OnLive Goes Online--And It Could Kill the Game Console

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Most of the major video-game publishers have deals with OnLive, including Warner Brothers (maker of LEGO Batman), Electronic Arts (Mirror's Edge), and THQ (Frontlines: Fuel of War). | Images: Courtesy of OnLive

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Images: Courtesy of OnLive

Steve Perlman rushes out of a conference room, laptop under his arm, power cord dangling to the floor. He's wearing a lime green tropical shirt over his burly frame, his short thinning hair gelled to stand on end. It all gives him the appearance of Tony Soprano crossed with a geek from the A/V club.

After seven years in stealth mode, Perlman feels pressed for time as he closes in on the winter launch of OnLive, a service that threatens to upend the $60-billion-a-year video-game industry. He's funny about OnLive's prospects. As he strides through the company's Palo Alto headquarters, he caroms between circumspection and hubris. "I've always been a percentage hitter with my startups," says Perlman, who previously founded WebTV and Moxi Digital. "I've never swung for the fences. I just try to get on base." Twenty seconds later, he suggests that OnLive could eventually go beyond gaming and transform business.

OnLive promises to let users play high-end streaming video games over the Internet -- and the games are supposed to feel as responsive as those played on a console. For the first time, games from most major makers will live in the cloud, run on a server in a data center, and stream to players -- no disks, no downloads, no consoles.

The prospect is tantalizing. Users could play the processor-hogging Crysis on a sputtering old PC at work, and later pick up the action on a TV screen (HD or not) at home. OnLive's technology eliminates almost all lag from the high-def video sent over the Internet to your screen. Conventional wisdom said it couldn't be done over today's Internet -- until Perlman unveiled an OnLive demo at the Game Developers Conference in March. And earlier this year, the investment firm Wedbush Morgan reported, "We were given a private demo of OnLive. We were blown away." But OnLive still has to prove the system works at scale; at press time, it was launching a beta test to find out.

If OnLive catches fire, it could rip apart the game business much as downloads scrambled the music biz. "It's the advent of enormous changes in the industry," says Brett Close, CEO of game maker 38 Studios. Selling streaming games should cut production and distribution costs. And lower costs would allow developers to take chances on games that might not be blockbusters. "I'm excited about it," Close says.

But retailers would lose. The used-game economy could shrivel, hurting companies such as GameStop. OnLive foretells a doomsday scenario for game consoles; Xbox and PS3 have services that allow users to download games to the console, but OnLive makes consoles obsolete. And consumers would be able to play the most advanced PC-based games without having to buy a $2,500 Alienware machine -- bad news for PC makers.

Perlman, 48, has never attained superstar status in Silicon Valley, despite his habit of landing in the midst of interesting developments at interesting times. Early in his career, he led development of QuickTime for Apple and cycled through General Magic, which tried to single-handedly create the Web before the Web existed. In 1994, he cofounded Catapult Entertainment, which made modems for game consoles, enabling gamers in different locations to play each other. The next year, he cofounded WebTV, which Microsoft bought for $503 million during the dotcom bubble.

In 2000, Perlman created an incubator called Rearden (named for the character in Ayn Rand's Atlas Shrugged). It has so far produced three companies: set-top box maker Moxi Digital, which merged with Digeo in 2002; Mova, a motion-capture company that provided technology used to make The Curious Case of Benjamin Button; and now OnLive.

"They're all pieces of a puzzle," Perlman says. "It's about communications, graphics, audio, all moving toward creating an immersive experience." Much of his work has involved compression technology -- ways to break up and send audio or video in ever-smaller digital packages. Those schemes have always focused on delivering higher quality without hogging bandwidth rather than shortening lag time, or latency, as it's known in the sector. In fact, compression has always relied on latency to give the software time to anticipate the next frame of a video.

Video games, though, present a devilish challenge. There can be no perceptible lag between, say, pulling the trigger and the bullet firing from the on-screen gun. Latency has to be less than 80 milliseconds or the brain will notice it. Considering the messy path that packets of information take when moving from data center to home, crunching latency to less than 80 milli-seconds seemed impossible. "That was the hard question we needed seven years to figure out," Perlman says.