Is OnLive the New Fourth Game Console? Actually, Maybe

A games startup called OnLive will be coming out of stealth mode today at the Game Developers Conference. Here’s the proposition: they take the heavy processing part of video games and move it into — and I apologize for using this hated, hated word — the Cloud. All the high-end graphics heavy lifting happens at some server farm, instead of on the overheated, overpriced chips in your PC or your console, and what you see onscreen is just the end-product, shipped to whatever machine you happen to be playing on in realtime using some ultra-powerful compression algorithm.

I saw a demo of this a couple of weeks ago, and I gotta say, it’s impressive. OnLive comes out of an incubator company called Rearden, which was started by Steve Perlman, the man who made zillions of 1990’s dollars off of WebTV. My first question for him was: who’s the wackjob who greenlit this project? I wouldn’t have thought it was possible: if you take my PS3 and move it to some server farm in Virginia, and leave my TV here in Brooklyn, doesn’t that introduce huge amounts of latency into the system? Especially considering how sensitive twitch gamers are to lag? But what I saw looked very real. Apparently they’ve been working on this for 7 years, and they have a raft of major publishers on board: EA, Ubisoft, Take-Two, Atari, THQ, and so on.

The consequences keep on unfolding in my head. I mean, I’m not generally a fan of turning games from a product into a service: I don’t like renting — I’m an iTunes guy, not a Rhapsody guy. I like to own my hardware and software. But think about it: all at once, OnLive could make hardware irrelevant. I played Crysis on a MacBook Air that was hooked up to OnLive, and it was spookily crisp and smooth. Something that can make a MacBook Air into a high-end gaming platform? That’s going to change the landscape. Hell, I haven’t been a PC gamer for years, because I couldn’t keep up with the relentless upgrade agenda, but OnLive takes that out of the equation — they upgrade their hardware for you. (You don’t even need a PC or a console at all: OnLive will sell you a little cigar-box-sized dongle-type object that hooks up directly to your TV, that will process their signals for you.)

Likewise it shifts the market from owning to renting games. OnLive puts the whole gaming ecosystem into a blender and liquefies it: no hardware, no hard media, just pour it all down the pipeline.

Is it possible that Sony and Microsoft might actually be grateful for OnLive? They lose money on every console they sell, and make it back on software. So if they can just sell software, it’s all profit, right? Then again, OnLive will be running a pretty compelling online gaming community through this thing — if everybody’s game is running on the same hardware, in the same room, it’s a cinch. It looks like they’re doing a nice job of building out some Live-like community features, too. And if they’re supporting all consoles, plus PC? I could easily imagine that service crushing Live and Home.

But you know who’s definitely going to love OnLive? Apple. All that time they spent not turning Macs into a credible gaming platform now looks like pure foresight. OnLive just did it for them.