Last month, Microsoft (NASDAQ:MSFT) announced that it was working on DeLorean, a cloud gaming platform that "predicts" a gamer's next actions to reduce lag time. The platform had been tested on Fable III and Doom 3, although it wasn't clear what Microsoft intended to do with the technology.
However, a recent report from Neowin states that Microsoft has a very ambitious goal in mind -- to stream Xbox 360 and Xbox One games to Internet Explorer and Chrome at 60 frames per second. If the report is true, Microsoft is taking a radically different approach than Sony (NYSE:SNE) to the business of cloud gaming.
How cloud gaming could merge Xbox and Windows games
Microsoft today is waging a losing war in video games on two fronts. On the console front, Sony's PS4 has sold over 10 million units, compared to about 5 million Xbox One devices. On PCs, Games for Windows Live has been marginalized by Valve's Steam, Electronic Arts' Origin, Ubisoft's Uplay, and Amazon Games. Losing market share on both fronts equals lost revenue, because Microsoft generally takes a 10%-15% cut of third-party video game sales.
If Microsoft streams Xbox 360 and Xbox One games straight to browsers, it would basically merge Xbox Live and Games for Windows Live into a single ecosystem. Microsoft would become less dependent on Xbox One hardware sales, since its games could be delivered on demand via a Netflix-like service, generating new sources of a la carte and subscription-based revenue.
If Microsoft let gamers remotely access their entire Xbox 360 and One dashboards via a Web browser, it could prop up sales of Windows desktops, laptops, and tablets. It would also put considerable pressure on Valve's Steam. Earlier this year, Valve signed a partnership with cloud gaming service OnLive that allows gamers to locally stream their Steam games to other devices.
Cloud-based Xbox games would also be a great use for Microsoft's massive Azure cloud infrastructure, and represent a major step toward realizing CEO Satya Nadella's "One Windows" strategy across multiple platforms.
Why Sony should be worried
Sony is currently the clear leader in cloud gaming. PS Now, which is currently in beta testing, will eventually allow gamers to stream a cloud-based library of PS1, PS2, and PS3 games on PS3s, PS4s, PS Vitas, PS TVs, and select Bravia televisions.
Sony's long-term strategy is to eventually offer any PlayStation game on any Internet-connected device with a screen. Sony has reinforced this system with Remote Play, which enables gamers to stream games from their PS3s and PS4s to a PSP, PS Vita, PS TV, and new Xperia Z smartphones. Sony hasn't announced any plans to launch PS Now for PCs. Although it could easily do so, such a move would likely cannibalize sales of Sony-branded products.
Microsoft, on the other hand, could turn nearly any modern Windows system into an Xbox 360 or Xbox One, which is an alarming prospect considering that there are roughly 200 million Windows 8 machines in use today. That growth potential should offset any concerns about its cloud gaming platform cannibalizing Xbox One sales.
A "cloudy" outlook for now
Although DeLorean and PS Now present intriguing ideas for the future of video games, Microsoft and Sony must overcome a number of hurdles to make cloud gaming a reality.
Since cloud-streamed games are basically interactive HD videos, they could consume around 2.3GB of data per hour, based on Netflix's streaming video estimates. This could make cloud gaming impractical over mobile and home connections due to data caps and throttling. Proposed changes to net neutrality laws could also turn the Internet into a metered utility, which could make cloud gaming much more expensive than simply buying a physical or digital copy of the game.
Pricing is already a major problem, and often doesn't make sense -- DrinkBox Studios' Guacamelee, for example, costs $15 for a digital download on the PS4 or a 90-day cloud-based rental. Sony stated that it plans to eventually launch flat-rate subscription plans, but the wide range of a la carte costs and time limits suggests the expenses of streaming full games can't simply be offset by flat monthly fees.
A Foolish final thought
Sony and Valve need to watch their backs, since Microsoft could leverage its dominance of the PC market and the Azure cloud platform to quickly launch a cloud gaming platform. If Microsoft actually launches Xbox games in Web browsers in the near future, it could turn the console and PC gaming markets upside down.
Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.