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Is Google (Nasdaq: GOOG ) about to take its nascent presence in online gaming to the next level?
The Inquirer is reporting that the Internet giant is on the verge of buying Valve, the company behind the Steam digital-delivery platform. I'm as skeptical of the "well-placed sources tell us" rumor root as the next jaded watcher, but the purchase would make perfect sense.
Google has been taking baby steps into online gaming since last year. It launched Lively, an avatar-driven social community, this summer, and is now opening up the platform to select game developers. This follows last year's purchase of in-game advertising network Adscape. With the upcoming rollout of Google's Android mobile platform, game apps are likely to play a part there as well.
I've joked about the Gbox as a way for Google to really make the folks at Microsoft (Nasdaq: MSFT ) lose even more sleep, but the reality is that Big G was going to make a bigger splash in gaming eventually. When you're the world's leader in selling online advertising, how can you not spot the trend? More people are spending their time playing casual games on their handsets. Even on a still-nascent platform like Apple's (Nasdaq: AAPL ) App Store, a rhythmic game like Tap Tap Revolution still reached the million-download mark last month.
The stakes keep getting higher in cyberspace. The only reason that Activision acquired Blizzard to become Activision Blizzard (Nasdaq: ATVI ) was to cash in on the multiplayer fantasy phenomenon that is World of Warcraft.
In China, the Web-based gaming trend is so strong that there are now five publicly traded companies -- including Giant Interactive (NYSE: GA ) and Rule Breakers recommendation Shanda Interactive (Nasdaq: SNDA ) -- that specialize in the niche.
If the world has taken to online gaming, that's a dinner bell for Google. It needs to make sure that it's there to give the developers the tools to monetize their virtual worlds through targeted online advertising.
Blowing off some Steam
What's the allure of Valve's flagship Steam? If you're not familiar with the site, ask a diehard gamer. It sure knows how to draw a crowd, having passed the 15-million-active-user mark earlier this year.
Steam offers hundreds of commercial games -- like Take-Two Interactive's (Nasdaq: TTWO ) BioShock and Grand Theft Auto: San Andreas -- through its content delivery platform, at prices that are typically substantially lower than retail. Gamers don't need to be tethered to a single PC, as the purchases are account-based and can be accessed and installed from any of the buyer's online connections. Steam's servers make sure that the latest updates and patches are delivered automatically.
Freeing up users to continue their games on any machine makes Steam a kissing cousin to the cloud-computing concept that is powering things like Google Docs these days.
However, make no mistake: The ultimate draw for Steam -- if "well-placed sources" are placed correctly -- has to do with Google expanding its reach for in-game advertising.
Microsoft beat Google to the punch by snapping up leader Massive two years ago. The beauty of in-game advertising in these broadband-enabled times is that ads can be updated on the fly. If you walk past a multiplex marquee in a game, it can promote new releases. A roadside billboard in a racing game can pitch new releases, too. The ad model here is more brand-advertising-based than Google's undisputed supremacy in serving up text-based clickable ads, but it's an area where Google will need to improve if it wants to be a one-stop shop for sponsors looking to get noticed.
The future of online gaming couldn't be brighter. Developers are flocking to the margin-fattening benefits of delivering games directly to consumers without any manufacturing or inventory hang-ups. Gamers are coming across sites like Valve's SteamPowered.com, which deliver both games and communities. Google can't ignore this. It won't.
No matter where this rumor ends, Google is here to stay, and to play.
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