Why Buying A Cloud Gaming Company Could Be The Smartest Move Sony Has Made This Generation

It’s no secret that Sony is in a bad way, hemorrhaging more money than a Facebook IPO, and it’s a well known fact that this console generation has been a tough one for the company, with the PS3 leading to a spectacular drop in market share. But embracing the cloud now could turn things around for the Japanese giant, and ensure the success of the PlayStation brand for years to come.

The rumors that Sony could be buying or partnering with OnLive or Gaikai are, of course, simply rumors, but I hope they’re true. Not because I’m a big user of the cloud – in fact I love owning products and have terrible internet – but because Sony has to be forward thinking as a technology company. It’s undeniable that digital is increasingly part of the future, and the PlayStation Network simply isn’t big enough to be the digital service of the future – it’s stuck on the closed systems of the PS3 and the PSV. So, even if digital distribution never fully destroys physical media, it will certainly mean that the physical market will shrink every year.

Of course, downloading a current gen game is hard enough – with some titles coming in at 30GB+, downloads take forever and HDD space is limited – so it’s not feasible to expect people to adopt this method of distribution instead of buying discs. That leaves cloud gaming, a service that can work on moderate-to-fast internet connections, with no download wait and no HDD space used. Still in their early stages, cloud gaming services are not without their faults, but the core idea is sound: instant gaming, instant access, unlimited choice.

But where would this leave the console? The fact is, in many ways, the console is terrible for Sony. They had to sell the PS3 at a loss for years just to get people buy the thing, and still struggle to keep prices competitive. They don’t want you to buy a PS3 just to have a PS3. They want you to buy into the ecosystem. They want you to buy games, movies and music through their ecosystem, they don’t care what you’re buying it on.

And just because Sony could offer PS3-like (and later PS4-like) cloud gaming doesn’t mean that they have to stop making consoles, they can easily work alongside each other and simply be a choice for the consumer. The cloud initiative doesn’t even need to be an immediate success that straight away proves that consoles are a thing of the past. The important thing is to build up a decent userbase and a decent mindshare before anyone else can respond. Cloud storage company Dropbox beat tech giants like Google and Microsoft to the punch, gaining over 50 million users by 2011 and is thought to be worth as much as $10 billion.

Resting on one’s laurels is a luxury that hasn’t served tech companies well in the past, with hundreds of businesses being upturned by small, forward thinking companies that took risks early on. Waiting to see how cloud does, and then only joining in once OnLive or Gaikai is unstoppable would be a fatal decision that could have dire consequences. For example, Sony took ages to properly enter the digital music distribution business, and now has a tough time pushing its Music Unlimited over entrenched rivals like iTunes and Spotify. Last year, I asked Chris Donahue, Director of Publisher Relations for OnLive, about the importance of being first:

That’s always a good question for anybody being first, right? It’s the old analogy about being the pioneer: you get there first but you also get the arrows. With technology and the way it moves I think it is very important. For example, if you ask Microsoft why they released the Xbox [360] when they did, it was important for them to be out significantly in front of Nintendo and Sony. From that perspective I think we felt the same way, we probably could have waited a little longer. We launched a year ago at E3, June 2010, we could have released a little later with a few more features and a bit more polished, but we thought it was important to get it out. So, it has been a year and a few months, the community loves us, people are extremely passionate about it. In some of the polling we have done with our users they’re extremely likely to recommend us to a friend, which to me says a lot about how happy they are with the product.

“PS Cloud” could also finally offer a chance for Sony to enact their cross-company cross-platform ‘synergy’ that they always love to say is coming. With basically only one cloud rival (the one they don’t buy) until Microsoft, Apple or Google enter the market, there would be plenty of opportunity for Sony to push the service. For example, their new Sony phones could include a month’s free access to the service, allowing people to stream PS games on their phone. Steve Walker, chief marketing officer at Sony Mobile said on Tuesday at the Open Mobile Summit in London:

Being fully integrated makes a big difference. You don’t need to release something ‘exclusive’ to grab a customer’s attention, you have to offer a connected experience.

Walker is right, except he was talking about terrible connected experiences like being able to sync up to Sony TVs. A truly decent connected experience that brought to bear the power of the PlayStation brand would be immensely attractive, and would immediately make the 60 million-or-so PS3 gamers out there consider buying a Sony phone. Add it in to Sony Smart TVs as well and the number of potential gamers it could reach greatly outweighs the number or gamers that buy consoles alone.

If the future is the cloud, having all these people already tied to the Sony ecosystem will give them the advantage they need. Just like many don’t want to switch from iOS to Android or vice versa because they don’t want to re-buy their apps and games, people won’t leave the PS Cloud as they’ll have an ever-increasing number of games and films tied to the service. In fact, look at PS+ – which is, in many ways, a tester for the PS Cloud in showing how many PS gamers are open to both digital distribution and subscriptions – leaving the service means you lose the games, so the longer you stay, the more you’ll lose if you leave. In an ecosystem, being one of the first is vital (just ask Microsoft how their Windows phones are doing).

So investing in the cloud early means that Sony could dominate the cloud future and be the Netflix of games, as well as being able to push their various internet enabled hardwares and have a platform to sell films, music and ebooks on. Plus, if it fails and cloud doesn’t take off, they haven’t killed their console business, so they haven’t destroyed the PlayStation brand. It’s a risk that they have to take, because if they don’t, others will (and are), and Sony will be left in the dust looking at the PlayStation, the Walkman and the Sony Reader and wondering where it all went wrong.