Cloud Based Gaming

By
Gautam Gogoi
10BM60028
Vinod Gupta School of
Management
Abstract

Imagine how great it would be if you could play a high end game like Far Cry 2 or Crysis on your
netbook or your mobile. This is what cloud based video game providers like Onlive or Otoy
promise. The entire processing of the games will be done in the cloud or servers maintained by
the provider while the game will run in your browser and you will be sending the responses
through the web. In this paper the effects of these changes on the Video Game industry and
Gaming as a whole will be studied. The feasibility, limitations, challenges of this idea and the
various players presently working on this new technology and their present progress in this
regards will also be looked at. Initially it is planned as a paid service. But the possibility of all the
costs to be covered by advertisement and nominal subscription costs as per economies of scale
will also be analyzed.

2
Video games and the Video Game Industry

The definition of video game as per wikipedia is as follows- “A video game is an electronic game
that involves interaction with a user interface to generate visual feedback on a video device. The
electronic systems used to play video games are known as platforms; examples of these are
personal computers and video game consoles. These platforms range from large mainframe
computers to small handheld devices.”

Below is shown the block diagram of a video game. The input device and the processor constitute
the platform. Various examples of platforms are Computers, Play Station, X-Box, Nintendo Wii,
mobile phones etc. The input devices are normally joypads or keyboards. A game software is a
piece of software which is run by the processor to generate the required environment with specific
goals which the user has to achieve. It also defines the rules about what should happen in case
of particular responses from the user. It has to be bought separately and plugged into the
platform for the user to play the game. The display device may or may not be a part of the
platform. Usually in case of computers and handheld device, it is a part of the platform, while for
devices like Play Station and X Box, it is not a part of the platform.

Game
Software

Input
User Processor
Device

Display
Any video game involves the interaction with the platform through an Input device. The input is
then passed on to the processor, which processes the inputs to generate appropriate outcomes
using a game software. These outcomes are then displayed on the display. According to the
outcomes displayed on the display, the user again takes necessary steps which are again
transmitted to the processor through the input device. This cycle takes place continuously and the
user interacts with the platform to control a person or a team on real time basis to propel it
towards its goal, which can vary from killing an opponent to winning a game. This process keeps

3
on going till the final outcome of the game is reached (all levels cleared) or if the user reaches the
termination stage (game over).

Video games have existed since 1950s in various forms. But it is in the last 10-15 years, that it
has grown exponentially. This growth can be attributed to the growing computing powers of the
PCs and various other devices. It started initially as a thing for the kids. But today it is meant for
adults as well, with adults and teenagers comprising of a huge chunk. In fact, as per a report by
Entertainment Software Association, the average age of gamers in America is 35. This can be
partly associated with the increased maturity and complexity of games and also with the fact that,
people who used to play games earlier have grown up but still continue to play games. Microsoft
Flight simulator, is a very good example of a very complex and realistic game with even real pilots
using it as a simulator to test their skills. Age of Empires is another wonderful game with large
business connotations. Here you can build an entire empire and conquer all other empires to
become the ruler of the entire land. With games such as this, it is no surprise that video games
are no longer things that are just for the kids.

Another very wrong conception is the fact that video game is a small industry. The video game
industry is infact a behemoth which earned a revenue of $41.9 Billion in 2007. It has already
surpassed the music and the movie industry and is closing on to the book and the DVD industry.
But the game makers have specially been impacted by piracy. According to a survey by the
Computer Entertainment Suppliers Association (CESA), the PSP and the DS lost approximately
$41.7 billion in sales from 2004 to 2009. Rampant piracy in places like India and China has
specially impacted the PC Game makers. So bad is piracy that companies have stopped making
games for places like China, because no one will buy them there. Also the sales from console
based versions normally exceed PC based versions inspite of the large user base of the PCs. An
example is that of Unreal Tournament 3 PC version selling 34,000 while the Playstation 3 version
selling 86,633 in its first month.

The major players include Sony, Nintendo and Microsoft with the platforms and game makers like
Electronic Arts, Eidos, Konami etc. Among the platforms, Sony Playstation is the most popular
one.

Some simple games have already come out in a cloud based approach. Facebook games are a
prime example of this. But this paper does not deal with these types of games. Rather this paper
deals with more complex games like crysis, call of duty etc which require much higher processing
power. But games like those present in facebook, provide interesting clues to the direction in
which cloud based gaming (I will refer to this word in this paper to mean high end games hosted

4
and running from the cloud and not the facebook games) will lead. Keeping this in mind lets look
at some of the key characteristics of the Facebook games.

Facebook games are immensely popular among people specially the more aged ones. More than
200 million play games on facebook in a month and the top ten games have more than 12 million
active users each. A very crucial reason for this is that these games are free. Also it is a fairly
new phenomenon and as such the novelty concept is another reason for a large number of users.
The revenue for these games comes from analytics about the users playing the games and from
advertisement. Also the nature of games is very different. The game mainly focuses on
cumulative effort. You will get more rewards if more of your friends play the game, or if you make
friends while playing those games who will help you during the game.

The most important learnings from these facebook are the user base and the revenue model
which provides these games free of cost. The large user base and the popularity of these games
across people of all ages is an evidence of the potential of cloud based gaming. As we progress
through this paper, the revenue model of cloud based gaming will also be studied keeping the
revenue model of facebook games in mind.

Cloud Based Gaming an introduction

In cloud based gaming, the processor and the program are present in the cloud (internet). The
input is sent to the processor through the internet. Also the processor sends the visual signals to
the display device through the internet. As shown in the figure the red arrows represent links
using the internet. The game usually runs on an internet browser on the side of the user.

5
 Program

Input
User Processor
Device

Display

The service provider will be maintaining the parts inside the cloud and will charge a monthly rate
from the users who will avail this service. This rate can be a lump sum amount for a certain period
of time or it can be on the basis of number of hours used. As the game runs on the cloud, it will
result in optimal utilization of processing powers as a result of balancing of troughs and crests of
various users.

Let’s take an example of a game to see how this works. Suppose you are playing Fifa, a football
simulation game. The game will be installed and running on the servers of the provider. The
game will be displayed on your system through your internet browser. You will use your keyboard
to give inputs to the game. Suppose you want to shoot the football. You will press the appropriate
button on your keyboard, which will then be sent to the servers of the provider through internet.
The processing about the shot will take place on the server using the game software. The
outcome of your shot will then be transmitted to your system and the display through the internet.
This process will then be repeated as you keep playing the game.

Impact of Cloud Based Gaming-

Cloud based gaming will have an immense impact on the gaming industry as a whole and will
also impact the computer hardware industry. The various impacts are mentioned below

6
 1. Platform independent gaming – This will be one of the biggest impacts of cloud based
gaming. As games will now be hosted on the clouds, platforms will become redundant. The
entire processing will then be shifted to the clouds. All you will need is a device which can
access the internet, display the game and send inputs to the cloud. As such it will result in the
end of consoles (in the long run). We will be able to enjoy the same games on netbooks,
mobiles, tablet PCs, etc. This will also result in reduction of demand of high end PCs for
gaming. This is because, the moment the processing is shifted to the cloud, same resource
will be shared by many users, thereby optimizing the use of processing power.
2. Game players will increase exponentially- Platform independence will result in a larger
number of users or gamers. This is subject to the rate charged for the same, but considering
the optimal use of resources and the economies of scale, the prices will definitely be lesser
than what it costs now. This will also depend on the acceptance of the idea by the general
public which will be discussed later.
3. Crackdown on piracy- As the games will be installed on the servers, piracy will be
stopped. Whoever wants to play games has to take a subscription. The game makers will get
their share of revenue from the providers. This will have an uplifting effect on the industry. As
more people pay for games, the cost per user will go down. This will in turn induce more
people to join in. This positive feedback loop can finally lead to much more affordable
gaming.
4. Nature of games to change from single player based to multi player based- As all games
will be played online, the focus will be more on developing multi player based games. This is
already taking place, but with time even more emphasis will be paid to multi player modes
specially those involving much larger number of players than those playing today.
5. Massive scope of advertisement as a result of high number of users- With large number
of users comes the scope of advertisement. This can be another crucial factor in reducing the
price which will again lead to more users. It is an added advantage that people of most age
groups play games. As such, the scope of advertisement increases further.

Challenges and Hurdles –

Although the benefits are numerous and the effects far reaching, there are many challenges and
hurdles which have to be cleared for the benefits are to be realized. Lets look at the main hurdles
towards this
1. Latency Issues- The time lag between the pressing of a button and the corresponding
action will be a major deciding factor regarding how well this service is accepted by the
gamers. Normally there is a lag of about 60-70 ms when we run games on our systems. But
reaching to these levels at HD resolution and 60 fps (frame per seconds) is a huge

7
 technological challenge. Infact many people have commented that reaching to these levels of
latency will not be possible. But Onlive tests have shown a latency of about 140 ms at 30 fps.
Although this might not be acceptable to hard core gamers, but casual gamers will be more
than satisfied with this.
2. Video Compression- Cloud based gaming will require transmission of HD videos at real
time basis. For this to be possible without any delay, some form of video compression must
be used.
3. Resource sharing of the server- This is another crucial factor. Ideally one server should
be dedicated for each user, but it is not possible practically. Using one server for many less
demanding games will be problematic as all games assume that they own the server’s
resources exclusively. Also many servers used in processing of single game will lead to
problems of transmission of data among the GPU’s as lot of data is generated in the running
of games. When achieved, proper utilizing of server resources will enable the providers to
further reduce the subscription cost by reducing idle server time.
4. Convincing users to migrate to this platform- A big challenge will be to convince users to
move to this new platform. Hard core gamers will be the hardest to convince because of
things like latency issues. Also as most gamers already have a system at this moment, they
will not migrate unless their systems have become outdated. So the migration will take place
slowly as computers and consoles start becoming outdated. Many of the benefits will not be
realized unless economies of scale are achieved and therefore this is a very crucial thing for
the success of this idea.
5. High speed and dependable internet connection- This is a absolute necessity if cloud
based gaming is to be experienced. Onlive, which is a provider of cloud based gaming
specifies 3 Mbps connection as the minimum required and 5Mbps as the recomended to use
this service. Apart from speed, dependability is another important factor. The speed has to be
uniform. Otherwise, the game will get stuck in between resulting in inability to play the game.
Although this might seem a problem now, with time and advancement, this will soon cease to
be a problem.
6. Handling a large number of users- At present Onlive is providing cloud based gaming but
the user base is very small. It is to be seen how they can manage to cope with vastly more
users as time progresses. But this problem should be solved with time.

Current Players

Now let us look at the current players who have been working with this technology. Here we will
study the current state they are in, how they have overcome the hurdles and their revenue model

8
Onlive- It is the first company to come out with a model of cloud based gaming. Founded by
Steve Perlman, a renowned entrepreneur and inventor in the field of video games, it has started
its services from July 2010. The executive team also includes other renown figures like Mike
McGarvey, a former CEO of Eidos Interactive and Tom Paquin, key developer of Netscape and a
founder of mozilla org. At present the monthly rental is 15$ and apart from that you also have to
buy games separately. It has also come out with many popular games like Unreal Tournament,
Prince of Persia, NBA etc.

The reviews about the service have been mixed. Latency for the games have been found to be
between 150-210 ms. Video quality also has been variable due to the video compression used.
But framerate and graphics were on an average found to be good. The video compression has
been managed by a proprietary compression system. Here the screen is divided into 16 parts and
each part gets its own encoder. Another thing they have done is the ability to retain and reuse
most of the earlier video information. This is possible also across the various frames also. So if an
object is moving from one frame to another, the same video data is used again to create the
effect. The data centers are 5 in number with onlive going for a concentrated system rather than a
spread out system. David Perry of Gaikai has criticized this by saying that distance is a critical
thing in online cloud based services like this. Time will tell if this concentrated approach will
indeed lead to lags or delays in the service.

The pricing structure of Onlive has been a serious put off. Games infact cost as much as much as
DVDs. Add to that the monthly subscription cost. So even if you own a game, you will not be able
to play it if your subscription gets over. But as this is just the beginning, costs are expected to be
reduced with time and as more users start using this service. But in terms of technology, onlive is
right up there. It has proven the technological feasibility of the idea and only time will tell us about
the financial feasibility of the same.

They are portraying themselves as a replacement of consoles. They are even planning to come
out with mini consoles that use the onlive service to deliver gaming service to televisions etc. But
the present technology has a long way to go before it can compete with the consoles. The
present system cannot compete with consoles for performance and as such most gamers will not
migrate very soon. A critical thing for onlive will be increasing its user base. If it can manage to do
so, it can provide games at much lower rates. It can also look for advertisements to further reduce
the user costs. But till then, it has to slog it out against the existing consoles.

9
Gaikai-

Founded by David Perry, one of the best known Video Game Industry veterans, Gaikai is another
player in the cloud gaming sphere, but it has a slightly different model than onlive. Having
received funds from TriplePoint Capital, Rustic Canyon Partners, Benchmark Capital it is also
backed by Intel and Limelight Networks. Game companies like Electronic Arts and InstantAction
have already signed up to use its service. The executive team also includes Michael Bowen, who
was previously Director of Technical Operations at Facebook as well as VP of Operations at Sony
Online Entertainment. They are expected to come out with a Beta in December 2010.

Although based on the same idea, the business model of Gaikai is quite different from that of
Onlive. Gaikai is positioning itself as a service which allows users to test or try out new software.
Suppose you are reading about a new game and you want to check out how it feels to play or use
it. This is where Gaikai comes in. It will enable you to test run the software or game without the
need of any download or installation. If you like it you can then proceed to buy that game. Gaikai
will get its revenue from the software manufacturer who will pay for each purchase. So Gaikai is
not competing directly with console makers and rather it is cooperating with them. Although this
idea is not as radical as Onlive’s, it is still a very effective idea with numerous applications. The
possibility of testing a software can influence many more users to buy this software. Also this can
act like a launchpad for full fledged cloud gaming service.

Gaikai also differs in the way it will distribute its data centers. While Onlive and Otoy are planning
few large data centers, Gaikai is planning about 300 smaller centers across the US. They say that
this way they can reduce the distance between the user and the data center. As such the
performance of the service will be better.

Otoy-

Founded by Jules Urbach, Otoy was the first to promise cloud based gaming. But it has only
come to prominence recently after finalizing deals with AMD, Intel and Nvidia. Infact AMD has
been making a special graphics supercomputer which will be used by Otoy. The minnows among
the three companies pursuing this technology, it plans to launch its services in summer next year.
Its business model is not clear, but is expected to be in line with Otoy’s one. Also it is planning to
provide HD services of games, movies and applications through its services.

10
The way ahead

With Onlive already coming out with its services and the others expected to come out very soon,
the market is expected to heat up and attract a lot of users. But the main question is that will
sufficient users be attracted to this service. The hardest thing will be to convince the users to
migrate to this new platform. The most obvious outcome will be that initially these services will
coexist along with the presently existing consoles and platforms. The hard core gamers will not
easily migrate to this new platform and will be the last to migrate. Initially casual gamers will start
using these services who do not own a very powerful system. But a lot will depend on the rate or
price that will be charged. Till the prices are high, the number of users will not increase and most
of the benefits will not be achieved.

So according to me this service will continue to be an elite service for some years with people
slowly adapting to this new service. But with the growth and advancement of technology, the
prices will go down. The quality of the service will also increase substantially. This will further
encourage more people to join into this service. A lot depends on the patience of the firms and
how long they are able to wait to reach profitable levels, because this technology will be accepted
slowly. The three players presently in this field might not reap the full benefits of this, but this is
surely a winning idea and someone will surely reap full benefits of this in the years to come.

The tipping point will be reached when the user base will be large and diverse enough to support
advertisement. Advertisement will further reduce the costs and as such encourage even more
people to join in. only at such low levels of prices will people from India and China be encouraged
to join into this service. India and China are the key to this service because these are the two
places with most of the people and maximum piracy. When people from these two countries will
start joining this service, the number of users will start rising exponentially. Piracy will be reduced
and game makers will start receiving more revenues, specially from people who were earlier
using pirated versions of the same games. The actual benefits of cloud based gaming will then be
realized. But there is a catch to this. Many people play games because they are free, specially in
India and China. If games become available only through the cloud, piracy will be stopped. As
such many people might stop playing games. Therefore it is very important that the prices reach
to a sufficiently low level to coerce such persons to try them out.

I firmly believe that the things mentioned here have a very high probability of happening. The
biggest reason which makes me believe this is the rate at which technology is advancing. With
the growth in processing powers of computers and growth in internet bandwidths cloud based
gaming is actually very near. Another reason is the win win situation for all the players. With

11
growing piracy it is natural that game makers will start taking measures to prevent it. Cloud based
gaming is a very natural way to fight piracy. If the users do not have access to the games, how
will they make illegal copies of them.

Conclusion

Cloud computing has revolutionized the computing world. Google, Amazon, Microsoft are heavily
investing in it because it is the thing for the future. Already application like Google Docs and many
corporate softwares are running from the cloud. So it is natural that games also go to the clouds.
Running application from the cloud enables better use of idle system time, thereby optimizing the
use of computing powers. Also it is much more easier to upgrade the software or hardware as the
updation has to be done only on the server and not all individual machines of the users.

In cloud based gaming, the processing will take place in a server and it will communicate with the
users system through the internet. Benefits will include reduced piracy, increased user base,
platform independent gaming and scope for advertisement. Hurdles include latency issues,
resource sharing model at server level, video compression techniques etc. The present players in
this field include Onlive, Gaikai and Otoy.

As a gamer, the scope and potential of cloud based gaming really excites me. Imagine how great
it would be if we could play our favorite games right from our mobiles and compete with players
using various platforms like consoles or PC. The whole dynamics of games will change and they
will cease to be a single player based games. The important thing will be collaboration between
the various players. Games will start involving a huge number of players at a same time like it
happens in Massive multiplayer online role-playing game. We will no longer be bothered by
upgrading of computers and inability to play games because our systems do not support them. All
you have to do is to open your browser, and all the processing will be done in the clouds.

12
References-
1. http://en.wikipedia.org/wiki/Video_game
2. http://www.theesa.com/facts/pdfs/ESA_EF_2009.pdf
3. http://www.grabstats.com/statcategorymain.asp?StatCatID=13
4. http://vgsales.wikia.com/wiki/Video_game_industry
5. http://www.canada.com/topics/technology/games/story.html?id=ae936f84-8def-457d-
b07a-40099252278d
6. http://gamer.blorge.com/2010/06/07/video-game-piracy-costs-industry-41-billion/
7. http://techcrunch.com/2010/09/21/200-million-people-are-playing-facebook-games/
8. http://www.onlive.com/support/performance
9. http://www.gamasutra.com/view/news/30537/Opinion_Give_Cloud_Gaming_A_Chance.p
hp
10. http://en.wikipedia.org/wiki/OnLive
11. http://en.wikipedia.org/wiki/Steve_Perlman

13