It’s not just fun and games anymore…

A continuation of my last post, we get to the last three of the of the five innovations which the gaming industry has lead.

3. Online gaming gets mature (ish)
Virtual reality is finally becoming something, well, tangible. It also provides opportunities that early SciFi writers like Aldous Huxley, Isaac Asimov, Ray Bradbury, and Tad Williams (to name a few) envisioned: fully functional worlds in which life imitates art…or perhaps more accurately art as life, albeit in a digital form.

You’ve probably heard of SecondLife. I was first introduced to SL back in 2003 when a friend of mine suggested I take a look. I soon found myself immersed in the SL community. After about two months, though, I began to think I was wasting my time in a game that wasn’t even a game. Some emerging technologies strategist I am — I soon left the SL community, writing it off as just another online fad. I’m sufficiently humbled now. SecondLife has been around for over four years—that’s a lifetime in the world of MMOs. IBM is investing $10M in its SecondLife presence. Sears, Circuit City, even John Edward’s Presidential campaign have established venues in the SecondLife universe. OK. I get it now. Although for some reason, I still question whether SL can continue to thrive as a lifestyle alternative. Then again, I never did get The Sims…

Implications
What I failed to realize in 2003 is that SL would mature into a real, functional environment, complete with its own economic system. Sure, we know that EverQuest was said to have some correlation to actual economies way  back in 2001since EQ’s currency’s value when translated into US dollars, actually exceeded those of the Japanese Yen and Italian Lira at the time. But what wasn’t so obvious is that virtual reality economies could translate into an economic model that would have a broader impact by reaching out to the “RL” (Real Life) world. It’s happening today. In fact, IBM, developerWorks, and yes, alphaWorks, are creating presences in the SL universe.

“…suffice it to say that virtual environments may act as yet another disruptive force within software development, changing, as it were, the rules of the game.”

But it goes beyond this one example: similar stories are popping up all over the online gaming industry: MMOs such as World of Warcraft, Ultima Online,and  Eve Online each have created a series of virtual universes which contain in one form or another functioning economies, societies, and even corporate constructs.

What’s the lesson? Well, we’ve already seen Collaborative Development Environments (CDEs) becoming a reality. What if CDEs evolved to exist within virtual environments? The implications are pretty impressive.  Virtual environments may act as yet another disruptive force within software development, changing, as it were, the rules of the game.

4. Artificial Intelligence (AI)
First a disclaimer: Before our Cognitive Science and AI friends become upset, we’re not suggesting that any game currently on the market has what academics (academicians? Hm will check K!) would call a “true AI”. However, that said, games actually offer tangible evidence of relatively intelligent systems designed to react to the actions of human beings, albeit in a virtual environment. In real terms, this means that games have become much more “intelligent” than in days past: a recent game called F.E.A.R. had opponents which would look through windows to see you, take advantage of the environment to hide from, and coordinate attacks based on everything from where the computer AI last “saw” you — or even where it last “heard” you. Innovations such as these (spatial and auditory awareness is a highly complex and impressive feat when one considers the technology and algorithms actually required to simulate real life environments) continue to drive the simulation of real life within games—and eventually to non-gaming virtual environments.

“…we will likely see these innovative AI systems becoming more widely deployed in every-day software…”

Implications
For software developers, imagine security systems which take advantage of AI systems to intelligently predict where hackers might attack the enterprise infrastructure, or which monitors in realtime network activity by “listening” for hackers and then reacts by coordinating defensive assets. Or perhaps a piece of business intelligence software that runs through a series of “what if” scenarios (changing the scenarios in realtime based on incoming data) to discover the best opportunities for a company’s specific project portfolio at any given time. On a more tangible level, IBM is already exploring utilizing some of these technologies to solve business problems including how to most optimally arrange components for audio systems in vehicles, for instance.

We will likely see these innovative AI systems become  more widely deployed in everyday software running everything from your home’s sprinkler system to offering suggestions for modifying your stock portfolios. Some aspects of these AI related technologies have found their way into some very interesting ongoing development efforts in software.  Autonomic computing comes to mind. However, as gaming AIs become more advanced (remember, game developers are usually operating with very real hardware constraints), we will likely see these innovative AI systems become  more widely deployed in everyday software running everything from your home’s sprinkler system to offering suggestions for modifying your stock portfolios based on your personal preferences, and risk profile — and adjusts for these attributes in real-time based on real-world events. So, if a coup occurs in a large OPEC producing nation, and the AI system, monitoring a variety of news feeds, detects this,  The AI system might suggest you purchase shares of your favorite oil company (and defense manufacturer), while rebalancing your asset portfolio to dump stocks for companies based in the country in question. At the same time, such a system might also monitor your health (in realtime) for potential health issues, optimize your digital recorder to tape shows which might be of interest to your particular tastes, all while ordering dry cleaning for your upcoming trip to the Far East.

Sound a bit too “Jetsons”? Believe it or not, such a system is not that far away. In fact, ”expert systems” exist which perform many of the functions described above, just not in an integrated manner). The future, truly, is now.

5. The dark side: H4X0rs leveraging these technologies
Don’t worry if you don’t understand what follows the colon in the above subtitle, you probably just aren’t a gamer or software developer. Haxors are hackers who use “hacks” –or manipulations of the software system—to obtain an advantage in game play. Wildly popular in certain gaming genres (online First Person Shooters probably have one of the highest percentage of hackers, with MMO ‘farmers’ representing another significant kind of hacker), it’s hardly surprising that hackers proliferate in gaming: human nature is competitive, and if an advantage can be gained by cheating, well, one should not be surprised that cheating occurs. The difference represented here is the scale at which the cheating can occur.

“…human nature is competitive, and if an advantage can be gained by cheating, well, one should not be surprised that cheating occurs. The difference represented here is the scale at which the cheating could occur.”

Implications
In a broader sense, hacking should be of concern as technologies, ideas, and concepts migrate from the gaming industry into the software industry as a whole: it wouldn’t take much to completely ruin an entire product line’s revenue potential should insufficient security be used in its licensing system. Take it a step further and apply it to micropayments within an online economic system, and you can imagine the havoc malicious users could wreak. Identity theft could also be simplified in some ways, as could manipulations which could significantly harm a corporate brand with relatively little effort.  These aren’t entirely new concerns: identity theft occurs often in today’s business world and numerous corporate brands have been damaged by Web site defacings. Yet the potential for disruptive activities increases almost exponentially with the new systems discussed in this article. Yes, as Huxley would say, it is a brave new world  — but it may also be the dawn of a dangerous new world.

Summary
These five trends may eventually emerge in the software industry, or, they may not. Nothing is at all certain whenever you talk about emerging tech. What is certain is that change will occur, and it’ll come in successively accelerated waves. The challenge is to see these waves coming and, as an old popular adage says: “Get in the game, or get out of the way.” In the end, however, the case for why the gaming industry is applicable to the software industry is straightforward. There are numerous examples of how it has already occurred, and many examples of how it may occur in the future.  If for no other reason, the potential impact of the current activities in the gaming industry on the broader software industry should be sufficient to convince any software company to keep an eye on the latest developments in the dynamic gaming industry. While not all of the innovations created there will translate into the broader business world, those that do may significantly impact the future of software development and business. There is a realization that’s starting to dawn about the gaming industry and its relationship to the business world: it’s not just fun and games anymore.

It’s not just fun and games anymore…

Previously, I had discussed how the gaming industry was directly impacting the software industry. I ended the previous article with a question: are there developments which might have interesting consequences for the software industry in the future?

The new and innovative developments that are gaining traction in today’s gaming represent trends and opportunities that may (ad: stronger word than “may” – are likely to? That works for me ) surface in the general software development industry a few years from now. With that in mind, here are five specific innovationsto watch:

1. Software distribution, ‘07 style
One of the two components of the Software as a Service model is the concept of online digital distribution of software. Simply put, it’s a premise software companies can’t ignore because of the tremendous boost SaaS should provide to the gross margins (and profits) of software companies. As software companies continue to look for ways to increase their profits, SaaS’s promise of reduced distribution costs — while you do have to pay for the servers and infrastructure to provide online distribution, those costs are widely offset by the elimination of transportation, inventory holding, packaging, and supply chain costs you’d otherwise face –  is highly appealing. And the gaming industry can offer what may represent the next logical step for SaaS.

A company that has been exploring the advantages of leveraging online digital distribution is Valve Software. Valve, the creators of the very popular Half-Life® series of games, identified early on the opportunity for gaming studios and developers to cut out the publisher, and in effect, become a publisher themselves. But the smart folks at Valve took this idea one step further: they created something called Steam, which is essentially an online marketplace for gamers. Steam offers gamers not only the opportunity to download games and automatically maintain them (Steam will “patch” games automatically), but it also gives Valve the opportunity to cross-sell games which may be of interest to the individual gamer — and thus take greater advantage of impulse buying habits of its constituency. In effect, Valve married the concept of digital distribution with marketing and enhancing the customer experience — all simultaneously in an integrated online offering marketplace. And it’s proving to be successful.

Implications
With that in mind, what are the implications of Valve’s success in implementing SaaS? Are there potential lessons for software companies here that go beyond the gaming industry? And, finally, is anyone really paying attention?

The net effect of Valve’s success has been quite extraordinary: In a very short time, a highly successful ecosystem of partners has evolved  which it acts as the hub. In the software industry, such ecosystems have traditionally been long-term relationships, requiring years of trust building. However, in the hypercompetitive environment of online business, Valve has proven that the old model, is, well, old.

“The net effect: a highly disruptive innovation which upset the previous balance, and has the potential to change how business is done in the gaming industry.”

What began as a relatively small gaming studio has suddenly become a significant player for games — as an online distributor, but also as an online marketplace. Other small studios, and some very large ones, could now cut out the traditional gaming publisher –and even distributors and retailers. The net effect: a highly disruptive innovation which upset the previous balance, and has the potential to change how business is done in the gaming industry.

This in turn has created an opportunity for small companies who hadn’t been able to attract a major publisher’s attention, or were unable to secure favorable revenue concessions, and thus had limited publication routes. Self publishing has never been particularly successful for small gaming companies. In  traditional distribution models, the relationships up and down the chain dictate whether you’ll find the shelf space for your product so the cards were effectively stacked against the smaller players). It also represents a distinct threat—and disruption—for the distribution and retail organizations.

But it’s not just the fact that SaaS levels the playing field: it also provides an incredible opportunity from the marketing side of the equation. Imagine, if you will, a marketplace which embraces the notion of social-centric computing. In effect, the evolution of these marketplaces into communities, and from those communities, the feeding of the marketplace: in MBA terminology, this is called a virtuous circle. In real terms, it’s called substantial profits.

The potential for SaaS to affect the software industry is similarly significant (note: future articles will discuss SaaS in detail): imagine the larger software industry players suddenly losing their control of the distribution system as that system goes online and becomes democraticized. Imagine what happens to the traditional software salesperson at that point. Imagine the implications as the “middle man” is removed from the picture. In fact, the potential disruptive impact to the entire industry is significant, and has the potential to alter the landscape of the software industry as a whole. In short, it’s why those in the broader software industry may want to start paying better attention to this issue in the near term, as this single development has the potential to radically alter the business landscape in an accelerated—and disruptive—manner.

“In short, it’s why those in the broader software industry may want to start paying better attention to this issue in the near term, as this single development has the potential to radically alter the business landscape in an accelerated—and disruptive—manner.”

Many companies are now actively watching Valve’s Steam effort,along with newly announced efforts from EA, Ubisoft, and for online gaming Sony®, Nintendo, and Microsoft®, so it will be interesting to see what unfolds as these technologies and marketplace platforms mature.

2. Micropayments, finally?
The concept of micropayments is one of the hottest — and most controversial — topics in gaming today., as illustrated by Microsoft®’s X-Box® Live system. Within that environment, gamers are asked to purchase “upgrades” or additional equipment which can enhance their gaming experience. To put it in very simple and instantly recognizable terms, think of it as ringtones for gaming. And as with ringtones, everyone loves to hate them — yet continue to buy them.. Each “in-game asset” might cost $0.10, or $1.00 US. The key is that each micropayment also provides the gamer a “microlicense” as I like to refer to it, which grants the gamer just the use of the “in-game asset” for a month at a time, which provides a recurring revenue stream for the game publisher and/or the developer. What’s most interesting is this is not an insignificant business: according to some research, micropayments in gaming could be a $800M-plus industry by 2011.

So what is the controversial part of the micropayment phenomenon? Gamers argue, somewhat rightfully so, that micropayments are just another way to extract revenue out of them by providing content that should have been bundled with the game in the first place. In addition, they note that gaming enhancements and addons have  traditionally been free. One game, Total Annihilation, eventually had over 6,000 additional “units” created by the game developer and the community which grew up around the game. In addition, “mods” (modifications to existing games) have also been free. An example of how one free offering eventually turned into a revenue generator is a mod of the aforementioned Half-Life game, called  Counter-Strike™, It was so successful that Valve eventually bought the rights to the mod and made it a part of its commercial Half-Life® product suite.

The bottom line is that micropayments have been shown, by the gaming community, to work: all three console makers (Nintendo, Microsoft, Sony) have or are putting in place such systems…it is a good bet to suggest that they’re here to stay. In fact, Microsoft seems to be betting on micropayments in a big way.

Implications
In this case, there have been successful crossovers of this concept into the general software marketplace, albeit in ways which may not be obvious at first glance. iTunes, for instance, offers a form of micropayment system. Online advertising has embraced the micropayment concept for a while. Keep in mind, however, that Microsoft’s micropayment strategy (ad: what is “this”?) is the first time the micropayment concept has been employed in the software industry for software (imagine if you had to pay extra for iTunes add-ons), and might actually herald the introduction of micropayments into the software industry in unique and inventive ways. Take a moment to think what this may portend for the future of software development: what if code were to become  componentized in such a way that monetized individual components could be monetized in such a way that you were charged for individual components?  Tis happening today. StrikeIron, for example, is a company which offers a marketplace for Web services. But what if it extended that concept far beyond just web services?

“what if code became componentized in such a way as that individual components could be monetized?”

We’ll take a look at the final three innovations in my next posting…

How the gaming industry is changing software development.

Trends in the gaming industry frequently affect the mainstream software industry, not only with new and emerging technology, but in also with new and emerging business models.  alphaWorks examines the impact of the gaming industry on emerging technologies, and examines why early adopters should keep an eye on an industry that doesn’t typically receive the attention it deserves.

There’s a secret that many researchers in the bustling halls of IBM  have been keeping for some time. A secret that, at the face of it, seems incongruous with the image of IBM as a big, enterprise-driven, business-oriented company. That secret? Games. Computer games.

When some researchers want to know what is going to be important to the software industry five or so years down the road, they look to the gaming industry for the latest innovations which are currently happening within the game developer community.

Why? The answer is straightforward: the gaming industry has been a pretty good barometer of innovations which eventually find their way into the broader software development industry — something that is not widely  recognized by the development community.

Why IBM Pays Attention
Last year, massively multiplayer online (MMO) games raked in over $1B US in revenue. Overall, the entire gaming industry reaped $32.6B US in revenue, and is projected to grow by 55 percent over the next five years — with online gaming revenues set to triple by 2009. This astounding growth has caught Wall Street’s attention, and should be of interest to the software industry at large because the novel – and profitable ways the gaming industry is using software..

Why should an early adopter care?
OK, so the gaming industry is becoming big business. But why should you, as an early adopter, care?
Here’s the short list of reasons:

• The gaming industry is an early indicator of evolving technologies relevant to the broader software development industry.
• There are significant developments occurring in the gaming industry today.
• Understanding (ad: suggestion – need a word stronger than ‘observing’ these developments can provide insight into the future landscape of software.
• As a  general rule of thumb, wherever the money is, you’ll find a flurry of innovation in the same space. The challenge is to identify those promising areas before the flurries become a snowstorm blinding the actual centers of innovation.

Gaming as an early indicator of software development trends
The history of the gaming industry reveals numerous examples of innovations which arose from the gaming industry and eventually found their way into the larger software development community:

• Extreme programming: Small studios offered environments which nurtured the use of extreme programming—as did tight budgets.
• Sophisticated and rigorous testing processes: Remember those old-school consoles that used cartridges? Generally, once those chips were burned, that was I — no patches (ad: what is the result or change)
• Massive back-end infrastructure for on-demand application delivery and execution, which includes distributed computing (GRID) and parallel processing
• Artificial intelligence implementations
• Advanced physics rendering and responsive environments
• Advanced and accelerated graphics design and implementation
• Online community development before those words became buzz words for all things related to Web 2.0
• VoIP technology:  Gamers were very familiar with TeamSpeak and Ventrillo before Skype ever existed
• Advanced hardware advances in chip design such as the Cell BE
• The very first SaaS applications which were commercially successful

As to the last point: remember the online gaming market mentioned earlier? That market was responsible for the first widely successful monthly subscription strategy: A game called EverQuest® provided solid evidence of the serious potential for recurring revenue using this model.. The previous software industry attempt to implement a hosted application model (ad: effort for what? Online gaming? Or subscription strategy?) (which brings to mind a buzzword from the late ‘90s, “ASP”, which may be an acronym that causes some in the industry to shiver) failed horribly, causing the industry to delay true SaaS implementations for at least five years. It took a combination of broadband adoption by the masses and, one could argue, the gaming industry proving the business model, for the broader software industry to reconsider ASP/SaaS.

In fact, one could make the argument that keeping an eye on those technologies which have penetrated and been adopted by the gaming industry provides a good indicator of future trends in the software industry.

Which brings to mind an even more interesting question: what is going on with the gaming industry today, and are there developments which might have interesting consequences for the software industry in the future? Something I’ll cover in my next posting…