Sony Buys Gaikai: A Solid Investment In Future Services

This week Sony, or more specifically Sony Computer Entertainment, bought Gaikai — the streaming game service. Rumours of a tie-up had been circulating prior to E3, and Gaikai had made no secret that it was on the market for around $500 million. The $380 million Sony paid is well under that, but even so it must have been a difficult decision given the Sony group’s current performance.

What does the purchase mean for Sony and the wider gaming market?

  • Sony is buying networking and service platform expertise . . .  Sony has struggled long and hard with online services and software: its PlayStation network is now robust but suffered an embarrassing hack attack last year, while its PC and phone software (Media Go, PlayStation certification for phones) seems to lag a generation behind folks like Apple or even Microsoft. Gaikai’s core networking and service delivery expertise can fix many of these issues in a relatively short time (months rather than years).
  • . . . as well as console backward-compatibility. Despite consistently offering by far the best access to and support for older titles of today’s three platforms, Sony has long been the recipient of gamer complaints about the removal of backward-compatibility as it has released new hardware iterations of the PS3. Streaming potentially allows both backward-compatibility for today’s PS3 and, potentially more intriguingly, for the future PS4 — allowing it to run today’s PS3 games without additional hardware.
  • Non-console devices can join the game. While not explicitly stated as an aim for Sony Computer Entertainment, its rich gaming back catalogue, along with Sony’s engineering expertise in PCs, TVs, tablets, and phones, means that PlayStation games could now come to all of these platforms. This would provide a USP (if kept exclusively to Sony hardware) and an additional revenue stream for games with little additional investment.
  • Where does this leave Microsoft? Microsoft is already working with OnLive, the rival (and arguably more well-known) game streaming service. However, the relationship has been rocky at times (see this). Does Sony’s news justify Microsoft engaging more here — or even considering an acquisition? Probably not, if Microsoft (along with investors like HTC) can get ready access to the technology as ‘partners’ – Microsoft is already much more competent at online execution in gaming.
  • Connectivity will need to take the strain. One thing is for sure, users will need solid, fast, low-lag broadband connections (and in-home wiring/wireless) to make any of these streaming services work consistently. Netflix and Hulu sometimes struggle with one-way traffic when streaming video into the home; gaming services need to do this as well as upload user actions and act on them at the server end. Let’s also not forget that consumers surrender some of their control with these services — starkly illustrated by the storms last week that took chunks out of the Amazon cloud. This is slightly inconvenient if you want to post your latest wedding dress photo to Pinterest; it’s disastrous if you are 3 to 4 hours into a streamed gaming session without a local save!

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