What if Google did video games?

Posted by Rob Enderle, Principal Analyst, Enderle Group

Analyst Opinion - The gaming market is in a real mess right now.   We have 4 active game systems the Nintendo Wii, the Xbox 360, the PS3, and, not to forget, the PS2, which outsold all of the others last year. On the PC side, we have Windows XP games, Windows Vista Games, Flash-based games, and some folks are still porting to the Mac.

Looking at how technology has changed over time, and looking at what is being done to create the 3D Web, it won’t be long until folks step back and realize that this huge hardware diversity just isn’t working. Instead, centralizing and standardizing hardware could not only turn out as a better way to enter the segment, but as a more profitable way to remain in it as well.

Centralized Gaming

Back when game systems and PCs first came to market, we didn’t have a network and files moved from machine to machine on floppy disks, cassette tapes, or cartridges. Today, games are being delivered or updated over the web. The game that has the largest sustained audience these days is World of Warcraft – and this title wouldn’t even work if it were not on-line.  

The world has changed a lot in the last several decades, but games are still based largely on the idea that they have to run locally, while the capability to run them remotely has increased dramatically.   

A company called Teradici located in the Silicon Valley has come up with a relatively inexpensive way to put a high performance PC into a data center and remote all its functions to the desktop through a set top box.   HP has a similar technology they use for PC and Workstation Blades and both of these, if applied to gaming, could break the current model of having to sell a lot of subsidized hardware to consumers before there is a market for the related game content. The part you’d sell could be profitably sold for under $100, and if we applied a subsidy to that, you’d get it free of charge with a subscription.
 
Given the PS2 outsold everything else (mostly because of its sub-$100 price and a large game library) in the game system segment last year, $100 or “free” is an important price point.   

Bringing Google in

Going to a model like this is disruptive and people in an industry generally don’t like to take disruptive risks, though, if you think about it, that’s exactly what Nintendo did with the Wii by creating a system that wasn’t massively expensive and had a family/health gaming focus. The Wii showed that breaking the model, if only a little bit, could have huge benefits. But who would be willing to break it a lot?

Google has been buying up lots of dark optical cable (called dark fiber) over a long period of time and has in place an advertising model that could actually both subsidize the hardware and the games. HP, which probably has the leading hardware to do this, could also play here as well and both companies might be thinking of how they could use this technology as a Trojan horse to fundamentally change not only the gaming market but the PC market as well.   

Since HP leads the existing PC market, such a change would have significant risks for them. But for Google, which doesn’t even exist in this segment and is interested in displacing Microsoft, there are only the risks associated with entering a segment (which once attracted Larry Ellison and Sun to a similar failed plan based on inadequate technology).  

Two other technologies which could be used to create a similar eco system using existing PCs are Adobe AIR  and Microsoft Silverlight. Both owe their roots to disruptive technology called Chrome, which almost changed the world a decade ago.   

Wrapping up:  Will centralized gaming happen?

Eventually I do think we’ll switch to something like a cloud computing model.  We are increasing bandwidth dramatically and the technology capable of doing this continues to come down in price with the next big technology push coming with massively multi-processing models on both the graphics and processor side. This could move us from concepts like blade PCs, workstations, and game systems to a highly flexible server, which could more effectively perform the same function.

The sustaining problem, other than the risk of doing something really different, is latency - which starts becoming a problem with centralized resources over long distances.   Though, those of us who play on-line today may find that this latency is actually much more tolerable than the latency we now have to deal with in Massive Multiplayer Games.   

But, when it happens, it probably will take someone like Google who can come at the segment with a fresh perspective to make this work both technically and financially.  I think we are close to having a disruptive change in several segments; we are just waiting for someone to put the parts together who has the funding, and breadth, to make it all work.

Rob Enderle is one of the last Inquiry Analysts.  Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them.  Currently he provides his services to most of the major technology and media companies.