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Return on investment "years out" for cloud companies

By Phil Elliott

Thu 07 Apr 2011 8:02am GMT / 4:02am EDT / 1:02am PDT

DemonWare and Jolt Online Gaming founder remains sceptical on tech's commercial viability

Dylan Collins, the founder of DemonWare and Jolt Online Gaming, has expressed some concern over the commercial viability of cloud gaming companies, and stated his belief that while businesses such as OnLive and Gaikai have raised significant amounts of investment, seeing a return on that cash could be "years out".

Writing an opinion piece on Business Insider, Collins noted three primary challenges for cloud gaming, covering the nature of the internet, the problem of games not including code with cloud gaming in mind, and some concerns over the future of uncapped broadband.

"Unlike digital downloads, streaming games require both down and upstream communications," he wrote. "Any latency is going to cause trouble, particularly for real-time games. Unfortunately, the internet is a latency-filled place.

"This is why OnLive has had to raise so much capital (and possibly why Gaikai only streams demos): to provide a good consumer experience, cloud-gaming services need to operate in data centres which are physically close to the gamer."

He continued: "Game developers have long used the technical term 'sucky' to describe the internet. To deal with this problem, they build a range of tricks into the game-code itself which compensate for this slowdown.

"The problem for the cloud-gaming companies is that they receive the game after it's developed. Meaning that they can't add any of their own technical wizardry into the game. These guys are going to need middleware teams."

And with some ISPs moving away from uncapped broadband, including US-based AT&T, Collins noted that "it's unclear how (if at all) cloud-gaming consumers will react to [those] ISP caps."

Ultimately, those challenges - and the amounts raised to get OnLive ($56.5 million) and Gaikai ($15 million) off the ground have led to him questioning whether or not browser games is a better bet.

"I am absolutely not ruling out cloud gaming as a viable model," he stressed. "However, I am also saying that the successful companies will need a lot of capital and very deep technical talent. And that's to just make it a mainstream service.

"I suspect the actual return on investment is likely to be years out from that point (OnLive is currently charging $9.99/month for unlimited play). For now I'm betting on regular browser games," he concluded.

Both companies have signed a number of partnerships, including some with regional ISPs - although the issue of latency was one that was raised by TeliaSonera head of gaming Vlad Ihora in an interview with last year.

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