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The disruptive effect of Sony’s $380 million acquisition of Gaikai could send reverberations throughout the video game industry.

As such, the deal will give Sony several strategic options that will help it fight the console war. With cloud gaming, the game isn’t processed on a user’s home computer or console. It is only displayed there. The processing takes place in a web-connected data center, or cloud. The game graphics and logic compute on high-powered servers with good graphics technology. Then the visual result is streamed to a user’s PC over a broadband connection. The game can be played in 720p resolution (or for a higher cost at 1080p), which is similar to the experience that many users have with game consoles.

These strategic options were remote possibilities in 2009, when David Perry (pictured above) gave us an exclusive story on his plans for Gaikai. But Gaikai has been cutting deals left and right to give it all sorts of options. It was essentially arming all sides with cloud gaming technology. By acquiring Gaikai, Sony could lock up Gaikai’s technology for itself or play kingmaker with it.


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Sony could use this technology in multiple ways. For instance, it could use Gaikai to run older PlayStation 3 games on its upcoming PlayStation 4 without having to convert those games through a tortuous process known as porting, which would be effectively rewriting PS3 games to run on a new system. This allows Sony to design the processor and graphics of the PS4 in any way it wants without worrying about backward compatibility. That in turn could reduce the costs of the PS4 dramatically. This is important because the PS3’s initial $600 price was an albatross around Sony’s neck during this console war.

Backward compatibility was a huge problem in the previous transition to a new hardware generation. Gaikai’s technology would head that problem off in the next console transition. But now it would be easy to get original PlayStation, PlayStation 2, and PS3 games to run on future Sony consoles.

Sony can also employ Gaikai technology in the PS4 (expected in 2013) by using it to extend the life of the hardware. PS4 games will look cool for a few years until computing technology advances and they start to look obsolete. At that point, Sony would have to consider launching a PlayStation 5. But with Gaikai, Sony would simply have to upgrade the hardware in the data center. Then it could stream beefier games, improving the quality of games that the PS4 could play without changing the player’s hardware.

In the hands of Sony, Gaikai could get all sorts of games to run on the current PS3. That would make the PS3 a lot more attractive for developers, and this would put pressure on Nintendo and Microsoft, which currently don’t have cloud gaming technology. Sony could also use the Gaikai technology to make its games available on just about any device.

By purchasing Gaikai, Sony also snatches a strategic asset away from rivals such as LG and Samsung. Both of those companies had previously announced deals to use Gaikai to enable cloud gaming on their television sets. Those TVs, combined with Google TV, had the potential to disrupt the game console business because you could play high-end games on a TV without the need to buy a console.

This purchase will likely turn OnLive, Gaikai’s rival in cloud gaming, and the smaller Otoy into acquisition targets as well. In a statement, Microsoft said, “The cloud has been a key component of our strategy and a big area of investment with Xbox for many years. Through Xbox LIVE we’re serving up gaming and entertainment in the cloud to more than 40 million people. We’re committed to delivering extraordinary entertainment experiences across devices in a uniquely connected way through Xbox, Windows Phone, Windows 8 and other popular devices, and we’re looking forward to continuing to innovate in this space in the future.”

The interesting part of this deal is that it can disrupt rivals in multiple directions and even itself. When you think about that, the $380 million price that Sony paid for Gaikai isn’t that large.

Perry will be a keynote speaker at our GamesBeat 2012 conference next week.

GamesBeat 2012 is VentureBeat’s fourth annual conference on disruption in the video game market. This year we’re calling on speakers from the hottest mobile, social, PC, and console companies to debate new ways to stay on pace with changing consumer tastes and platforms. Join 500+ execs, investors, analysts, entrepreneurs, and press as we explore the gaming industry’s latest trends and newest monetization opportunities. The event takes place July 10-11 in San Francisco, and you can get your tickets here.


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