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10 Reasons Why Sony Is Buying Gaikai

Radford C. Jul 2, 2012 0

LTG chatting with Dave Perry at E3 2012

It’s easy to get carried away by today’s acquisition, but Sony’s decision to acquire Gaikai does not mean the end of console gaming as we know it. And with the PS4 anticipated to show up at next year’s E3, one thing’s for sure about the company’s view on cloud gaming: Sony isn’t putting all of its eggs in one basket.

Before we get into the reasons, let’s debunk some myths here. Does this mean the PS3 life to be extended? Not really. Popular titles have been known to sell 4-5 million copies in a matter of days so it’s highly unlikely that Gaikai’s network could currently handle the load. That can change, but building local data centers to keep latencies low will take time. That’s what the PS4 might be about. But, knowing Sony, its got a vested interest in giving gamers reasons to buy a product, not stream it.

However, the deal tells me that Sony wants to be in that Netflix moment when it happens – the moment where convenience and accessibility is worth the slight hit in graphic fidelity. Just ask Blockbuster and Hollywood Video.

While some reasons will be more obvious than others, I’ve put together 10 reasons why Sony is buying Gaikai while appropriately matching the theme from the article’s main picture.

1. Put Samsung on a leash

At E3, Gaikai teamed up with Samsung to push console-like gaming into the cloud via Samsung Smart TVs. This potentially positioned the Korean electronics giant to go head-to-head not only with the Playstation console but Sony’s TVs as well. This was a potential threat to Sony as Bloomberg reported that they were already getting destroyed in the TV market where they’ve announced a loss of as much as 520 billion yen for the fiscal year – a problem which was also compounded by the floods in Japan. “The situation,” Sony Chief Financial Officer Masuru Kato told Bloomberg reporters, “is critical.”

This now turns tables and keeps Samsung at bay.

2. Offer more engaging demos

The ability to provide an immediate demo without the time and storage costs of downloading the entire game engine is obvious, both for gamers and for content partners. One of the immediate benefits from purchasing Gaikai will be its seamless transition to play games off a single click. This bodes well for publishers and studios wanting gamers to try their products on precious hard drive space. More importantly, this allows gamers a more complete experience that can be timed for expiration versus a more watered down trial version that is limited in levels or disabled options. Sony can also take the advertising route as Gaikai did with PC gamers on their own site prior to playing the game on the cloud.

3. Feature “backward compatibility” of  legacy Playstation library on Playstation 4 at no extra cost

Running older PS3 games on its upcoming PlayStation 4 without having to port those games through emulation or extra hardware (as they did with the original 60GB PS3) would be a godsend for Sony. This allows the electronics giant to design the processor and graphics of the PS4 in any way it wants without worrying about backward compatibility which would effectively reduce the costs of the PS4 dramatically. One of the reasons why Sony fans were shocked at the initial sticker price of the PS3 was its hardware-based full backward compatibility of all legacy Playstation games.

4. Extend the life of the PS4

The timing of the Gaikai’s scaling business model, its data servers,  its connection coverage, the deployment of IPv6 and  the reach of broadband could potentially place the PS4 as the final console for Sony. Obviously, there are going to be other factors outside of Gaikai that will need to happen to make the PS4 a full cloud streaming box and I believe cable companies will play a large part in this role. In any case, I assume that the PS4 will easily have the specifications to render video and the network hardware it needs to push high resolution graphics and response times at low latency. Acquisition of Gaikai at this very moment sets up this foundation.

5. Sony can get into the game rental and F2P business

Sony can make use of the Gaikai service to allow gamers to rent lesser known franchises that would otherwise have a harder time reaching its audience on typical game shelves like Gamestop – where it competes to get the hard earned dollar. This allows Sony to mimic the freemium business model to which gamers can experience the game as a demo and be cross-sold into either a rental or a purchase. This falls in line with the second reason, as it allows gamers to experience playing the games they want at a wider price range that wouldn’t have been otherwise possible an App Store style business model.

6. Extend the Playstation Network To Sony-branded tablets, phones and TVs

Cloud streaming tech helps alleviate Sony’s hurdles in providing more value to the conscious consumer looking to buy the next electronic toy. The gives the company a way to deliver PlayStation Network games without shoving a Cell chip into any of their devices.  By embracing Gaikai’s services, Sony could extend the reach of the PlayStation Network beyond just PlayStation devices. The company has already tried to make inroads with initiatives like PlayStation Certified Devices on Android, and PlayStation Mobile (formerly PlayStation Suite). Unlike Nintendo, Sony wants to open up its ecosystem to third-party devices–even if it hasn’t managed to do so in a meaningful way yet. This makes something like the Apple’s App store look like an old mom/pop business model as games wouldn’t be running natively on the PS4; instead, they’ll be streamed to the console. This also inceases the value of a consumer’s PlayStation Network library and keeps customers within the Sony ecosystem.

7. Playstation games for PCs

This may sound more like left field than anything but it follows up with #7 in regards to the Playstation Network’s new reach with Gaikai. If World of Warcraft can be streamed to the XBox 360, as they did at GDC, why not the other way around? Sony could potentially build PC drivers for their current Dualshock 3 Controllers and allow PC gamers to experience the Playstation 3 library either as a rental or as full games all through a USB connection. Of course, Bluetooth support can happen through the drivers provided PC gamers have a rig supporting Bluetooth off their motherboards or as separate hardware. Similarly, Sony can do what Microsoft did to the XBox 360 controller – provide a USB-based sync station that allows synching between Dualshocks and PCs in single press of a button. Sony would not only have PC gamers experience Playstation games but allow them to invest in the ecosystem the same way they’ve invested in games on Steam.

8. Allow social networks to engage with the Sony brand in new ways

Since April, Gaikai launched a Facebook app that allowed Facebook members to play the game like The Witcher 2 on the social network’s pages. At E3, Gaikai CEO Dave Perry talked to us about how social networks will play a large part in engaging customers that otherwise would not have been interested: “We’ve got the ability to serve games anywhere at any time. What if your friend is on his console and our app posts on his [Facebook] wall the title of the game he’s playing? His friend clicks on the game out of curiosity and ‘bang’ – a new customer. That’s the kind of game-changing stuff we’re doing right now.”

This allows Sony to shed their old corporate approach of acquiring customers all the while building loyalty and support for their products.

9. Sony gets access to Gaikai’s lucrative Ad system 

Gaikai currently holds the title in grabbing the highest engagement in interactive ad units and are already used by dozens of AAA publishers. Gaikai claims 36 times the engagement of a potential customer versus someone watching a video pre-roll ad (15 seconds) or a banner (5 seconds). That’s five to six minutes of someone spending time on a product where interest has been garnered. Additionally, Gaikai’s Ad Network generates as many as 50 million unique visitors per month.

10. Gaikai’s retailer network

Even if Sony had no idea how to properly implement the cloud service into their own business, they could still make use of the cloud service’s affiliate and retailer networks. Gaikai’sAd Network includes some very notable retailers such as GOG.com, Best Buy, Origin and other well-known retailers barring Gamestop. Being able to leverage some of the Gaikai’s current relationships with the digital and physical distribution can help partners and publishers engage with customers where it counts – the “buy” button.

Conclusion

At the end of the day, Sony understands the changes they need to revive earnings. Chief Executive Officer Kazuo Hirai, who pledged in April that Sony’s game business will become profitable, is cutting 10,000 jobs as part of a turnaround plan. Sony’s plan to produce “a world-class cloud-streaming service” is a radical shift from their traditional business model that depends so heavily on retail. Sony has a lot to gain by executing an ambitious cloud-based strategy for PlayStation. However, the company has a long history of having great vision–and terrible execution. Remember how PSP was supposed to be Sony’s next Walkman? The company launched a portable music, movie, and game machine years before Apple’s iPod Touch… but you know how the story ended up. Gaikai could be what Android was to Google–but only if it has the vision to try something truly extraordinary.