Cloud gaming startup thinks the next generation of AAA gaming will be pay-by-the-hour

Today I had the chance to interview Peter Relan, Chairman of cloud gaming startup Agawi – short for Any game, anywhere, instantly. We had an interesting discussion about the state of gaming, why past entrants into the cloud gaming space have failed, and what he sees as the future of the industry.

We started by looking at gaming today and the recent console announcements made by Microsoft and Sony. The first thing Relan pointed out is that both the Xbox One and the PlayStation 4 have moved to what amounts to PC hardware. Fairly fast PC hardware mind you, but not very different from what you’d get in a low- to mid-range gaming desktop using parts from AMD: both have an x86 processor, 8 GBs of RAM, and a decent graphics chip.

In Relan’s view, this means that we’re going to see almost every title that comes out for the major consoles – minus platform-exclusive titles like Microsoft’s Halo series – on the PC as well. Unlike in the previous generation, where developers had to put extra work to port games from the PowerPC-based processors of the Xbox 360 and PlayStation 3 over to Windows (and maybe Mac), developing games for all three platforms should be relatively painless.

The only problem with this situation, according to Relan, is that in an age where people find themselves splitting their time between their PCs, tablets, smartphones, smart TVs, and e-readers, there’s an increasingly minuscule amount of time left to dedicate to playing through massive 10-100 hour AAA games on dedicated consoles. At a time when games for the iPhone and iPad – arguably the most-used gaming platforms today – generally cost somewhere between between $0.99 and $15 (and there aren’t many games at that price for long), people don’t want to drop $60 on games that they may or may not want to play through entirely.

Relan’s grand plan to save the AAA industry thus takes a page from the games market that has emerged on smartphones and tablets. Rather than pay upfront for big-budget games and installing massive 15 GB+ files, gamers will instead download a 15 MB app from the Windows, Mac, iOS, or Android app stores onto their desktop, laptop, or tablet – for free – that serves as little more than a link to Agawi’s servers. These servers will run hundreds to thousands of Windows virtual machines at a time, each serving up a dedicated version of the game that the user purchased.

After a quick Agawi splash-screen, the player will proceed to the game’s normal main menu. From here, they will be able to play any aspect of the game – still for free – for a given amount of time set by the game’s publisher. After that time (usually 30 minutes to an hour), the player receives a notification that they have run out of trial time and that they can continue playing for a small fee, usually $5 for two hours. Depending on the platform, this can be done from within the game (on PC or Mac) or online (on iPad or Android tablets – like Netflix or Spotify, publishers don’t want to have to pay the 30 percent cut that Apple takes for in-app purchases).

While gamers might gawk at the idea of paying $5 for only two hours of gameplay, Relan thinks that this business model works in everyone’s favor. The small downloads and trial periods will let gamers have a chance to try games before putting any money down, while the small increments let them only pay for the amount of enjoyment they think they’ll get out of it as opposed to paying $60 for a 30-hour-long game and being disappointed when they only have time to play through the first 10 hours.

As for publishers, they get to adapt to the realities of the post-App Store world by offering free-to-play AAA content using the free-to-play plus IAP business model that’s proven to be lucrative for mobile developers. While they do have to pay Agawi a fee for hosting (about a penny per minute of game time), the upside is access to an entirely new market: casual gamers who don’t want to buy dedicated consoles, don’t have expensive gaming computers, and those whose only experience with gaming is on their tablet devices – think the 30-40 crowd of “non-traditional” gamers.

Unfortunately, the first thing that comes to mind when a gamer hears “cloud gaming” is OnLive and its failure. Relan addressed this in our conversation as well. OnLive attempted to be a Netflix for games: it bought rights to the backlogs of several publishers and offered them via a monthly subscription, while newer games had to be purchased individually at full price. Relan pointed out that his put them in competition with the publishers, so why would they let OnLive have any of their good games? In addition, OnLive was ahead of its time: “the cloud” as a concept was still fairly new when it started, they had to make their hardware infrastructure themselves, and average Internet connections were slower.

In comparison, Agawi’s platform is based on nVidia’s GRID architecture – which is designed from the ground up to handle cloud gaming – and Internet speeds today are fast enough that Relan says that the latency when playing a game on its servers is about that of playing an online game on the Xbox 360. Plus, the company is already bringing in money – at a profit. Last year, the company generated over $4 million in revenue, and expects to more than double that this year.

For those of you who are interested, Agawi will be announcing its publishing partnerships next week at E3, so we’ll get to see what major titles they’ll be offering then. For those interested in the technical details of the service, here’s a presentation that Relan made at the 2013 Cloud Gaming Summit back in March:

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