Sony acquisition of Gaikai: "A genius move"

Analysts weigh in on the purchase and a PS4 powered by Gaikai, but don't expect Microsoft to purchase OnLive

"The world isn't ready for cloud gaming," says Rob Fahey. That may be true, but for how much longer? Sony has to prepare for a potentially all-digital future, and most of the analysts GamesIndustry International spoke with believe the Gaikai purchase is a very smart move, and even worth the seemingly high $380 million price tag.

But what impact will the Gaikai deal have on Sony in this generation and the next and how will it affect the video game business as a whole? Will Microsoft have to react by buying OnLive? Will Nintendo do anything at all? How will this affect the upcoming console battle? These are questions we put to several leading games industry analysts in our roundtable below.

Lewis Ward, IDC Research Manager

I think it's kind of a bombshell.
 $380 million isn't chicken feed, especially for a company that's had a rough financial ride in the past year.
 I don't know the particulars of the Zipper interactive, Sucker Punch, or Guerilla Games buyouts but this has to be one of the biggest deals in the history of Sony Computer Entertainment. That gives you a sense on how strategic Sony views the Gaikai platform.

"I think Sony will hold off on the streaming of AAA games until the PS4 arrives and they can offer some interesting subscription levels."

Lewis Ward

I think this is ultimately more about the PS4 platform than PS3, although I wouldn't be surprised to see some streaming game demos at least surface in Home and in the PS Store within the next year. I think Sony will hold off on the streaming of AAA games until the PS4 arrives and they can offer some interesting subscription levels.

I also believe the deal is important in the context of PlayStation Mobile: There's no reason games and game demos couldn't be streamed over WiFi to PS Certified smartphones and tablets. That may be phase two though, after it's up and running in a PSN/PS4 context.
 I suspect Microsoft is working on their own cloud platform and won't buy OnLive and it would be out of character for Nintendo to buy a company like OnLive. So buckle up - it's going to be an interesting ride in the next year!

Jesse Divnich, EEDAR

Without a doubt this was a genius move by Sony. Although they've been doing quite well in video games, as a company Sony has been struggling. What the acquisition of Gaikai really does is it helps to future proof Sony, because no matter where the industry transitions, whether we're getting entertainment through Wi-Fi, through a Blu-ray player or discs at the store, it doesn't matter because no matter where technology goes over the next 10 years, they will be able to utilize Gaikai and its technologies to deliver entertainment straight to the consumer.

"Without a doubt this was a genius move by Sony... I don't think the market necessarily realizes how impactful and important this acquisition is for them"

Jesse Divnich

I think a lot of industry insiders thought the price of the acquisition was quite high, but really it's pretty reasonable when you think about the value this is going to give Sony five years from now, even 10 years from now. I don't think the market necessarily realizes how impactful and important this acquisition is for them. They may not realize all the potential of the Gaikai acquisition initially - obviously there's bandwidth issues, but I don't think anyone would argue with you that cloud won't be the dominant form of entertainment delivery five years from now. It works beautifully now and once we get the bandwidth there - it's more a problem in North America - Sony will be there. And this could be theoretically that five years from now, everything literally goes straight to the TV. You don't need a Blu-ray player or a game console; all you need is a TV and it could very well be a Sony TV.

Microsoft is working on their own forms of cloud technology, but I don't think this Gaikai move forces Microsoft to make an acquisition. I think this is something they will probably handle internally - they certainly have the skills and money to throw at this. Purchasing OnLive, which is probably valued at a lot more than $380 million, I don't see Microsoft making a play to acquire OnLive, whioch would probably be well over a billion dollar valuation. I think the Gaikai purchase puts OnLive's valuation beyond the reach of most entertainment players now - but I could see some cable companies or cell phone companies potentially looking at OnLive. I don't think anything's going to happen with OnLive for at least the next 12 months. OnLive only works when it's part of a bigger network, so I think it's going to happen. It's a matter of price and I think it's a little bit too early for anyone to make an acquisition, especially after the valuation Gaikai got today.

Billy Pidgeon, M2 Research

I think acquiring Gaikai is a good move by Sony, but this buy will pay out in the long term.  Cloud gaming has terrific potential and will have a substantial disruptive impact on the industry realized gradually over the next ten to twelve years.   Streaming high end console games will add value to free or inexpensive online services currently available from console vendors. However, cloud gaming isn't cheap and will have to be subsidized by subscriptions and advertising.  I think we'll be likely to see tiered service levels and pricing for streamed games, with lower end casual games offered for free with advertising and high end game services bundled for premium subscriptions.

"It might seem counter-intuitive, but I think Sony should use Gaikai to bypass consoles and use streaming games to bring PSN to PC, tablets, smartphones and televisions"

Billy Pidgeon

Streaming games are going to be an important feature in Sony's next generation console, but I'd like to see Sony integrate cloud gaming with PSN for PS3.  In the short term, Gaikai's cloud gaming service will help Sony provide wider game demo distribution and back catalog PS One and PS2 games to PSN consumers.  It might seem counter-intuitive, but I think Sony should use Gaikai to bypass consoles and use streaming games to bring PSN to PC, tablets, smartphones and televisions.  Consumers are going to be able to access games on multiple devices from a variety of hardware vendors using networked services from Apple, Google and Microsoft, and Sony will also have to compete on hardware other than its own.

Microsoft may be working on a proprietary cloud gaming system, but could buy OnLive or (another cloud gaming provider) to acquire any patents or unique technology that would help Microsoft to match or outperform Sony's Gaikai service.  Cloud gaming is likely to be included in the next generation of Xbox, but could also be a valuable add for the Windows 8 platform on PC, tablets and smartphones.  Microsoft should also consider using cloud gaming outside its usual hardware, specifically for television.  

Wii U will allow local streaming, as games processed on the console can be played on the GamePad.  Still, Nintendo should also invest in technology for streaming games from the network, as cloud gaming could be a "must have" feature in the next generation Xbox and PlayStation even though the potential won't be realized until further out.  Dedicated console vendors without cloud gaming could be squeezed out between services provided by competitors and more accessible networked games from Google, Microsoft or Apple on multiple devices.  And even with cloud gaming Nintendo will have to work harder to compete as its business model doesn't extend to convergent devices.

Michael Pachter, Wedbush Securities

I think that Sony is doing this for strategic reasons, and think that they want to control the migration from consoles to the cloud.  Owning Gaikai lets them integrate the service into Sony smart TVs, and allows them to integrate with PSN and PS4 as they see fit. It also keeps Gaikai from competing or falling into the hands of a competitor.

I do not think Microsoft buys OnLive for this reason, although it makes sense from a cloud-computing/enterprise software as a service perspective. 

Nintendo will do nothing at all.

This won't impact next gen at all.

David Cole, DFC Intelligence

It is a major deal because it shows Sony's long term commitment to the game business.  The thing about services like Gaikai and OnLive is you still need a screen.  In the case of Gaikai the service was also about driving users to buy a full version of the product for their specific hardware device.  So in this case Sony is a good fit because they have multiple hardware devices and a service like Gaikai can help tie them together and also bring in users to the PlayStation brand that do not own a Sony hardware device.

Microsoft does not necessarily have to react by buying OnLive.  It would really depend on how OnLive's technology ties in with what Microsoft has developed internally.  But it does come down to a build versus buy issue.  Presumably Microsoft has been planning for cloud distribution for years so they have their own technology.  Of course, they do need to do something.

Short term this will have minimal impact on the game industry so I don't expect Nintendo to announce anything radical anytime soon.  Also Nintendo has not really been focused on the cross platform issue that is a big reason for Sony's purchase.

I really see this as a purchase about planning for the future.

Jeremy Miller, DFC Intelligence

One of many starting questions out there is when will we see fully streamed game demos on the PS3?  Further, will that mean Sony gets into the marketing distribution business for its 3rd party developers? (i.e., pick up Gaikai's business model?)  Would that mean, say, EA pays Sony to serve up demos of the next FIFA this year and pay per minute of demo served?  That's getting into the details a bit, but it seems like an obvious initial question to explore.  For that matter, I'd be curious to see when/how they'd serve demos on Sony televisions, and will consumers need a PS3 controller to play them?

If you really want to get into details, would this enable streamed gameplay to a PS Vita connected wirelessly to a PS3?  Lots and lots of questions will come out of this and one could go on for a long time.  Whether one thought today's announcement was inevitable or not based on the talk in June,  it's certainly very interesting and should go down as a top 10 story for the games industry this year even if the short term impact is minimal as David says.

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Latest comments (11)

Nick Parker Consultant 9 years ago
Sony and Panasonic announced last month to go into partnership to build OLED TVs in order to take on the Koreans, Samsung and LG after Sony broke off its tie up with Samsung on LED TV manufacture in December. Both Samsung and LG had done deals with Gaikai. Sony has bought Gaikai. Sony may wish to but I'm not sure the Koreans will be so receptive to Sony attempting to offer a streaming solution to other consumer electronic manufacturers.

With regard to OnLive; I think it's just too expensive with so much capital tied up in server infrastructure and patents to get a return. Also, I prefer the b2b model (like Gaikai) rather than the b2c model. There are smaller streaming technology companies with very clever solutions which would be more attractive; Onlive and Gaikai are not the only players in this sector.
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Ken Varley Owner & Freelance Developer, Writer, Devpac9 years ago
I'm not interested in cloud gaming, live game streaming.

I have enough problems just being connected to the internet and getting web pages. The broadband infrastructure in the UK is not the most reliable. Heaven knows what latency a round trip would incur.
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Joshua Rose Executive Producer / Lead Designer, Storm Eagle Studios9 years ago
Agreed Nicholas, There are several more players in this game. But I also agree that the world is not ready for cloud gaming on a mass scale. This, as suggested in the article, is an acquisition based on future expectations, and at $380 million, those expectations better be pretty damned high.

If this is their roadmap of the future, I wonder what will happen to Sony DADC. Are they going to try and integrate SecuRom into the Gakai platform for permanent digital distribution? Quite a lot of possibilities. Only time will tell it seems.
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I cant even play Diablo 3 reliably in Central London. So I have no idea how cloud is going to overcome such latency issues. Granted the existing infrastructure needs upgrades, I'd hate to put up with more roadworks and digging up.
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Craig Bamford Journalist 9 years ago
I suspect Microsoft is working on their own cloud platform and won't buy OnLive and it would be out of character for Nintendo to buy a company like OnLive."

All true. And that leads us right back to OnLive either staying independent, or a scenario where they pair up with the OTHER big platform-holder, the one that really needs a hedge against a big market shift to Post-PC: Valve.

Valve's inscrutable about this sort of thing, of course. But it makes more sense than any of the other scenarios that have been bandied around.
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Doug Paras9 years ago
Who knew "Genius" was such a cheap word to hand out these days.

Edited 1 times. Last edit by Doug Paras on 3rd July 2012 5:43pm

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The definition of a cloud is a mass of vapor created primarily by hot air. Thin client didn't work for the far less demanding space of business apps, it can't work for most game content.

Those of us who actually architect in online games know that there are real limits to bandwidth and latency that restrict what you can do. But don't take my word for it. Try playing any FPS over Onlive from anywhere in the country other then the SF bay area and see for yourself. Its laggy and has terrible visual quality. What the gakai purchase *really* means I think was best analyzed here:
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Charlie Cleveland Game Director/Founder, Unknown Worlds9 years ago
Great article and analysis here.
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Nicholas Pantazis Senior Editor, VGChartz Ltd9 years ago
@ Craig Valve doesn't really pair up with other companies. It goes against their ability to quality control their products and staff. They will develop (and probably are already) their own cloud solution.
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Andrew Jakobs Lead Programmer 9 years ago
It would be ridiculous to only stream demo's and not complete games if the PS3 is able to run those, a dedicated fullscreen client for the PS3 is definitly thinkable.
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Paul Shirley Programmers 9 years ago
@Andrew Ihegbu:"Gaikai and OnLive face streaming issues now when displaying 720p"

Yes, it struggles at 5Mbit. It's reasonable to suppose they will need to support 1080p to be a serious alternative to local hardware and it's a natural fit for embedded TV deployment. Current guesstimates are 10-15Mbit for that to look good. I can get a connection that good at home but I could buy a new console and games every year with what it costs.

This is going to take years to be viable at high resolutions and I suspect mobile will hit performances that make it a hard sell even then. Right now low resolution devices like phones seem the most immediate viable use.
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