E3 2012: Will Microsoft, Sony or Nintendo Bow Out?

 The OnLive Equation

OnLive has made serious waves for the games industry in spite of its merely modest success and mind share. For those who don’t know, it’s a service that allows you to stream high quality, HD games that normally require very powerful hardware, to nearly any low powered device. The company behind the service offers a “micro console” that costs users only $99 and consists of hardware far simpler and less capable than anything offered by the current generation of consoles, even Wii–and it does it for $50 less than a Wii and half the price of the cheapest 360. So far, it hasn’t proven a threat to any of this generation’s champions, but it really doesn’t need to be in order to influence the way of things to come.

As of today, there are 66 million Xbox 360’s sitting in living rooms, give or take whatever percentage you prefer to imagine as dead systems replaced by unwitting users who don’t realize they had a warranty. Every single one of them is more than capable of performing the same job as OnLive, needing merely a software update and a service they can connect to. In 2011 we saw Microsoft update their cloud based offerings significantly: Xbox 360 users got access to online game saves and profiles that live “in the cloud,” so they no longer need to rely solely on the specific box they normally live on. It’s already been revealed that Microsoft will integrate Xbox Live into every single copy of Windows 8, their flagship operating system whose install base will easily eclipse the current Xbox’s install base inside of a few short months. They’ve already included Xbox Live in their Windows Phone 7x OS, which has put a few million units on their side to date, and if analyst’s predictions about Nokia Windows Phone sales throughout 2012 are even remotely accurate, they might add millions more clients to the service yet.

Last year, it was widely reported that Microsoft was building a competitor to OnLive’s service. Suppose that report is accurate. If it is, then the need for a new home console is, for all but the most completely internet-deprived customers, obviated. The Xbox 360 as it stands today is already powerful enough to do everything that OnLive’s can, which means that it’ll be able to play games using the latest DirectX 11 graphics, physics, etc even without a hardware upgrade. Now think of the forthcoming quad-core Windows 8 on ARM tablets, and the no doubt inevitable quad-core Windows Phone devices on 4G. Each and every one of these would be able to play the same games as the Xbox 360, and cloud-based profiles and save-states, which we already have, would mean that Xbox gamers would be able to continue their progress from any device: Xbox 360, Windows PC, Windows Tablet, Windows Phone. Why bother with the risk of a new console or get saddled with the licensing of bluray, which effectively feeds dollars to the competition, if your existing box and all your new devices will handle it?

To some, this would constitute Microsoft “getting out of” the hardware business. Personally, I don’t see it that way. In all likelihood they’d continue to sell Xbox 360’s and to refine and reduce the cost of the hardware to further penetrate the market. In my view this would extend┬átheir hardware play, not reduce it, but I understand that many will consider such a move “conceding the hardware market” simply because there’d be no new Xbox. Is that the way Microsoft will play it? I don’t know. They’ve been positioning Xbox Live as a core service for some time now, and while my above conjecture sounds pretty good, it’s anybody’s guess whether it’ll happen yet or not.

But what about Sony?

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