Gaikai, a privately-held cloud gaming firm whose backers include Electronic Arts and Intel Capital, expects to sign deals with major publishers and video game makers, as the market shifts from console-based games to online titles.
Chief Executive David Perry, 44, who founded Gaikai in 2009, said he is going back and forth with at least 20 major companies over a licensing contract.
Like larger rival OnLive, Gaikai -- a Japanese term for open ocean -- streams game content directly to any internet connected device, without the need for additional hardware like a console or a graphics processor.
OnLive, backed by AT&T, Time Warner's venture capital arm, Taiwan's HTC Corp and others, offers annual subscription based games in the United States and is expected to launch in Britain later this year.
Gaikai has licenses for most of EA's game catalog and has signed with Wal-Mart to stream games on the retailer's web store. The company charges video game publishers based on minutes of game play on its network.
We're building a content distribution company here, like Akamai -- but how we're different is that the technology is bi-directional. It's data being sent and received constantly, Perry said in a telephone interview.
The market share of console games is forecast to shrink to 39 percent by 2014 from 61 percent in 2009, according to research from broker ThinkEquity, as gamers shift to online and mobile games.
ThinkEquity estimates the global online games market will grow around 9 percent a year, to almost $17 billion by 2014.
The consoles people are playing on today are 5-6 years old, and those machines are not running the games fast at all, Perry said.
Sony's PlayStation 3 was launched in 2006, a year after Microsoft's Xbox 360. Both last year launched motion gaming extensions, but neither have announced plans for next-generation consoles.
These consoles are playing games at 30 frames per second (fps), which adds to the latency. Gaikai's servers are running at 60 fps. We're using modern hardware and not 5-year-old hardware, Perry noted.
Today, playing a large title online is not convenient. 'World of Warcraft' has an average 30 clicks before users can get into the game play, whereas 'Farmville' has an average of two clicks, Perry said.
Our focus is on how to make these big games convenient for playing on a platform like Facebook
Aliso Viejo, California-based Gaikai also counts Akamai Technologies and rival Limelight Networks as early investors, and uses Limelight's data centers to house its servers.
When I was raising money for the company, the $1 million question was how to raise money for the servers and data centers. TriplePoint Capital signed up as an investor, so all the servers and hardware in the Gaikai network is bought by them, said Perry.
TriplePoint, which was an early investor in both Facebook and YouTube, provides venture funding to technology start-ups, and financed Facebook's servers in its early years.
Gaikai expects to double the number of its data centers in the United States and Europe, to almost 50, inside a year.
Perry, who developed his first video game as a 14-year-old in Ireland, predicts the Gaikai service will be running on most digital TVs next year, and is in talks with console makers for a similar service.
We have conducted tests on all major consoles, and will soon be announcing new deals.
Perry, who developed games such as 'Earthworm Jim' and founded the video game company Shiny Entertainment in 1993, sees the shift to the cloud -- technology that allows remote access to computing power and data over the internet -- as integral to video game sales.
Physical sales are dropping, and digital sales are picking up. If there's a console that doesn't use technology like this it will fall behind as it won't be using the capabilities of the internet.
When I started programing, games were in black and white and ran on 1k of memory. Then, suddenly, there were machines in the market with 16k of memory, and we couldn't imagine what to do with all that memory, Perry recalled.
It's clear that cloud gaming is in the crosshairs of every major technology company in the world.
(Reporting by Himank Sharma, Editing by Ian Geoghegan)