Before I dive into what OnLive is and how it works, let me start by saying that you should read every word of this article as this service has the potential to completely change the way games are played. If it works and gets proper support from both publishers and gamers, you may never need a high-end PC to play the latest games, or perhaps even ever buy a console again. That is not an exaggeration.

Just announced at this year's GDC, OnLive is an on-demand gaming service. It's essentially the gaming version of cloud computing - everything is computed, rendered and housed online. In its simplest description, your controller inputs are uploaded, a high-end server takes your inputs and plays the game, and then a video stream of the output is sent back to your computer. Think of it as something like Youtube or Hulu for games.

The service works with pretty much any Windows or Mac machine as a small browser plug-in. Optionally, you will also be able to purchase a small device, called the OnLive MicroConsole, that you can hook directly into your TV via HDMI, though if your computer supports video output to your TV, you can just do it that way instead. Of course, you can also just play on your computer's display if you don't want to pipe it out to your living room set.

When you load up the service and choose a game to play (I'll come back to the service's out-of-games features in a bit), it starts immediately. The game is housed and played on one of OnLive's servers, so there's never anything to download. Using an appropriate input device, be it a controller or mouse and keyboard, you'll then play the game as you would if it were installed on your local machine. Your inputs are read by the plugin (or the standalone device if you choose to go that route) and uploaded to the server. The server then plays the game just like it would if you were sitting at the machine, except that instead of outputting the video to a display, it gets compressed and streamed to your computer where you can see the action. Rinse and repeat 60 times per second.

UPDATE: Been watching the live comment stream throughout this; it's hilarious to watch people's reactions. Early on, everyone was laughing at it, calling it a joke, not believing it was anything worth paying attention to... they kept saying things like "Play Crysis and then we'll talk". And then they demo'ed Crysis, and I started seeing things like:

HOLY CRAB

All of a sudden everyone's sitting up and taking notice. The vast majority of commenters are talking about picking their jaws up off the floor, talking about how this is the end of the console wars and the harbinger of world peace. It's bowling them over.

When they mentioned the fact that there's no potential for piracy in this system, everybody's reaction is: "LOL I beg to differ!" and "Someone always does figure it out"—And I just have to ask... how exactly do they expect it can be pirated? Some scurvy buccaneer is going to hijack the data center and take over all the hosting bills?

They keep asking about the price now. "I sure hope this isn't too expensive, like I couldn't see paying more than $150-200 for this"... somehow I doubt it'll cost that much. It'll be mostly a subscription thing; nuts to those who hate subscriptions, but I'd say that's way better than plunking down the $700 or so that some people are tossing around. However, the comments al universally went "Subscription? NOOOOOO!" as soon as that was mentioned. Apparently they think it'll be like $250/month plus the cost of a "console", as though that little decompressor box even counts as a "console". C'mon... they have to price this competitively or else they may as well not bother.

I mean, hell, they're demo'ing it playing via a browser plugin. All the "console" is is a glorified decoder box and Ethernet switch so you can do it on your TV. It's not going to cost hundreds of dollars like an Xbox or PS3. Hell, I'd be surprised if they sold it at component cost; more likely they'll work out some subsidized deal like that Roku thing that does Netflix.

A lot of people think the controller looks dorky, and most people want the "L I V E" buttons to go away.

They can't seem to get it into their heads that this isn't a "console" that will have "exclusive titles". This encompasses all platforms; they can serve anything from any platform, all from inside the big cloud. I can't put it any better than the commenter who said: "Lmao dude just glue all ur previous consoles together lol"

They also think that Microsoft will copy this within weeks; or that they and Sony and NVidia et al. will be sending in teams of ninjas any moment. But what's the point of any gamer signing up with a branded exclusive when OnLive will be able to deliver all the same games from Microsoft, Sony, and anyone else who tries it, unless they release them as "exclusives" that only run on a putative Xbox Online or Sony Online service that they'd have to develop for as a whole separate console?

And now they're wrapping up... and announcing that there are demo PCs and Macs out in the lobby for everyone to try it for themselves. That should put paid to anyone who thinks it's all a giant rig.

Now I just want to see what Penny Arcade has to say about all this...

UPDATE: We have our answer.