Frustrated investors who feel Yahoo!(Nasdaq: YHOO) should quit playing games and get back to business may have to rethink that position with today's unveiling of Games on Demand.
By giving its growing broadband user-base the ability to rent popular PC games, complete with online delivery, the Internet titan hopes to add another potent revenue stream to its roster of premium services.
Video games are big business, and Yahoo! isn't the first dot-com mover in this potentially lucrative space. Electronic Arts(Nasdaq: ERTS) has been building out its EA.com homestead for a couple of years now, while Microsoft(Nasdaq: MSFT) hopes to milk its Xbox console's earning power through the launch of Xbox Live.
It if flies, this could be a thick slice of fat margin paradise. Because the games will be delivered through high-speed modem connections, there are no costly packaging or inventory costs. Beyond the bandwidth required to deliver the games and the title-developer ransoms, there's a lot of gravy left for Yahoo! if this pans out.
It won't be easy. While Yahoo! has established a million different paying relationships with users, much of that has come from dating services and high-end email, which folks expect to pay for. There are plenty of quality games available online through sites such as Station.com and the Electronic Arts-owned Pogo. However, Yahoo! will offer complete titles, even if some of them are dated by today's PC gaming standards.
If Yahoo! achieves some degree of success, it's only a matter of time before prominent game developers provide Games on Demand with their latest titles to cash in on the advantages of online delivery. And that, folks, is when the game really starts to get interesting.
