"If we were to unicast to hundreds of thousands of users it would just swamp the network systems," says Perlman, whose management team includes veterans of companies such as Eidos and Netscape. "Compressed video might be a 5Mbps stream. If you have a 100,000 simultaneous 5Mbps streams, even Gigabit Ethernet gets overwhelmed very quickly. There are so few people doing things like IP multicast within the data center and we're doing very high speed multicast."

You might wonder why so much energy was put into ensuring that users would be able to watch others play games. After all, isn't watching someone else play a video game the ultimate in laziness? Not at all, says Perlman. He became aware in the 1990s from talking to AOL that only something like 1 in 10 people in online chat rooms actually chatted – most went to see what others were saying. But he says with gaming, it makes a lot of sense that players would want to see how others approach a game to learn techniques that they themselves could employ (he related a personal example where he watched another multiplayer game player turn invisible and go underwater to outwit an enemy).

Despite OnLive's technical efforts, the company has its skeptics, who question whether it can really account for varying levels of network service when delivering applications that won't satisfy users if even the tiniest bit slowed. Perlman says beta tests have gone fine across various connectivity types, though he notes his company has found itself diagnosing testers' home network gear and directing others to contact their ISPs about chronic packet loss.

"The worst case scenario we're seeing is 25ms of last-mile latency – and we've budgeted for that," Perlman says. "We can control the latency within the Internet pretty well through peering agreements with ISPs serving our data centers."

Game developers, meanwhile, have rallied around the company both financially (Warner Bros. is among its investors) and by making their games available through the network. OnLive is seen as a way for game vendors to cut distribution and development costs.