloud-based-
games/>.
22
Takahashi, Dean. "Who Invented Cloud Gaming? T5 Labs Tangles with OnLive (exclusive) | VentureBeat." Tech News |
Innovation News | Money News | VentureBeat. 15 Feb. 2011. Web. 18 Apr. 2011.
<http://venturebeat.com/2011/02/15/t5labs-patent-onlive/>.
23
Gaikai. "What Is Gaikai? Video Game Lead-Gen Ad Platform, Play Games For Free." Gaikai Video Game Advertising Network |
Play Video Games Online. Web. 17 Apr. 2011. <http://www.gaikai.com/about>.

Another model emphasizes is game rental or full game purchase a game. Players can purchase a
24
“PlayPass” for any games available in the online game library . Companies, like OnLive, have developed a
new way for gamers to purchase games. With three-day, five-day, and full play passes, gamers are allowed
to access the game they bought for three, five and unlimited days. After they purchase a game, the game
does not install in the console but exists in the server. So the players actually do not buy the game, but buy
the right to play the game. Compared to online game distributors like GameFly, OnLive does not deliver
any games via discs to customers. With Gaming-on-demand, gamers no longer have to wait for their
games for several days.

Finally there is the pay-as-you-go subscription model where players have unlimited access to certain
games in the game library as long as they pay the subscription fee. OnLive provides a subscription option
for their gamers. Different from “PlayPass”, the subscription model allows gamers to get access to more
than one game in a low price. It is currently doing a promotion where, with just $9.99, players can get
unlimited access to forty games in the OnLive game library. Although the new released games do not go
into the subscription plan, players are still some popular games, like NBA 2K10.

3.2 Gaming-on-Demand Value Chain
Before gaming-on-demand was introduced to gaming industry, the model of game industry value chain
had many hierarchical levels from development, production, to distribution. For the suppliers’ side, there
are component manufacturers, console manufacturers, and designers and developers. Publishers create
games and deliver to distributors, digital distributors, and Mobile Phone Operators. Distributors then
deliver to retailers, which in turn deliver to consumers.

25
Figure 7: The Evolutionary Industry Value Chain Figure 8: Gaming-on-Demand value chain

Gaming-on-demand introduces significant changes in the game industry value chain. The value chain
becomes much more simple than before. Instead of having manufactures build consoles, they are replaced
by components makers for servers. A gaming-on-demand company will act as the distributing entity.
Consumers will not obtain access to games from traditional game distributors but rather directly from
gaming-on-demand services.

24
OnLive. "Featured Games." Welcome to OnLive.com. Web. 17 Apr. 2011. <http://www.onlive.com/games/featuredgames>.
25
Sheth, Romeen . "Evolutionary Value Chain." Video Game Industry 2008: n. pag. Web. 19 Apr 2011.
<http://sites.duke.edu/soc142-videogames/global-value-chain/evolutionary-value-chain/>.

4. Advantages

Gaming-on-Demand’s new technology is gradually changing the game industry. This change has provided
a lot of benefits to many people in the game industry as well as game players. It means that people in the
industry will be able to produce better games to fulfill the needs of their consumers and present better
quality game services to their clients. At the same time, gamers can also enhance their gameplay
experience.

4.1. Industry
The Gaming On-Demand model can prevent one of the greatest parasites to the video game industry -
26
piracy . This means that it will be harder for gamers to copy games or hack consoles.

Amount Lost (in billions)
Worldwide (2004-2009) $41.5
Japan (2004-2009) $10.4
UK (2010) $2.31
Applied Materials Inc. 5,000–9,999

Sources:
27
1 - http://www.gamasutra.com/view/news/28848/CESA_Portable_Piracy_Cost_Game_Industry_415_Billion.php
28
2 - http://www.crunchgear.com/2011/01/21/uk-video-game-piracy-caused-1-45b-in-losses-
1000-jobs-last-year/
Figure 9: The amount loss due to piracy

With physical games distribution, customers could purchase or rent games and easily make illegal copies.
These illegal copies can be redistributed to friends and family or even worse, sold. The illegal distribution
of their games has had a significant effect on many game publishers. According to the table above, there
are significant amounts of monetary loss in the game industry. For example, between 2004-2009 total
loss in the game industry is $41.5 billions. Gaming-on-Demand can protect game publishers from piracy.

Moreover, Gaming-on-Demand eliminates all the physical packaging and production so that game
companies and service providers to reduce their expenses, earn more revenue, and reduce environmental
waste. For these reasons the industry may provide its game services at a lower price.
Finally, Gaming-on-Demand actually enables game developers to have more control over old and new
games in the process of being developed. For instance, the game developers can release a demo version of
their new game with a limited access time allowing their clients to try their new game and give them some
feedback quickly. This means game developers can get a better understanding of how to make
improvements on their new games.

26
"Games on Demand and Piracy." Games on Demand Reviews | Download Full PC Games | Metaboli. 16 Apr. 2011
<http://www.unlimited-pc-downloads.com/games-on-demand-and-piracy>.
27
"Gamasutra - News - CESA: Portable Piracy Cost Game Industry $41.5 Billion." Gamasutra - The
Art & Business of Making Games. 17 Apr. 2011 <http://www.gamasutra.com/view/news/28848/
CESA_Portable_Piracy_Cost_Game_Industry_415_Billion.php>.
28
"UK Video Game Piracy Caused £1.45B In Losses & 1,000 Jobs Last Year." CrunchGear. 17 Apr.
2011 <http://www.crunchgear.com/2011/01/21/uk-video-game-piracy-caused-1-45b-in-losses-
1000-jobs-last-year/>.

4.2. User benefits

Gaming on-Demand is not only beneficial to the game industry but also gamers as well. This service
provides many great opportunities to many players in terms of entertainment, timing, and finances. First
of all, Gaming-on-Demand allows customers to purchase their favorite games without leaving home or
waiting in long lines. The service is available around the clock and not just during business hours. Imagine
if you want to immediately purchase and play "Call of Duty: Black Ops,” but the retail stores are already
closed. You can take advantage of Gaming-on-Demand by subscribing to it immediately, regardless of the
time of day. When it comes to Gaming-on-Demand, gamers will never have to worry about whether or
not the game they want is in stock.

Another user benefit is users do not have to carry any physical game cartridges with them. They can just
download their favorite games from a server to any operating computer systems as long as there is a
29
reliable Internet connection or Wi-Fi . They will not have to worry about losing their games if they
encounter any computer malfunction. In addition, benefit is that Gaming-on-Demand stores a player’s
save file, which contains all their progress in a video game. This enables the player to log out of one device
and play their game from another device at the spot where they left off. In addition, the

Gaming-on-Demand offers users the chance to try a game before they actually purchase the game. Thus,
giving an opportunity of playing free-trials will help to guarantee customers’' satisfactions. Gaming on-
Demand also provides the subscription plans which helps many gamers save large amounts of money
compared to the amount they pay from buying and renting games from retail stores. For example, OnLive
offers a monthly, unlimited subscription play for only $9.99.

Another advantage of Gaming-on-Demand is the price point to the consumer. In 2009, 183,500,000 USA
consumers alone spent $25,290,000,000. This equates to approximately $138 per year spent on games.

Country Money Spent # of players
USA $25,290,000,000 183,500,000
UK £3,780,000,000 31,3000,000
Germany €3,650,000,000 35,500,000
France €3,570,000,000 25,400,000
Netherlands €590,000,000 9,300,000
Belgium €570,000,000 4,700,000
Sources:
1 - http://venturebeat.com/2010/05/09/americans-spend-25-3b-each-year-on-video-games/
Figure 10: Worldwide expenditure on video games in 2009.

29
"Gamasutra - Features - Sponsored Feature: Changing the Game - Experimental Cloud-Based Ray Tracing." Gamasutra - The
Art & Business of Making Games. 13 Apr. 2011
<http://www.gamasutra.com/view/feature/6322/sponsored_feature_changing_the_.php>.

A Gaming-on-Demand subscription service such as OnLive charges $9.99 a month for 40 games.
Comparing typical Gaming-on-Demand subscription costs to average yearly spending, we see that there is
approximately $18 in savings per year. However, the savings do not stop there. Typically, the PC
hardware required to play comparable console games cost several hundred more than console systems.

30
Figure 11: Price comparison of video game hardware

With Gaming-on-Demand, the cost of a comparable PC will significantly drop at or below the cost of
consoles. PC upgrades may not even be necessary in this case. Most modern computers going as far back
as 2005 are capable of running a Gaming-on-Demand service. Additionally, the cost of owning new games
will be fewer.

30
Campbell, Devon. "The True Price of PC Gaming." The Married Gamers. Gaming Angels, 03 Feb 2011. Web. 19 Apr 2011.
<http://www.themarriedgamers.net/?p=11440>.

31
Figure 12: Price comparison of video game hardware

Under a subscription based Gaming-on-Demand model, users can get the latest games at a fixed cost rate.
They will not only be paying less for games on average, but also gain the added benefits of a wide selection
and new releases at no additional costs.

5. Disadvantages
5.1. Old versus New

The clash between the console and PC gaming industry and Gaming-on-Demand is inevitable. As of now,
the console leaders (Sony, Microsoft, Nintendo) have managed to coexist by offering games that are only
available on their respective devices. However, OnLive could aggregate these games into one place
without requiring a console. Traditional gaming companies will not allow Gaming-on-Demand to take the
market share so easily. They are still maintaining a dominant market position because Gaming-on-
Demand is still in its early stages of development. For example, OnLive still lacks features such as
achievements and voice chat for its platform. These are difficult to do with the fact that OnLive requires
all of its bandwidth for players to play the game.

The MicroConsole is OnLive’s first attempts at entering the home entertainment system beyond a gamer’s
computer. As a cheap and basic model, the MicroConsole cannot compete with the special some of the
special features that the PlayStation, Wii, and Xbox posses. The Nintendo Wii features multiple controller
designs such as the Wii Remote and Nunchuk that can combine to form the Wii Wheel and Wii Zapper.
All these controllers are motion sensitive to the console. Additionally, the recommended 3-5Mbps of
32
bandwidth is still prone to poor video streaming and multiple service interruptions .

31
Campbell, Devon. "The True Price of PC Gaming." The Married Gamers. Gaming Angels, 03 Feb 2011. Web. 19 Apr 2011.
<http://www.themarriedgamers.net/?p=11440>.
32
Newman, Jared. "OnLive MicroConsole Review: Future Imperfect." Technologizer 01 Dec 2010: n. pag. Web. 19 Apr 2011.
<http://technologizer.com/2010/12/01/onlive-microconsole-review/>.

5.2. Denial of Service

Denial of Service attacks can also be a huge hindrance to the Gaming-on-Demand service. Denial of
Service is an attempt by a malicious entity to make a computer resource unavailable to intended users.
Large web services such as Amazon, Google, or OnLive stand to lose out on a Denial of Service attack.
Each minute their system is down equates to substantial losses. The profiteering hackers responsible for
these attacks seek to blackmail technology companies by threatening an attack unless payments are made.
These hackers are able to accomplish such massive attacks through botnets. Botnets are a community of
computers maliciously hacked through virus, worms, malware, etc. that becomes slaves to a master
controller, in this case, the hacker.
Gaming-on-Demand services will more susceptible to such an attack. Their services rely on high
bandwidth. Crippling their servers will result in a loss of frame rates for the user, while crippling a service
such as Amazon only end up in a slower page load time. Any amount of down time will equate to a loss of
business. Through, much has been done in terms of Internet security to curtail the effects of an attack. It
is still very much a real threat.
On the flip side, clients become much more susceptible to Denial of Service attacks. With higher
bandwidth needs, there is less remaining to buffer any Denial of Service attempts. A gamer that wishes to
stifle their competitor would require fewer resources to affect the target due to the already high
bandwidth.

6. The Five Forces Model

6.1. Complementors

OnLive’s complementors are companies that offer OnLive service as part of their product package. The
complementors will include tablet suppliers such as Apple, Samsung and Microsoft; computer suppliers
like Dell, HP, Acer; and mobile companies like Apple and Android. HTC has invested $4M in OnLive so
that the HTC Flyer, its new tablet, would be capable of playing high-level HD games through Gaming-on-
Demand services. Another company, British Telecom, a UK-based network provider, has signed a deal
with OnLive to stream video games as part of BT’s high-end domestic broadband package. OnLive’s
gaming services would benefit many network service-based companies that seek to add gaming to the
music and video entertainment that users already enjoy through their networks.

6.2. Competitors
If Gaming-on-Demand successfully takes over the game market, games on DVD and SD cards, as well as
consoles, will become fossils in history. Gaming-on-Demand’s competitors are planning on either
developing popular games that will be unavailable on the cloud or entering the Gaming-on-Demand
market themselves. The leaders of the console industry (Sony, Xbox, and Nintendo) will not give up their
hold on the gaming industry easily. Because Gaming-on-Demand costs much less than gaming on
consoles, customers will change their way of gaming if console companies do nothing to keep their
customers. For these leading game companies, letting gaming-on-demand take over game industry will
mean a huge loss of both their profits and reputation. In order to keep their customers, companies will
most likely create or ask developers and publishers to build exclusive games, such as World of Warcraft
and Starcraft, which would not be available on gaming-on-demand services. This way, console companies
would be able to keep customers loyal and maintain a competitive advantage.

Figure 13: Wii, Xbox 360, PlayStation, Nintendo and PSP possess a large market share in video game industry. Losing in video
33
game market, these companies will suffer a huge loss.

Large companies such as Microsoft will likely go into Gaming-on-Demand. Although Microsoft does not
have gaming-on-demand technology, it already possesses a great deal of cloud computing technology. It
will be easier, though not easy, for them to enter gaming-on-demand in the future. Microsoft recently
34
launched Games for Windows Marketplace, which allows users to download games from Internet .
Notice that this is different from Gaming-on-Demand because the customers actually download the entire
game to play locally on their consoles or computers. Microsoft does not any Gaming-on-Demand service
yet, but perhaps their games on demand is the first step forward toward Gaming-on-Demand.

Another competitor, GameStop has recently purchased Kongregate, Impulse, and Spawn Labs, which
35
indicates its movement from being a strictly brick-and-mortar store to a digital game store . According to
Venturebeat, “Spawn Labs was a new start-up company, and it develops technology which allows players
to play games on home machines while they’re traveling with laptops. The game plays in a console and
streams its game to the laptop.” Learning from Blockbuster, GameStop is recently working closing with
Spawn Labs to develop game streaming technology so that GameStop will not be the next Blockbuster in
game industry.

As mentioned before, OnLive’s patent on Gaming-on-Demand will be a great barrier to entry for existing
competitors.

33
"Video Game Charts, Game Sales, Top Sellers, Game Data - VGChartz." Video Games, Charts, Articles, News, Reviews,
Community, Forums at The VGChartz Network. Web. 18 Apr. 2011. <http://www.vgchartz.com/home.php>.
34
Takahashi, Dean. "Microsoft Launches Its Own Games-on-demand Online Market | VentureBeat." Tech News | Innovation News |
Money News | VentureBeat. 22 Oct. 2010. Web. 18 Apr. 2011. <http://venturebeat.com/2010/10/22/microsoft-launches-
its-own-games-on-demand-online-market/>.
35
Takahashi, Dean. "Retailer GameStop Buys Its Way into Digital Distribution of Games | VentureBeat." Tech News | Innovation
News | Money News | VentureBeat. 31 Mar. 2011. Web. 18 Apr. 2011. <http://venturebeat.com/2011/03/31/retailer-
gamestop-buys-its-way-into-digital-distribution-of-games/>.

Total Money Spent per Platform Per Country
Consoles PC Games (in Game Portals (in Mobile Devices (in MMOs (in billions)
(in billions) billions) billions) billions)
USA $15.14 $4.15 $2.78 $1.1 $2.12
UK £2.39 0.74 0.27 0.19 0.19
GER €1.54 €1.32 €0.43 €0.18 €0.18
FR €2.43 €0.69 €0.19 €0.10 €0.16
NL €0.31 €0.17 €0.05 €0.01 €0.05
BE €0.31 €0.15 €0.06 €0.01 €0.04

36
Source(s): © Newzoo Games Market Report 2010
Figure 14: Amount of Money Spent per Platform

According to the data from Newzoo Games Market Report 2010, $15.14 billion dollars was spent on
console gaming in the U.S. If we also take the profit in PC games and Mobile devices into account, there
will be an additional $5.2 billion dollars within reach for to gaming-on-demand.

37
Figure 15: Gaming-on-Demand consoles possess a large market share in every country .

36
Takahashi, Dean. "Americans Spend $25.3B Each Year on Video Games | VentureBeat." Tech News | Innovation News | Money
News | VentureBeat. 09 May 2010. Web. 17 Apr. 2011. <http://venturebeat.com/2010/05/09/americans-spend-25-3b-
each-year-on-video-games/>.

Gaming-on-Demand will have a deep impact on the current market distribution. The consoles’ 68%
market share will be most affected by Gaming-on-Demand. The remainder of the segment will also
experience a similar loss in market share.

6.3. Customers
Gaming-on-Demand offers a combination of PC and console games for its users. Therefore, its consumer
base is a combination of the PC gaming market as well as the video game console market. With the rise of
38
“casual gamers ,” gaming has become so diversified that there is no longer a stereotype for the average
gamer. Now, the games being offered span a wide genre for various types of people. The consumers
dictate what kind of games Gaming-on-Demand should offer in the market. Gaikai is an exception
because they earn revenue by charging game developers who would like to advertise a free demo of their
game for customers to try. However with a limited amount of capital, Gaming-on-Demand companies
such as OnLive must be cautious about what types of games to invest in. If they are unable to attract
enough of a customer base with the games they possess, their business model is unlikely to succeed.

According to a study conducted by the Entertainment Software Association (ESA), the best selling video
game genres were Action and Sports, each accounting for 20% of the sales in 2009. For computer games,
they were strategy games (35%) and family entertainment (18.7%). As for OnLive, out of the 46 game
titles it offers, the most popular genres were Action (22%) with Adventure (18%) and Puzzle (17%) at a
close second and third. Figure 10 displays the actual distribution of games based on data from the OnLive
39
website .

Figure 10: A visual description of OnLive’s game titles organized by genre.

Computer games are ideal for multi-player role-playing and strategy games because of the keyboard and
chat and audio capabilities. Consoles are ideal for Action and Sports because the controller is the perfect
interface to play the game. Dedicated, hard-core gamers normally make up those who play computer
software, which allows more inputs, while groups that want to do a social activity together normally play
console games. However, since Gaming-on-Demand connects players across the Internet and uses

37
See Footnote 14
38
Boyes, Emma. "GDC '08: Are Casual Games the Future? - News at GameSpot." GameSpot Is Your Go-to Source for Video
Game News, Reviews, and Entertainment. GameSpot UK, 18 Feb. 2008. Web. 19 Apr. 2011.
<http://uk.gamespot.com/news/6186207.html>.
39
See Footnote 24

multiple platforms, OnLive does not need to emphasize any one genre. Interestingly, they have a wide
offering of Puzzle games that is not seen in PC or Video Games. It is not as often explored in PC or console
gaming, but it is very popular among casual gamers playing mobile applications. With the ability to
feature any genre thanks to Gaming-on-Demand’s cross-platform functionality, it can service a wide user
base from the console and PC markets as long as it can gain rights to the hot content that gamers would be
willing to buy.

6.4 Suppliers
As more companies move towards cloud computing, many vendors are adjusting their product lines to
create products just for the cloud. For companies relying on cloud computing, the CEO of Dell, Michael
Dell, comments, “We created a whole new business just to build custom products for those customers.
Now it’s a several-hundred-million-dollar business, and it will be a billion-dollar business in a couple of
40
years. ”

Gaming-on-Demand requires three components for their service: servers, CPUs, and graphics cards. IBM,
Dell, and Hewlett-Packard are moving aggressively in that direction by providing products specifically for
the cloud. For Gaming-on-Demand, which will require reliable and fast servers for its users, these
companies will be vital for creating server farms like those at OnLive. Intel and AMD manufacture CPUs
while NVidia and ATI produce graphics cards. These suppliers specially make these off-the-shelf products
for companies that require massive amounts of processing capabilities for their services.

Conclusion
The video game industry has changed dramatically since its inception. We have gone from waiting
rooms to consoles in a relatively short period. Despite the changes in venue, the purpose of video
games has always been the same - to entertain users. Gaming-on-Demand fulfills this essential
invariant by facilitating easier access to this entertainment.. It truly alleviates the pain points of
consumers. Not only can a user play a game anytime and virtually anywhere, but it also allows the
user to play at the best graphics settings with no difference in network performance. All of this is
served at a lower cost to the consumer. With a service such as OnLive, software installation is quick
and easy. Other services such as Gaikai make the user experience even easier by utilizing software
already installed on most users’ computer. Although still in its infancy, these services offer a huge
leap over the brick-and-mortar businesses of yesterday. The video game industry is simply moving to
more direct channels of distribution. Whether it is through better graphics, multiplayer gaming, or
new user interfaces, a la Microsoft Kinect, the video game industry will always be in a state of
progression. We are now at the beginning of the next progression: gaming-on-demand.

40
King, Rachael. "How Cloud Computing Is Changing Business - Business - Bloomberg Businessweek - Msnbc.com." Msnbc.com -
Breaking News, Science and Tech News, World News, US News, Local News- Msnbc.com. 4 Aug. 2008. Web. 19 Apr. 2011.
<http://www.msnbc.msn.com/id/26015759/ns/business-bloomberg_businessweek/>.

About UC Berkeley Center for Entrepreneurship &
Technology
The Center for Entrepreneurship & Technology (CET) is an academic center and industry
partnership within UC Berkeley’s College of Engineering. Its mission is to equip engineers and
scientists with the skills to lead, innovate, and commercialize technology in the global economy.
Through teaching, programs, network building and research interlaced with strong industry
participation, the Center teaches entrepreneurship as it relates to individual venture creation and
to innovation within existing entities. To learn more about CET, go to cet.berkeley.edu

About The Coleman Fung Institute For Engineering
Leadership
The Coleman Fung Institute for Engineering Leadership prepares engineers and scientists —
from students to seasoned professionals — with the multidisciplinary skills to lead enterprises of
all scales, in industry, government and the nonprofit sector. Headquartered in UC Berkeley's
College of Engineering and building on the foundation laid by the College's Center for
Entrepreneurship & Technology, the Fung Institute combines leadership coursework in
technology innovation and management with intensive study in an area of industry
specialization. This integrated knowledge cultivates leaders who can make insightful decisions
with the confidence that comes from a synthesized understanding of technological, marketplace
and operational implications. To learn more about the Fung Institute, go to
funginstitute.berkeley.edu

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