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Reality disappointed: What we actually got was a limited library of not-new games (Homefront, anyone?), many of which you already owned, but even laggier than on your own hardware. Turns out traditional retail, game publisher, and hardware platform companies made it difficult for cloud gaming services to get the best games on the day of release, and even then the gameplay quality was slightly inferior.

But the concept of gaming in the cloud is still an idea worth pursing for a far greater promise: the ability to deliver an entirely new kind of game experience.

Historically, in games as in any other media, new distribution technologies enable new creative experiences. Pong wouldn’t have been possible without a new device plugged in to your TV. Internet-connected computers meant you could play Duke Nukem and Quake with other people online. The evolution of server technology brought massively-multiplayer games. The iPhone brought Angry Birds, a game designed for a touch interface, and so forth.

So why should a cloud gaming service be used to deliver the same old games as before that were built for a $250 machine?

What we should be wondering, then, is what new kinds of games and gaming experiences cloud delivery could inspire? Compared to the gaming hardware you own, a cloud gaming service could access much more computing power—with a limitless capacity to add processing. Consider after all that the most powerful supercomputer in the world, the Titan, is about 70,000 times more powerful than an Xbox 360. Granted the Titan costs a cool $100 million, which cuts out most households, but scaling back to basic and accessible data center prices would still offer many orders of magnitude more computing power than any current or near-future home console . (And this isn’t to say great gaming experiences are limited to powerful hardware—to the contrary mobile phones play compelling games, too. They’re just of a different sort.)

As for content itself, games purpose-built for the cloud do not yet exist — ones that aren’t encumbered by the limits of processing power, that would use the full advantage of many more, and more powerful, CPUs and GPUs. These “supercomputer games” would open up creative possibilities far beyond what games of today are capable.

Imagine supercomputer games with vividly lifelike worlds and characters (and not the almost-real, uncanny valley of current-generation graphics), or a single battlefield with 50,000 other players playing at the same time — or opponent AI on the level of IBM’s Jeopardy!-winning Watson. Supercomputer games could be dramatically different from anything you can play tonight at home. I’m no game designer, but what if we could use real-time traffic data to fill the streets of the next Grand Theft Auto, or step into a computer-generated world that looks as compelling as the Lord of the Rings movies?

Now, there are many reasons, beyond the technological, that these games don’t yet exist: It would be prohibitively expensive to pay artists to create all those detailed graphics, and simple AI is good enough to defeat most any player at most any game. But the record of creative innovators is that eventually they find a way to stretch the available technology to its limit. And some gamemakers are already beginning to probe at the games you can create if you host some of the game in the cloud.

There is a nagging constraint to the cloud, of course — bandwidth, which simply isn’t growing at the pace of Moore’s law. Network latency makes fast-twitch games, in which defeat is determined in microseconds (like with the top console genre, first-person shooters) hard to play over today’s internet. So, at least until the next engineering breakthrough, these supercomputer games might be designed around genres requiring slower player reflexes than, say, Call of Duty or StarCraft.

Best of all, the only hardware you would need at home is a basic input device like a controller and a box to render the graphics, and it could be cross-platform so that you could play from a PC or Mac or any smartphone. As one for-instance, OUYA, the new open, Android-based console I back, could be great for a cloud-delivered game (hear me, developers?), and its notable that Sony bought up Gaikai and certainly has plans.  (Full disclosure:  OUYA also has an announced partnership with the relaunched OnLive.)

Supercomputer games could be extraordinary. Now some intrepid game developers just have to make one.

Roy Bahat is Chairman of the open, Android-based game console company OUYA, and is former president of IGN. He is also on the faculty at UC Berkeley. Follow him on Twitter @roybahat

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“The new company is hiring a large percentage of OnLive, Inc.’s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services,” the company said.

OnLive said initial reports on the situation at the company were “way overstated,” but the company could not respond until the transaction was completed. The management team remains intact, but no further details were released. (original story continues below)

OnLive, a cloud gaming startup that promised big-budget game titles streamed to a TV or computer, is now denying rumors that it is shutting down and laying off its workers. It all started following an email reportedly sent by an OnLive employee who told veteran video game developer Brian Fargo that the staff was being laid off and the OnLive service would be shut down with a new company formed. The employee, however, then tried to recall his sent email.

Mashable quoted a source close to the situation who said the staff was fired at a company meeting, with some of the employees potentially rehired as the company transitions to something new.

UPDATE: Joystiq is reporting that the company has been sold to a third-party and that at least 50 percent of the staff was laid off. A former employee told Joystiq that employees were not getting severance and that OnLive was dealing with operating costs of $5 million a month. There’s at least one report of OnLive employees leaving the office with moving boxes.

I reached out to OnLive PR and was told by spokesman Brian Jacquet in an email that: “My comment is no comment on the news other than to say the OnLive service is not shutting down.”

That still leaves a lot of wiggle room including the potential that the service has been bought by another company. OnLive has been rumored to be an acquisition target of Microsoft or Sony in the past. Sony eventually bought OnLive rival Gaikai.

Some citics and competitors have wondered whether OnLive’s business model was sustainable. TransGaming CEO Vikas Gupta questioned whether’s OnLive’s fluctuating operating expenditure and performance concerns would be able to hold up over time. That’s a key question because the company is required to make big investments in data centers to support its streaming service.

Mashable said the company has turned down acquisition offers in the past and now may be only viable as an intellectual property play based on its cloud patents.

The company has been inking deals lately including with Ouya, the TV game console Kickstarter project. The company’s Twitter account is still pushing out updates on product news.

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HTC has typically taken the same approach as ZTE with many smartphone models, but this year is a different story. In light of slowing sales and many models, HTC is refocusing on a single Android line, the HTC One. It’s a smart move, although it appears that HTC is abandoning the low- to mid-end of the smartphone market with this decision.

Two versions of the One will launch in the U.S. this spring: the One S on T-Mobile’s network and the One X on AT&T. Both share similar qualities: Android 4.0 with HTC Sense 4.0; Beats Audio technology and an 8-megapixel camera with a wide f/2.0 aperture; large, high-resolution displays; and a Qualcomm 1.5 GHz dual-core processor.

It’s worth noting that the One X outside of the U.S. will use a quad-core Nvidia Tegra 3 chip. For now, however, the Tegra 3 doesn’t support an LTE radio. And that means its chip can’t power many new phones, for AT&T, as the carrier, wants to push its new 4G network. Nvidia did announce new LTE radio partners this week, so eventually it will be able to offer LTE handsets.

As the Mobile World Congress event wound down, OnLine made an announcement for Android tablets and phones. The company already offered OnLive gaming, a cloud-based service that offers console-quality titles, and now supplements it with a remote Windows 7 solution.

OnLive Desktop, a free download in the Android Market, connects an Android tablet or smartphone to a Windows instance in the sky. OnLive’s servers host the Microsoft environment. The free service offers 2 GB of remote storage and access to the Office productivity suite. Paid plans bring support for more Windows features and additional storage.

I tested OnLive Desktop on both my Galaxy Tab 7.7 and loaner Asus Transformer Prime, and it works well; at least over Wi-Fi. I haven’t yet tested it over mobile broadband. With a good connection, there’s very little lag. I was able to type and edit a Word document just as well as if I were running Windows directly on a computer. For those that use Android devices but need occasional access to Windows 7, I recommend giving OnLive Desktop a try.

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Japanese cloud-gaming and VOD startup G-cluster plans to enter the U.S. market with an on-demand mobile gaming service, presenting a possible challenge to OnLive. The company has secured an unnamed amount of funding from Intel and Vivendi’s French mobile carrier SFR to expand its reach beyond home casual gaming and movie streaming into high-end gaming for tablets and smartphones.

G-cluster has already established itself in France, providing a casual gaming service through SFR’s residential broadband arm that customers can access through their TVs and set-top boxes or on their Macs or PCs. In Japan, G-cluster is offering an HD movie-on-demand service to connected TVs. But according to Sevan Kessissian, G-cluster VP of Content and Strategy, the startup has bigger ambitions than just casual gaming and video in the domicile. It plans to combine the processing might of the cloud and low-latency, high-bandwidth connections of new wireless networks to create a mobile service that supports high-quality, real-time gaming to tablets and other mobile devices. And it plans to launch that service in the U.S.

“We are in discussion with major partners in order to penetrate the US market” Kessissian said via e-mail. “The game catalogue will be a blend of the best casual games and AAA games.”

Kessissian didn’t provide any details about which partners G-cluster is in discussions with or when such a U.S. service would launch, but when it finally does emerge here it may find an already established competitor in the market. In December, OnLive announced its mobile gaming service for iOS and Android devices.

My colleague Kevin Tofel reviewed OnLive’s mobile beta on the iPad, over both Wi-Fi and 3G, and was particularly impressed by its performance when hooked into his home network connection. As Kevin pointed out in earlier post, virtualization services like cloud gaming to the tablet and smartphone are proliferating, delivering one more blow to already suffering PC sales.

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But don’t take my word for it, check out one of the premier game development events, the Games Developers Conference, held every year in San Francisco. Through its voluntary post-show surveys, the conference found that 43 percent of attendees in 2010 said they were involved in mobile development projects for a smartphone or tablets. Last year, 56 percent of attendees reported that smartphone or tablets development was their company’s major focus and 55 percent said this development was their company’s secondary focus.

The next GDC takes place from March 5-9 and the trend shows no signs of changing. Attendance was up to 19,000 in 2011 and early indications suggest the show should be even bigger this year. I talked with Meggan Scavio, general manager of the Game Developers Conference, about what she’s seeing and she said development is chasing user interest, which is booming in smartphones and tablets. The conference is evolving to fit what’s happening in the development world.

“Games are changing and team sizes are changing. People are finding it’s easier to build and distribute games on their own on mobile platforms,” Scavio said. “You’re seeing more traditional game developers working for smartphone development companies and these games are becoming more creative.”

The show itself has evolved in a lot of ways reflecting the rise of mobile gaming. The mobile summit, which used to be quiet side event, has morphed into the Smartphone & Tablets Games Summit with more than 20 sessions spread over two days. But also interesting to note is the rush of big technology companies looking to set up their own sponsored mobile developer days.

Google has expanded its developer day to two days and may continue its tradition of handing out free Android devices. This year it will be joined by Qualcomm, Unity and DeNA’s Mobage for the first time. Research in Motion, which has mainly conducted small business meetings at previous GDCs, is now going big with a large booth and it’s also sponsoring a session on developing for the PlayBook.

“We’re finally having discussions with mobile providers. They’re participating at a level they never have before,” Scavio said.

In a first for a mobile title at the show, GDC will also be doing an in-depth design look at Jetpack Joyride, a critical and consumer favorite. Much of the main conference has traditionally been dedicated to big budget console and PC titles but that’s starting to change, Scavio said.

She said traditional game development appears to be still very healthy. But the rise of mobile gaming is unmistakable.

It’s a good reminder of how smartphones and tablets are changing industries. We’re seeing stalwart Nintendo stumble through some tough times and Sony is trying to come back with a new Vita handheld game device. As Flurry pointed out already, revenue is increasingly flowing toward mobile app titles with mobile titles generating one third of all portable gaming revenues in 2010, up from 19 percent in 2009.

There’s still a need for big titles and dedicated hardware. Those are still responsible for some amazing gaming experiences that just can’t happen on mobile devices for the most part. But with more powerful smartphone and tablet hardware hitting the market, we’re getting even more sophisticated games that are increasingly immersive, not just time killers. And with cloud gaming services like OnLive, we’re seeing how mobile devices can play at a much higher level using a fast broadband connection. With smartphone and tablet penetration still growing with a lot of room left, this trend toward mobile gaming will only accelerate in the coming years. Consumers are embracing mobile games and developers are adjusting.

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There are definitely some limitations in the AlwaysOnPC solution that are helping to keep the company’s costs down. Instead of a connecting to a Microsoft Windows instance, users will see Fedora Linux on the Kindle Fire. The desktop environment is locked down as well; you’re not going to install apps on this virtual desktop. Firefox and Chrome are both installed, complete with useful browser extensions such as Evernote’s web clipping service. OpenOffice, of course, takes the place of Microsoft Office. Sound and video streaming aren’t yet supported either.

Even with such limitations, however, for Kindle Fire owners who have casual but important PC needs, an app such as this could be extremely useful. It’s smart, for example, that the app supplements the 2 GB of included disk storage with integrated Dropbox support. A conference call with document or presentation sharing is available through Zoho Meeting. And Java applet support allows for apps such as Runescape and PartyPoker.

I haven’t tried the app, and reviews vary, so I’d recommend the free five-day trial available on a PC or a Mac before buying. Regardless, AlwaysOnPC joins OnLive Desktop and other virtual computer apps that are fast finding their ways to tablets. The PC isn’t going anywhere soon, but as noted before, the trend is moving towards mobile devices, as sales of tablets and sales of PCs are heading in opposite directions.

Image courtesy of Flickr user timwilson

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Here’s a look at the upcoming iOS OnLive gaming client on my iPad, along with the $49.99 OnLive Game Controller, which works over Bluetooth or USB.

The service also works on and is available for Windows PCs, Mac OS X computers and Google Android devices; I’ve tested it on my MacBook Air and Galaxy Nexus phone, for example. Service quality has been great over Wi-Fi — I have  a 25 Mbps FiOS connection — and I’ve even had some playtime over 3G. However, this type of cloud service runs best with a stable, reliable pipe, so a spotty mobile broadband connection isn’t optimal in my opinion.

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The price tag is the best part

Somehow, OnLive Desktop is free. It doesn’t cost a dime to download the app from the App Store, and there’s no subscription service to sign up for. The app also doesn’t require you to own a copy of Windows, as do Mac virtualization apps like Parallels and VMware. Windows 7 is already set up and running on OnLive’s remote servers. All you have to do is sign up for a free OnLive account (or use an existing one if you already signed up for OnLive’s gaming service) and connect.

Better than remote desktop apps, local virtualization software

Despite OnLive Desktop is working over an Internet connection talking to servers miles away (likely hundreds of miles in my case), it performs better than any remote desktop apps I’ve used on my own local Wi-Fi network. There’s very little lag; apps open and close speedily; and documents, spreadsheets and presentations are already setup by default to save to a synced folder, which auto-syncs at regular, frequent intervals.

In terms of setup time and ease of use, OnLive Desktop beats out both remote desktop apps and virtualization software running locally on Macs, in my opinion. This is especially true if your intended use is light editing of documents you need to access right away when away from home, since you can download from and upload to a web interface at files.onlive.com for your specific synced OnLive Documents folder.

Limited in scope, but should hit the right notes for most

OnLive Desktop has some limitations your own local installations of Windows won’t, however. Any changes you make to app or system settings won’t be there the next time you log in, for instance; OnLive does this to ensure speedy connections and easy jump-in, jump-out functionality for all users.

You also can’t install new programs or access anything beyond what OnLive provides, so this definitely isn’t a solution for Windows-based gaming. Still, those pre-installed apps include Word, Excel and PowerPoint 2010, as well as Windows Media Player and some basic utilities. You can’t access Internet Explorer, which would be a nice touch for people working remotely who have to access IE-only enterprise dashboards, for instance.

Finally, there’s the issue of not being able to use the iPad’s own software keyboard. Instead, you’ll get the Windows 7 on-screen keyboard. It pales in comparison to the Apple version, but it’s usable nonetheless. Also, know that if you exit the app mid-edit, you won’t be able to save your document when you jump back in, even if it resumes with the document open.

Despite those limitations, OnLive probably provides what the vast majority of its target audience requires: a quick and easy way to edit Office docs on the go. The extremely high-quality Windows Media Player streaming playback and other perks like the ability to use the touch-optimized Microsoft Surface Collage app, are just are icing on the cake.

Microsoft’s Office iPad apps are here

With Bluetooth keyboard support and the ability to connect over 3G (OnLive disconnects you after 10 minutes when connected this way, but that’s plenty of time to accomplish minor edits on the fly), I see little reason to go elsewhere for Office-compatible document editing. Plus, if this app eventually gets an upgrade to the tablet-optimized Windows 8, it should be even more touch-friendly.

Rumors occasionally crop up that Microsoft is working on dedicated Office apps for the iPad. With OnLive Desktop, I find myself happy to wait for Microsoft to take as long as it wants to get its act together.

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The introduction of OnLive Desktop means iPad users will now have access to full-featured versions of popular and powerful Windows PC applications. The application, available free from the iTunes App Store, runs virtualized versions of Microsoft Word, Excel and PowerPoint software on its data centers in the cloud.

The OnLive Desktop app fulfills the dream of cloud computing that many hoped would someday come, through which processing happens in the network rather than on the device. That means that devices no longer need to have high-end CPUs or memory to handle business-class applications. For instance, with the release of the OnLive app, the iPad could for the first time be seen as a potential laptop replacement for business users who need more powerful and feature-rich productivity software than is currently available on the tablet.

Since applications are running on high-end computing clusters in OnLive’s data centers, the only thing holding back performance is the network. Which means that in today’s world of pervasive broadband connectivity, Windows applications running on an iPad could potentially be faster than those running on a standard Windows 7 laptop.

OnLive is making the Desktop app available in a freemium model through which users will get 2GB worth of cloud storage and the ability to use Windows 7 applications such as Word, Excel and Powerpoint, as well as other utilities and games. Documents can be stored in the cloud and accessed from any device with a web interface. In the near future, OnLive expects to launch Onlive Desktop Pro, a more robust service that will offer up 50 GB of storage, priority access, additional apps and other features for $9.99 a month. It also promises collaboration features for enterprise users such as sharing documents or working on virtual whiteboards.

The company also plans to extend well beyond the iPad, with apps for Android smartphones and tablets, as well as support for streaming apps to the PC, Mac and TV support through its OnLive MicroConsole thin client.

OnLive Desktop is not the only way to run Windows apps on iPads. Last fall, Iongrid introduced Nexus, enterprise software that promises to let corporate users stream their Microsoft Office applications securely — and with high fidelity — to their iPads.

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