A Head Full of Steam at Google?

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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, 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.

More ways to play like you invest:

Microsoft is a Motley Fool Inside Value pick. Shanda Interactive, Google, and Take-Two are Motley Fool Rule Breakers picks. Activision Blizzard and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is a fan of all three consoles but finds himself spending way too much time with the family on the Wii at the moment. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, always there to make sure that Fools don't overheat.

Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2008, at 12:45 PM, Stealthflow15 wrote:

    hm...parent company of blizzard acquired activision...typo

  • Report this Comment On September 17, 2008, at 11:38 PM, NinjaHamster wrote:

    Rick, hate to focus on the little stuff, but "the only reason Activision acquired Blizzard was to cash in on WOW" ??!!

    Well ... Wow !!

    Let's ignore that Sierra games etc (all under the Vivendi Games portfolio) were also part of this merger ("acquisition" ?) and let's focus on your belief that all "Blizzard" had to offer Activision (or all Activision were interested in) is World of Warcraft ... Surely this is some kind of a joke, right ? You haven't heard of two other small franchises owned by Blizzard - Starcraft and Diablo ?? Admittedly these are virtually unknown games and I expect their future sales to be no more than a blip on the periphery of any sales charts, but I am an avid gamer and long ATVI ... I do not wish for you to cut off so many of my future revenue streams (particularly when AAPL is making me bleed so heavily) !!

  • Report this Comment On September 18, 2008, at 10:06 AM, fatfoogoo wrote:

    Given that the big G has been making waves with it's talk of ingame advertising and creating a player-2-player marketplace within Lively, a quick purchase of Valve would kill a few birds with one stone for Google.

    Combine that with (said) Android device, and Mountain View may very well be posed for another full house.

    Oh, and gotta agree with NinjaHamster - the Activision/Blizzard deal wasn't just about WoW. A very big part, yes, but not the only part.

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