Nvidia looks to even score in games market

Nvidia is getting out of its comfort zone in an effort to make more money off of video games. But that could be an indication of trouble ahead for the company.

At the Consumer Electronics Show earlier this month, the Santa Clara company announced two new gaming initiatives: a cloud-based gaming service and a handheld game device based on Android. The two products are a bit far afield for the company, which specializes in making high-powered graphics chips and more recently branched out into making processors based on ARM’s technology for smartphones and tablets. In fact, the handheld game machine would be only the second consumer electronics device that Nvidia has marketed directly to consumers.

Nvidia representatives gave me a demo of both initiatives at the company’s headquarters today. Of the two, I’m more enthusiastic about the gaming service.

That service, which is still in development and is dubbed Grid, would be similar to OnLive or Gaikai; like those services, it would stream PC and console-quality games over the Internet directly to consumers’ smartphones or smart TVs. The main difference is that Nvidia wouldn’t market the service directly to consumers.

Instead, Nvidia plans to offer the service, which would run on its server computers, to so-called middleware providers such as Agawi. Those companies would then market the service to broadband providers like AT&T and Verizon as a way for them to offer video games to their customers.

The handheld game machine, which goes by the name “Project Shield,” looks like an Xbox controller to which a thin 5-inch display has been attached. The display folds down to cover the controls, which include a D-pad, dual control sticks and a full compliment of action buttons.

Although the device, which Nvidia expects to start selling in the second quarter but for which it has not yet announced a price, runs Android, it won’t replace your smartphone. At least at launch, it will be WiFi only.

Despite the controls, Project Shield has a touchscreen, so it can be used to play “Angry Birds” and similar games made for smartphones. But the controller was intended to be used with games designed for hard-core gamers, either titles specifically customized for the device or those streamed to it from a PC running one of the latest Nvidia chips.

My sense is that Grid has more potential than Project Shield. My sense from covering the industry is that there is definite interest on the part of broadband providers to offer a developed gaming service. AT&T, for example, was a backer of OnLive. A gaming service like that would potentially give them another review source if and as consumers move from traditional pay TV services to online alternatives such as Netflix. It might also help encourage demand for their ultra-high speed Internet access.

And it makes sense for Nvidia to offer the service to other companies rather than directly to consumers. One of the things that killed OnLive was that it wasn’t ever able to adequately market its service, and it bore all the cost of running its servers itself, rather than being able to charge other companies for them. By offering the service through the AT&T’s of the world, Nvidia could allow them to both market the service to consumers and to pay the costs of running it.

I’m less enthusiastic about Project Shield. In order to have a successful game machine, you need to have a large number of high-quality games, or at least a good number of highly desirable exclusive games.

Nvidia says that it’s working with developers to customize games so that they can be played with the controller, but it expects only about 40 or so 63 games to be available at launch, none of which are apparently so-called triple A titles like Activision’s “Call of Duty.”

While the device will run just about any Android game out there, nearly all of them are meant to be played on a touchscreen, not with a game controller. Not only is Shield’s controller not usable for such games, it actually makes playing them more awkward than doing so on your smartphone or tablet.

Nvidia plans to supplement these offerings by allowing consumers to stream games from their PCs to Project Shield. But you have to be running the latest Nvidia chips, which few consumers yet have. If you have a Mac or one of the vast majority of PCs that has an AMD or Intel graphics chip instead of an Nvidia one, you’re out of luck on streaming games to Project Shield.

And then there’s Nvidia’s lack of experience at selling consumer electronics products directly to consumers. Breaking into retail with a new tech product can be tough. Meanwhile the company has yet to describe how it plans to distribute or sell Project Shield other than to market it through its Web site.

The two new initiatives come amid another transition in the gaming industry to a new generation of game hardware and Nvidia’s pursuit of them gives one the impression that the company is getting boxed out of the new machines.

Nintendo new console, the Wii U, which it launched last year, uses a graphics chip from Nvidia rival AMD.
While Microsoft and Sony haven’t yet unveiled their new machines, much less announced their specs, the early rumors are that neither will use chips from Nvidia.

The Nvidia representatives I met with today declined to comment on whether the company’s chips will be in any of the new consoles. But adding credence to that notion, both of Nvidia’s new gaming initiatives would compete with traditional game consoles. The cloud gaming service would ostensibly replace the need to have a dedicated game console. And the handheld device would compete with Nintendo’s 3DS and Sony’s PlayStation Vita, neither of which uses Nvidia’s chips.

If Nvidia is boxed out of the console market, it would mark the first time since 2001 that the company had not had a chip in one of the big three game consoles. That development comes amid already mixed financial returns for the company. In the first nine months of its current fiscal year, Nvidia’s sales were up just 4 percent, while its earnings were up 16 percent. While the company has been gaining share in the graphics chip market, its still in third place behind Intel and AMD. And the company has made little dent in the smartphone market, which is dominated by Qualcomm.

Troy Wolverton Troy Wolverton (269 Posts)

Troy writes the Tech Files column as the Personal Technology Columnist at the San Jose Mercury News. He also covers the digital media, mobile and video game industries and writes occasionally about Apple, chips, social networking and other aspects of technology. Previously, Troy covered Apple and the consumer electronics industry. Prior to joining the Mercury News, Troy reported on technology, business and financial issues for TheStreet.com and CNET News.com.