Following the success of Firaxis’ 2007 Civilization IV, the PC-centric developer showed a real-time gameplay demo of this fall’s Civilization V, today at the Game Developers’ Conference.

Civilization is deemed by many fans and critics as the ultimate game in the long-running strategy series, so the question many pundits have for Firaxis is why create another?

According to Firaxis’ producer Dennis Shirk, the team wants to introduce new mechanics to the game, explore hexagonal tiles (instead of square-based tiles used in the last game), provide more choice and flexibility to the overall gameplay, and explore different peaceful means of negotiating and conversing with opponent civilizations in the game.

Visually, Civilization V provides big, sweeping vistas with more detail across the entire landscape from beginning to end than its predecessor. Firaxis showed the Americas, Europe, and African continents as they competed for resources and territory. Unlike Civ IV, the new hexagon tiles–used to define a space on the turn-based world map–provide a smoother, more visually logical transition for characters to travel from geographical section to section; additionally, they permit players to better see whether boats can cross through a small river or vehicles travel over tough land structures.

To better personalize the game, Firaxis presents full character models of characters such as George Washington or the Bismark of Germany. You’ll see these characters when negotiating treaties, giving gifts of gold, or declaring war. The larger, more real-looking figures are designed to engage players to see their opponents as more real character.

During the course of building your civilization, messages that once appeared on screen– which became grew in pace and became difficult to manage in the latter stages of the game–appear in the right-hand corner, better indicate the message given, and take you to the part of the world the action is taking place, giving gamers more command.

Firaxis designer John Schafer, who grew up playing Civilization games and became such a good map designer that Firaxis hired him, wants modifiable maps to become a more intricate aspect to the core game. Creating better interfacing for browsing to search for modded maps, and communicating with map creators will also be more accessible aspect to the game.

Combat has changed the most, said Shirk. Military units can longer be stacked (as done in CIV IV). Instead, only one unit can stand in one tile. Long-range units have been introduced (archers, or archers with flaming arrows, for instance), and the results of each combat situation change more drastically each time someone plays. The military is also more expensive to build and maintain, but it survives longer as well. Shirk explained that unmanned cities will defend themselves with a fixed amount of hit points, and that players will now have to take every capitol in a territory before claiming it, instead of finding and defeating every city in that territory–which caused players a lot of grief.

Peaceful activities and negotiations have expanded too, an area that Shirk says adds new wrinkles to the gameplay. For instance, if your civilization communicates that instead of fighting George Washington’s territory, and decides to make a research agreement, then researchers on both sides receive a 15% boost to development, speeding up the process for both sides.

Civilization V will be a single and a multiplayer game. While the developer hasn’t revealed the number of people to play simultaneously, Shirk said the number of players is likely to be similar to CIV IV. Civilization V is due in fall 2010.

Social game makers took the stage this afternoon at our GamesBeat@GDC event in San Francisco, where much of the discussion revolved around how building social games differs from people’s preconceptions.

John Vechey, co-founder of Bejewled maker Popcap Games, said building social games is not “the easy path to riches” that some believe. Every aspect of these games requires a lot of thought. And if you’ve got a hit on your hand, it’s a challenge just to keep up with the user base, not to mention adding new technology at the same time.

“Every single aspect of this is harder than people think,” Vechey said.

Another speaker, Brian Reynolds (pictured above), is in particularly a good position to compare different types of game design. Reynolds led design on classic games like Civilization II, but he’s now chief designer at social gaming giant Zynga. He said the biggest mistake that game developers make when they first move into the social gaming market is to think, “We’re going to make a fun game like we’ve always been making, and we’ll put some social stuff in later.” You should be thinking about the social components from the beginning, because they need to be an integral part of the game.

That’s one of the reasons for the success of Zynga’s FarmVille, Reynolds said. It’s not designed so there’s a gameplay component and then a sharing/social component, but rather “the gameplay and the social element of the game are hand-in-hand.”

Reynolds also said he had to adjust to Zynga’s “metrics-based” design method. Traditional game design emphasizes intuition and long-term thinking, because you spend a lot of time building a game based on what you think is fun, then you put it out in the world. With social gaming, you release a game then revise quickly based on user data — it’s based on “shorter-term, tactical beats.”

But Vechey wondered if that kind of numbers-driven optimization can really make a big difference. Can it turn a Grade C game into an A game, or does it just turn a C game into a C+ game?

“It’s worked pretty well for us,” Reynolds said.

Read all of our coverage from GamesBeat@GDC.

Tags: GamesBeat@GDC

Companies: Popcap Games, Zynga

People: Brian Reynolds, John Vechey

With social and online gaming exploding with hundreds of new startups, developers and titles, it would seem that bold, small-scale innovation is where the game industry is headed. Not so, according to Electronic Arts Chief Operating Officer John Schapper, who — while remaining supportive of social gaming development, particularly in light of his company’s acquisition of PlayFish — sees most of the money flowing to established titles and franchises. He spoke at today’s GamesBeat@GDC conference.

If any company knows the value of expansion packs and cross-platform games, it’s EA. Its Sims brand has been given new life again and again with sequels and a slew of expansion packs adding fresh gaming experiences, virtual goods and capabilities. On top of that, it has the distinction of being the number one game publisher for mobile phones, and for the iPhone. Its PlayFish buy broadens the audience even more for well-known games like its EA Sports offerings, Command & Conquer and Left 4 Dead, which it distributes.

Schappert is feeling pretty good about the company’s future, despite quarterly losses, and even though PlayFish’s regular user base has fallen from 59,000 to 52,000 since the deal went down. EA is at the right place at the right time, as far as he’s concerned — launching its highest-quality games, the ones that build EA’s reputation — on different platforms, like smartphones and web interfaces. Schappert said EA anticipated volatility following PlayFish’s absorption, blips that should be ironed out once the social gaming space matures.

He also acknowledged the importance of keeping a healthy balance between so called “packaged games” or its “shiny disc business” and its direct downloads and digital content. There’s no doubt that downloadable content is the way of the future; EA made $1 million in one week with Dragon Age’s downloadable content, Schappert said. But the industry isn’t going to migrate to the web overnight, especially when you take all types of gamers into account. He expressed some skepticism about whether social gaming will turn its hype into a solid business.

Despite all of the new platforms and opportunities popping up in the gaming space, gamers may not even want to catch up.

“Consumers today want to buy fewer games overall — games they can share with their friends and that allow them to extend their experiences,” Schappert said. “Because we are going to be shipping fewer titles, we need to make each of them as big as possible.”

While he briefly touched on Jason West and Vince Zampella’s recent exit from Infinity Ward, he took the high road and steered clear of saying anything controversial.

Read all our coverage from GamesBeat@GDC.

Tags: GamesBeat@GDC

Companies: electronic arts

People: John Schappert

Here’s why I’m excited about the upcoming DEMO conference: Some 62 new companies or products will launch on stage March 21-23, and they look better and more disruptive than in previous years.

As executive producer of the event, I’ve been talking closely with Nathan Gold, who is the speaking coach for demonstrators at DEMO. He confirms that the class looks better than he’s seen in past years: Entrepreneurs are more focused, and their ideas more meaningful. If you’re tracking innovation, either as an investor or a corporate development officer, you’ll want to be there in Palm Springs. So don’t miss your chance to register now.

I’m also delighted to announce our latest expert speakers, who will provide feedback about the launching DEMO companies, as well as insight about the five sectors we’re focusing on: mobile, enterprise, cloud, social/media and consumer.

Paul Buchheit has become one of the most successful angel investors over the past year. (see our story about his four recent hits: Appjet, Friendfeed, reMail and Mint). He co-founded social network aggregator FriendFeed, along with three other former Google employees. He has invested in several other startups and has had four of these companies acquired in the last six months.  Paul was the 23rd employee at Google, where he created Gmail and implemented many of its innovative features. He developed the original prototype of Google AdSense, and was responsible for Google’s famous “Don’t be evil” motto.

Wesley Chan is an early employee at Google, where he is tasked with scouting new opportunities and turning them into disruptive billion dollar businesses. Two of his favorite products he’s founded and launched include Google Analytics and Google Voice. Wesley is currently a General Partner on the Google Ventures team. Wesley is a recipient of Google’s founder award — the company’s most prestigious recognition — for leading the development of Google Toolbar and building out Google’s early client efforts. Wesley also holds several patents from his work on starting the business for targeted display advertising for Google.

Bob Davis is a general partner at venture firm Highland Capital Partners, focusing primarily on digital media and the internet and has been there since 2001. He represents Highland on the boards of Bullhorn, Hangout Industries, NameMedia, OpenSky, Paragon Lake and Turbine.  Prior to joining Highland, Bob served as the chief executive of Terra Lycos formed in October 2000 with the $5.5 billion acquisition of Lycos by Terra Networks of Spain. Previously, Bob was founder of Lycos, Inc., and served as its president and chief executive since its inception in 1995 where he led Lycos from a start-up with $2 million in backing to a site with more than 100 million unique visitors.

Michael Brown is manager of corporate development at Facebook, and there oversees much of its acquisition and corporate strategy. Prior to joining Facebook, Mike was a Principal at Foundation Capital, a venture capital firm in Silicon Valley where he led numerous investment in the consumer Internet sector. Mike started his career at McKinsey & Company in the Firm’s San Francisco office. Mike is an investor in and/or active advisor to a number of Silicon Valley companies including Counsyl, RockYou, Structural Wealth Management, Satisfaction Inc., Tapulous, and Brilliant Earth. Mike attended Yale University and Stanford Business School.

Seth Sternberg is founder of Meebo. Previously he worked at IBM in the M&A group while also working on corporate strategy and venture capital initiatives prior to starting Meebo.  Seth majored in Political Science at Yale and also attended Stanford’s Business School.

Steven Klebe is senior VP of business development at on-demand billing company Vindicia and writes regularly about mobile payments on his Payment Talk blog.

The tech industry’s been talking about mobile payments for years, and I find the whole discussion fascinating. Not just the potential and the rhetoric, but the gap that exists between the two. I even spent a year working at a yet-to-launch mobile payments company, BillToMobile. But to be honest, we’re still at least about five years away from seeing mobile payments go mainstream. We’re at “the wind at your back stage,” where the possibilities seem endless, and will soon enter “the wind in your face stage,” where reality kicks in. And on the way from one stage to the other, we’ll see a number of companies fall by the wayside and a few legitimate contenders survive. There is already a long history of road kill in the alternative payment space (PayByTouch, Revolution Money, DigiCash, and PepperCoin to name a few).

So what system for mobile payments will eventually take hold? I’ll get to that in a minute. First, what exactly is a mobile payment?

This is a more complicated question than you think. There are at least half a dozen different definitions. A lot of existing alternative payment companies, entrepreneurs, and VCs are attempting to associate whatever it is they’re doing with the buzz around mobile payments. In my opinion, a real mobile payment is one where the obligation to pay ends up as a line item on your mobile phone bill regardless of the access device or location. However, many would argue that the use of your mobile phone as a proxy for one of your regular credit/debit card accounts or perhaps your prepaid card also qualifies.

I’m a regular enough patron at Starbucks that I carry one of their proprietary prepaid cards. I heard about their pilot that lets you pay directly from your iPhone, so I loaded the app onto my phone and associated it with my existing card. I tried it out in Sunnyvale two weeks ago at one of the few stores outfitted for the service, and the experience was amazing. After performing an activation step for first-time users, I was able to pay for my coffee by simply passing my iPhone screen in front of the bar code reader on the counter. So, was that a mobile payment? No. My iPhone was just a way to link me to the account that exists on some server back at Starbucks. They could have just as easily captured a retina scan and associated that with the stored value account and we’d be talking about biometric payments, which were all the rage a decade ago.

The Starbucks app is very well done and cool, sure, but it’s just using my phone instead of a card to access my prepaid account. There is no guarantee that having this will open up a new revenue stream for Starbucks. And to run the program, the company has to outfit its stores with new technology. So where’s the payoff?

The valuable lesson here is that the Starbucks card and all the infrastructure to support it already existed and adding this feature is a benefit that some customers will really appreciate. In general, experience has taught me that the best chances for success are when you combine two things that already exist rather than creating something completely new. This is especially true in payments, because there are a lot of details involved that are difficult to change but readily available to leverage. (There would be no PayPal today if there didn’t already exist an entire credit card system, automated clearinghouse for echecks, and a whole community of eBay users needing a payment option.) So, any new offering that requires users to download an application, get a new device, or open a new account is probably doomed to fail. This applies not just to the end user side of the equation but also to the merchant side. In the case of Revolution Money, users had to open a new account and then find a place to use it. The company made a lot of noise about having lots of merchants, but in reality they had just signed (and paid) processors to link to their card. The merchants still had to opt in, and most did not because there were not enough consumers to bother. So what does Revolution Money have to do with mobile payments? Numerous mobile payment companies require users to establish a new account or carry a specific device. Unless you can build up a significant number of users and places to use the service within a very short period of time, you’re toast.

Take NFC (near field communications), for example. You may have received a card from Visa (payWave), MasterCard (PayPass) or Amex (ExpressPay) that has an embedded NFC chip that can communicate with properly outfitted POS systems. It was the rage about five years ago. And with the big credit card companies behind it, it had a fantastic chance to get into the hands of lots of users. But the business case was weak both for merchants and for the card issuers themselves, and so it hasn’t lived up to its expectations. Changes to the rules for $25-and-under payments, where no signature is required, have further diminished the case. The idea is to put the NFC chip on the back via a decal or inside of mobile phones. The decal is certainly a step up from the embedded model, because it eliminates all the contentiousness with trying to bring the mobile carriers and the payment brands to the table together (there’s been much written about this chasm, so I won’t dwell on that here). But, there is still this nasty issue about the business case for the expense associated with outfitting the POS and distributing the decals in lieu of the fully deployed mag stripe terminals and extremely inexpensive mag stripe card. Unlike in France, where chip cards were successful thanks to government mandates and subsidies, I don’t see the government having any particular motivation to subsidize the deployment of NFC. Anyone for a “Cash for Clunky Mag Stripe Cards” program?”

So what about all the players on the e-commerce side of mobile payments — providers like Zong or Boku that have been drawing a lot of attention lately. These services enable SMS payments for digital goods and services. Want to buy a $1.00 virtual flower to send to your friend’s Facebook account? These services will let you charge that to your mobile phone account. But, again, there’s no strong incentive here for merchants. It costs them 50% off the top to enable such a transaction, most of which goes to the mobile carrier. As a side note, even if you paid with PayPal, it would cost most merchants around 33%. So, until the time comes when the cost of having a payment pushed to your mobile phone bill drops (like it has in S. Korea, to the 5-7% range), the only people likely to use these SMS payment services are the under/un-banked and purchasers of digital goods and services, where the merchants marginal costs are near zero. If the merchant fee does come down for direct-to-mobile billing, we would be looking at a seismic shift in the payments landscape. The other side of e-commerce such as the Amazon app on my iPhone, in my opinion, does not count as a mobile payment, but that’s certainly open for debate.

So if the objective in this industry is to effect a paradigm shift, then mobile carriers have to appreciate the fact that they have the opportunity to become the “everyday” payment processors of the future, especially for the under $10 payment market. This is a huge opportunity for them to generate incremental revenue and become more relevant than just a “browser on the hip”. They also have to be willing to perform this incremental service for a competitive fee. Every consumer that matters has a mobile phone with them everywhere they go, they have been credit checked, and the device can be leveraged to dramatically reduce risk. With the addition of additional authentication, fraud risk can almost completely be eliminated. They don’t have to be in the credit granting business, since debit is the preferred way to pay today anyway, especially for small value transactions.

Carriers already have billing relationships with the roughly 90% of us that choose post-pay accounts, and by adding payment processing services, they’d increase the utility for their customers, rather than asking them to establish, manage and carry something new. While it was neat to use my iPhone with the Starbuck’s Card app on it, if this concept is going to revolutionize the way I pay, it has to become ubiquitous – one to many. There need to be as few mouths to feed between the consumer and the merchant as possible, and if the carriers don’t step in and fill the gap, then PayPal has the best chance of adding mobile as an incremental piece of its ever expanding puzzle, since the hard part — the existence of the account and the primary utility — has already been established.

THE COMMUNITY RESPONDS:

–Hill Ferguson, VP, Product & Marketing, ZONG

Steve makes a lot of good points here, and there are very few people in the industry more qualified to speak on this topic. We at Zong agree that building a payment network hinges on creating ubiquity. Consumers and merchants alike must have easy access to the payment method. The salient question here is, how do you define “mainstream”? Zong has carrier connections that allow over 1.5 billion consumers instant access to use Zong to pay online and have the charge appear on their mobile bill. This is no small feat. We’ve spent the better part of the last 10 years building out direct carrier connections with mobile operators around the world. We also have a merchant network which provides our payment option to over 500 million online consumers worldwide. We are also making great strides on the merchant side, powering mobile payments for some of the leaders in social networking and online gaming, including Facebook. Our merchants often serve tens of millions of customers each month. Facebook alone reports over 400 million monthly active monthly users! Today, almost all of these users can use their mobile phone to buy virtual goods with Zong via Facebook Credits, the company’s latest platform payments initiative. Is Zong’s mobile payment network considered mainstream? We think so, but we’re not remotely satisfied yet. Our mobile payment platform processed mobile payments for well over 10 million unique users in 2009, and we’re ramping even faster in 2010. So, while we’re not yet 100% ubiquitous, it’s certainly our goal, and we’re clearly on the right path.

–Redg Snodgrass, Director of Digital Distribution, Alcatel-Lucent

While I respect Steve’s experience, it is time we all stop thinking of payments as a problem and start looking at payments as an opportunity. The smart companies are. The companies I talk to know all too well the challenges they face. What I’m seeing more and more, though, are service providers who no longer look at half-empty glasses. In fact, they see glasses that are increasingly half-full. Take mobile payments. Service providers see it. They want it. But they know it also comes with a cost. That cost, at least to those I’ve spoken to, comes in the form of the high costs associated with customer service calls (at an average of roughly $35 per call from what I can tell). To many, the idea of opening this to exponentially higher numbers of mobile users is, well, a wee bit frightening. But what if they could turn this cost into revenue (or at least offset the cost)? And this is where I fundamentally agree with where Steve is coming from. We’ve been working hard (really hard) at Alcatel-Lucent to deliver a program to bring relevance to those programming to the pipes (stay tuned later this week for more details…for a sneak peak, take a look at what we announced a few weeks back in Barcelona at Mobile World Congress…or look at the work going on at TouchaTag). Relevance is important. If everything a service provider makes money on becomes commoditized – things like location based services, SMS, payment, presence and, potentially, data – we all lose. If data becomes commoditized, suddenly there is no more money to spend on infrastructure. If there is no money to spend on infrastructure, we all suffer (or get powned by our new Google overlord). We want to make it easy for our customers to take advantage of payments as a revenue stream (hint: it has to do with commercially bundling APIs). So while many look at mobile payments as something to fear, we think we’re cutting a path for the industry to see revenue rather than cost.

Steve Klebe has over 25 years of experience in electronic payments, fraud prevention and authentication. He is a former member of the board of directors of the Electronic Transactions Association and advisory boards of the Direct Response Forum and the Electronic Funds Transfer Assoc. He has held a variety of senior management roles at VeriFone, CyberCash, CyberSource and PassMark Security (now part of EMC/RSA). He’s currently a member of two private company advisory boards and works as SVP, Business Development for Vindicia, a leading provider of a SaaS based recurring subscription billing solution.

Consumer electronics portal Retrevo conducts lots of surveys in hopes of charting out its marketplace. The most recent asked parents to list the age range within which they felt it was appropriate for a child to have his or her first cellphone, TV, or computer.

I wish they had split up the 9-12 bracket to separate age nine from age 12. Retrevo reports that 28 percent of parents said 9-12 years old is OK for a first cellphone. But were those respondents thinking nine, or twelve? It’s a big difference – third grade versus sixth.

As Retrevo’s chart below shows, parents who actually have a child age 9 to 12 were more likely to approve of giving them a cellphone. Maybe that’s because they already did.

Companies: Retrevo

As social network hi5 refocuses on gaming, president and chief technology officer Alex St. John has been happy to criticize his giant competitor, Facebook. He elaborated on that criticism today at our GamesBeat@GDC event, where he shared the stage with Facebook platform manager Gareth Davis.

St. John said he’s sympathetic to Davis, whose position St. John compared to his old job as a gaming evangelist at Microsoft — in other words, someone forced to represent games at a company where games aren’t the focus. As a result, Facebook suffers from “schizophrenia in its messaging,” St. John said. It wants to promote games but also “hold them at arms length” and treat them like parasites.

As an example, he pointed to recent moves Facebook has made to restrict the viral methods developers can use to promote their games. By being absolutely clear in its focus on gaming, St. John said hi5 can avoid this problem.

“We don’t want developers to feel like they have to optimize games for spamming, because we’re going to promote the games,” he said.

Davis, meanwhile, noted that Facebook’s gaming audience is 10 times as large now as it was a year ago, so it’s probably doing something right. The company is “very focused right now on growing Facebook” as a whole. Presumably, that involves curtailing some potentially spammy behavior that scares users away, but by building the overall audience, Facebook grows the audience for game developers, Davis said, adding that the big promise of games on Facebook is that social games can reach a much broader audience than existing game platforms.

St. John countered that he isn’t too impressed with the current batch of Facebook games. With hits like Farmville, Zynga seems to be the big success story, but he said its games are mediocre, and they aren’t particularly social to boot. For one thing, they’re all turn-based rather than real-time, so games are spread out over the course of days. (Some would argue that’s one of their virtues.)

“In Mafia Wars, you shoot strangers for statistics,” St. John said. “That’s not social.”

Read all of our coverage from GamesBeat@GDC.

Tags: GamesBeat@GDC

Companies: Facebook, hi5

People: alex st. john, Gareth Davis

Dean Wright of Reuters writes Wednesday about the social media standards that the news organization just published for its reporters and editors.

The guidelines, which can be read here, state in part, “The distinction between the private and the professional has largely broken down online and you should assume that your professional and personal social media activity will be treated as one no matter how hard you try to keep them separate.”

Wright writes, “In building the new guidelines, we’ve embraced some basic principles:

• We encourage the use of social media approaches in Reuters journalism.
• Accuracy, freedom from bias and independence are fundamental to our reputation. These values and the Trust Principles apply to journalism produced using social media just as they have to all other journalism produced by Reuters.
• A distinguishing feature of Reuters is the trust invested in its journalists to rise above personal biases in their work and to apply common sense in dealing with the challenges offered by social media.”

“This last point is particularly important to me.

“I’ve written in the past about how we depend on our journalists to rise above their biases to cover stories in an independent way, whether they’re in Gaza or Washington–or anywhere else.”

Read more here.

Kansas and Vermont have become the two latest casualties of record unemployment insurance claims. Both states have exhausted their unemployment insurance trust funds and have turned to borrowing from the federal government to keep unemployment benefits flowing. The 50 states, the District of Columbia, Puerto Rico and the Virgin Islands operate separate unemployment insurance systems, and [...]

If you’re wondering which games-on-demand company is the real one, today’s news isn’t going to help you out.

While Steve Perlman’s OnLive has revealed concrete plans to launch its service today, another rival, Otoy, is revealing today that its video compression technology will be the foundation of a new kind of supercomputer that will enable the digital distribution of video games.

Jules Urbach, chief executive of Otoy (right), is making the announcement today at GamesBeat@GDC, our executive game conference in San Francisco. His company clearly has a ways to go, but he is making up for that by partnering with powerful companies.

The multiple-teraflop supercomputer will be made by Supermicro, a leading maker of high-end servers. Together with its support from chip maker Advanced Micro Devices, the relationship with Supermicro is the strongest endorsement yet of what has been an experimental technology at Otoy. And in another interesting twist, which Otoy is staying mum about, another one of its partners is Intel.

Supermicro says it will launch Fusion Render Cloud Servers in the second quarter. The Fusion Render Cloud is a new kind of supercomputer that uses a bunch of servers with both microprocessors and graphics chips in them. These servers can be used to create high-end graphics imagery that can be piped at lightning speed to a home computer. The effect is that a low-end computer could be used to display high-end games, thanks to the processing that happens in the so-called cloud.

Otoy’s ORBX codec — the compression software –  is one of the key links here because it allows one server to send thousands of streams of high-definition video or game graphics to just about any display. The Los Angeles startup was created by graphics technology wizard Urbach, whose topic today is Disruptive Innovation at GamesBeat@GDC. In an interview, Urbach said consumers will be able to use the technology this summer.

One of the cool features of Otoy is progressive downloading. This means you can operate a digital distribution business such as Valve’s Steam network without having to wait a long time for downloading. As with OnLive, you can step into the play immediately. You may be playing a game on a server at first, but it eventually downloads to your computer where you can play it locally. Of course, if your machine is a low-end machine, you don’t have to play it locally. Urbach says the company has tested this technology with 400 games.

As with its rival OnLive, this cloud-based computing breaks loose a digital distribution business model for games, which are typically sold for $60 in retail stores. With this technology, web-based companies will be able to sell games directly to consumers.

About 10 supercomputers could probably support a million users, Urbach said. For this reason, AMD views the Fusion Render Cloud as the next evolutionary step in cloud computing.

“We look at Otoy as a technology that we can use to reorganize everything around cloud services,” said Charles Boswell, director of digital media and entertainment at AMD.

With these announcements, Urbach’s dream of getting a whole alliance of companies to launch a games-on-demand service is coming together. He thinks that services using Otoy will be launched for consumers starting in the summer. You’ll be able to play fast-action games such as Left 4 Dead 2 on any device by tapping into the Fusion Render Cloud, which is enabled by the supercomputer.

The consumer service will be similar to what Steve Perlman envisions with OnLive, the well-financed games-on-demand service backed by big game publishers and AT&T. But Otoy’s approach is very different. The company is operating in a horizontal fashion, while OnLive is more vertical, doing each layer of the service itself. Otoy is licensing its technology to be used in the supercomputer, which is fueled by graphics and processors from Advanced Micro Devices. Hosting companies will offer the cloud-based service to publishers of games and other apps. And consumers will ultimately subscribe to the services.

The hardware itself is quite intimidating. A supercomputer will consist of 128 servers, with a total of 250 AMD “Mangy Cours” Opteron microprocessors and 500 graphics chips based on AMD’s Cypruss designs. Each of those graphics chips can process 2.7 teraflops, or 2.7 trillion math operations per second. Each super computer could serve 3,000 high-definition users, or 12,000 standard definition users. Otoy’s own software on a consumer’s own machine is tiny, taking up just four kilobytes of data.

The system will work with Mac, PC, Linux, Android, Windows Mobile, Iphone,  iPad and custom set top box solutions based on cheap ARM chips. Besides AMD, Intel is also a partner, but Urbach would not say more about that. He did say that Otoy is trying to strike bundling deals now that will allow its software to reside on a wide range of platforms.

This horizontal approach, where each company provides just a layer of the overall solution, could allow Otoy to reach a larger group of consumers and companies than it otherwise might, Urbach said. In that sense, the games-on-demand service enabled by Otoy will resemble something like Amazon’s EC2 service, which leases cloud computing and storage to startups.

The Otoy technology isn’t a pure phantom. Dassault Systems has showed its SolidWorks application, a 3-D modeling and design program, working on a netbook via Otoy. Normally, that software has to run on a beefy workstation, but with Otoy it can run on any device. Urbach has shown high-end games running on iPhones using the technology.

Compared to OnLive, Urbach is certainly the underdog here. He has been talking about delivering this disruptive technology since 2004. But people took notice Otoy announced an alliance in January, 2009, with chip maker Advanced Micro Devices. Now OnLive has positioned itself as closer to a consumer launch than Otoy, though it’s possible that both may be out in the market at the same time.

The key question is whether Otoy, OnLive or a third rival, Gaikai, can pull off server-based gaming for millions of consumers on the same network. If they can, they will turn the video game industry upside down by cutting out retailers and eliminating the need to buy high-end game hardware.

As we’ve said before, the goal of shifting computing from the client (i.e., the user’s machine) to the server is an inexorable trend. Google hopes to undermine Microsoft’s client-based Office software with server-based Google Docs software. If it succeeds, Google could disrupt Microsoft’s 500-million user base.

Doing something similar in the games market — creating video games that can be instantly played from a server with no download to a client machine — could be similarly disruptive. If you can buy a game over a network, you don’t need the retailer. And if the heavy computing is done on the server, you don’t need anything more than a display in the user’s device. There is no need for a gamer PC or a game console. You can also play your games on any machine as long as you log into the same account via the Internet. The cost of delivering these games will likely be small, which means consumers could enjoy more games for less money.

These benefits are so obvious, you would think companies would have done it already. But technically, it’s an enormously difficult problem. Faster broadband connections help, delivering better throughput, or one-way traffic speed. But games need low latency, meaning fast interactions back and forth. Improving broadband speed helps with throughput but not with latency.

Urbach was a co-founder of The Groove Alliance, a Flash game maker that made a splash in the 1990s with cool 3D web games. He also started LightStage, a facial capture company that helped capture human faces so they could be easily animated in movies such as Brad Pitt’s The Curious Case of Benjamin Button. LightStage, coincidentally, does work that is similar to that done by another Perlman company, Mova. Both were used in the Benjamin Button movie, but for slightly different effects. George Gilder is the one-time pundit who advocated the onset of the “Telecosm,” a world awash in bandwidth, in the days before the last bubble.

Gilder has been one of the true believers in Urbach’s vision, in part because Gilder himself publicized the whole notion — articulated first by Eric Schmidt, who was then at Sun Microsystems and now is the CEO of Google — that huge broadband connectivity would “hollow out the PC,” meaning that a world with so much networking connectivity would have no need for heavy-duty user computers.