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High-end gaming on just about any PC or Mac, all streamed to your system through a tiny desktop client? That’s the promise of OnLive, a remarkable but controversial new “in the cloud” gaming service that launched this month. I’ve been playing big-name titles like Batman: Arkham Asylum, Unreal Tournament III and Red Faction: Guerrilla on my middle-of-the road MacBook Pro for almost a week now and have some hands-on impressions.

I’ve been pretty jazzed about the idea behind OnLive ever since the service was first announced more than a year ago. The concept is ambitious. Using a backbone of server farms spread across the country, all armed with banks of ultra high-end gaming PCs, OnLive aims to stream the hottest PC games straight to your desktop or laptop, even on systems without souped-up graphics cards or bleeding-edge processors.

All you need on your system, in fact, is a client smaller than 10MB that streams video and audio to your desktop — think of it as playing high-end PC games remotely over YouTube — as well as a decent broadband connection (at least 5Mbps or so). A “micro-console” about the size of a paperback book will let you play OnLive over your HDTV; it’s due later this year.

Of course, the question hard-core gamers have been asking is: How in the world will OnLive be able to pull all that off? What about latency — won’t precise running-and-gunning be impossible if there’s, say, a one-second lag between the time you click your mouse and your game character pulls the trigger? And how could the sterling graphics on a top-of-the-line gaming PC possibly survive the compression involved in streaming video over the Internet?

I’ve been testing out OnLive on a 2007-era, Intel Core Duo 2-packing MacBook Pro with a midrange graphics card for a little over a week now. And no, the experience is not like what you’d get from a hot-rod gaming system sitting on your desk. But to my eyes and ears — not to mention my itchy trigger finger — it comes surprisingly close.

For now, access to OnLive is by invite only. But you can sign up as a “founding member,” and if you do so before July 15, you won’t have to pay the usual $15-a-month access fee for your first full year of membership. You’ll also get the option of a second year for just $5 a month.

Installing the small OnLive client — just 8.5MB for my Mac — took seconds, with the service firing up almost immediately after a quick check of my MacBook’s specs. (A dual-core CPU and screen resolution of at least 1280 by 720 is recommended.) There is one annoying catch to using OnLive: You must use a wired broadband connection — although OnLive says the no-Wi-Fi restriction may be lifted once the service is “better established.”

Once you’ve fired up the desktop client, a window pops open and the OnLive logo appears, accompanied by an unworldly hum and some cool-sounding swooshes and techno beats. Next, a globe twirls into view, eventually zooming into a grid of nine main menu options, surrounded by a frame of windows showing live “look-ins” to games in progress. Cool.

After you’ve created a profile, you can jump right into the Marketplace of available games, which unfortunately is somewhat limited for now. Among the 20-odd titles are the ones I mentioned above, plus Assassin’s Creed II, Borderlands, Dirt 2, F.E.A.R. 2: Project Origin, Just Cause 2, Prince of Persia: The Forgotten Sands and Tom Clancy’s Splinter Cell Conviction. Some casual games are also available, such as Brain Challenge, Lego Harry Potter and World of Goo. Titles on tap include Darksiders, F.E.A.R. 3, Warhammer 30000: Dawn of War, Deus Ex: Human Revolution and Red Faction: Armageddon.

Prices range anywhere from zilch for a 30-minute demo to $59 for a full “Play Pass,” which entitles you to play a given game for as long as it remains available through OnLive. (The full Play Pass for some older titles is often cheaper; last year’s Red Faction, for example, is just $19 for the full pass.)

These “full” passes have, naturally enough, sparked an uproar among gamers, who wonder why in the world you’d pay full price for a title that might disappear from the OnLive servers — and indeed, if and when you drop your OnLive subscription, you’ll lose access to your full Play Pass games as well. It’s a fair question, and anyone who signs up with OnLive should consider those restrictions carefully before coughing up $60 for Prince of Persia.

Luckily, between the free demos and pricey “full” options lie some cheaper alternatives. For games such as Batman: Arkham Asylum and Unreal Tournament III, you can opt for a three-day pass ($4.99) or a five-day pass ($6.99), a handy option for those who aren’t necessarily interested in owning a game once they’ve beaten it. (Personally, I loved the Xbox 360 version of Arkham Asylum for the week it took me to finish it, but once I’d beaten the game, I sent it back to my Gamefly rental service without regret.) You can always extend a Play Pass if you want to keep fragging — and yes, your game saves will be preserved even after you let your Play Pass expire.

Besides the marketplace, OnLive also offers something called the Arena: a virtual peanut gallery that lets you watch in-progress games of other OnLive players, and you can even “jeer” or “cheer” their performance. You can also add and message with your OnLive “friends,” or shoot and upload “Brag Clips” of your greatest kills.

As far as how these games look and play, streamed over the Internet: That depends on your expectations and needs.

If you have a high-end gaming PC at home, you’re going to be disappointed by OnLive’s graphics performance, no question. Overall, OnLive’s visuals look a bit soft, and blocky, murky compression artifacts are clearly visible during moments of intense action like a huge explosion or bad guys swarming on-screen.

Looked at from the perspective of a mid- to low-end system, though, OnLive’s visual performance is a revelation. I’ve tried installing cutting-edge games on my 3-year-old MacBook Pro before, and I’ve consistently had to dial down the graphics to get anything approaching decent gaming performance. But with OnLive on my MacBook, I managed to get some pretty stellar-looking graphics with speedy, jitter-free frame rates. Batman: Arkham Asylum, Red Faction: Guerrilla, F.E.A.R. 2 and Dirt 2 looked far better on my aging MacBook than I ever would have imagined, making the occasional compression artifacts more than acceptable to my eyes. I even tried Red Faction on my super-light but graphically wimpy MacBook Air, which is most definitely not a gaming machine. Again, the graphics looked far better than I would ever have expected.

All right, so what about latency?

I tried OnLive using a wired Road Runner broadband connection, and even with my speedy throughput, I did notice a tiny bit of lag — maybe a fraction of a second or so, which was most noticeable as a slight “waggle” when I was navigating a game menu with a cursor.

Surprisingly, though, the ever-so-slight latency didn’t really bother me during gameplay. Punching villains in the face with the back of my Bat glove wasn’t a problem, nor was destroying buildings with my sledge in Red Faction. Yes, I crashed and burned quite a bit in Dirt 2, but I’d blame my performance more on my poor mastery of keyboard steering than on any lag.

The one time I did have a clear problem with latency was while sniping enemies in Unreal Tournament III. The slight waggle I mentioned made it tough to get a bead on baddies in my viewfinder, particularly when they were in motion.

Is OnLive a substitute for a high-end PC or a gaming console?

At this point, definitely not. If you’re a hard-core gamer and you expect the ultimate in graphics, plus pinpoint precision, you should stick with your souped-up $4,000 machine. And if you’ve got an Xbox 360 or a PS3 at home, you’ll probably want to double down on them rather than sink money in an online gaming service.

Other factors to consider include the sparse selection of titles available on OnLive (although the service plans to expand its roster rapidly in the coming months), as well as the fact that paying full price for an OnLive games doesn’t mean you “own” the title. You’re merely buying the right to play the game as long as OnLive supports it, and only so long as you keep paying your membership dues. If that limitation bothers or offends you, then by all means, stay far away form OnLive.

But if you don’t have a game console and you’re stuck with a somewhat middling PC or Mac at home, yet you still have a hunger to play the latest cutting-edge games, OnLive might be just the ticket. You’ll get graphics and performance that aren’t possible on entry- or mid-level systems, plus you don’t have to deal with the hassle of installing a game on your PC or blowing several gigs of storage on your hard drive (which you’ll have to do even with online game distribution services like Steam). Instead, games fire up almost instantly, and any updates and/or hardware upgrades are handled on OnLive’s end.

I’m curious to see how OnLive (as well as Gaikai, its yet-to-be-launched cloud-based competitor) evolves. From what I’ve seen, there’s a lot of potential here.

I hope the company will continue to improve its streaming and latency performance, especially as it gradually adds more players to the mix. I also hope OnLive considers lowering its $15-a-month membership fee to, say, $5 a month, or simply eliminate it altogether.

If access to OnLive were free for all (as opposed to just its “founding members”), it would be hard to see the downside of at least giving this “in the cloud” gaming upstart a try.

— Ben Patterson is a technology writer for Yahoo! News.

By Adam Satariano

July 6 (Bloomberg) — Apple Inc., with a storehouse of billions of music, movie and software downloads, is studying the buying habits of many of its 150 million iTunes users to show more appealing mobile ads and fuel competition with Google Inc.

Through the iAd program that began last week, Apple started placing ads in iPhone applications for the first time. Early iAd clients include Nissan Motor Co., Unilever NV, JC Penney Co., Best Buy Co. and AT&T Inc.

At stake is leadership in mobile ads, forecast by EMarketer Inc. to almost triple to $1.56 billion in 2013. Google, which gained the biggest share of online advertising by placing ads based on PC-Web surfing habits, may use that tack to widen a lead on handheld devices. Examining consumers’ entertainment and software purchases may give Apple an advantage, says Rachel Pasqua, director of mobile at marketing firm ICrossing.

“Apple knows what you’ve downloaded, how much time you spend interacting with applications and knows even what you’ve downloaded, don’t like and deleted,” said Pasqua, whose clients include Toyota Motor Corp. and Mazda Motor Corp. She isn’t currently working with Apple on iAd campaigns.

Relying on the music, videos and apps that customers are downloading from its iTunes, App Store and iBooks helps Apple sketch a behavioral profile that can be paired with appropriate promotional messages. On its website, Apple says its “standard targeting options” include demographics, application preferences, music passions, movie genre interests, television genre interests and location.

Apple, based in Cupertino, California, slipped $1.54 to $246.94 in Nasdaq Stock Market trading on July 2. It has gained 17 percent this year.

‘Surgical’ Targeting

Unilever, which began working with Apple in May on a campaign for its Dove Men+Care soap, is using iAd to zero in on married men who are in their late 30s and have children.

“Apple then overlays that with the iTunes information and targets quite well and quite surgically,” said Rob Candelino, marketing director at Unilever, based in London and Rotterdam.

Apple doesn’t share information on individuals, Candelino said. Instead, Unilever can choose to advertise in certain “buckets” of applications, such as those on news or entertainment, based on characteristics of its users.

“The leading global brands we’re working with are developing iAds timed with their seasonal marketing campaigns, such as back to school and the holiday shopping season,” said Apple spokeswoman Trudy Miller. “We’re just taking our first few steps. We’ll work our way up to walking and running as this year progresses.” IAd was announced in April.

5 Billion Downloads

U.S. mobile advertising spending will grow 43 percent this year to $593 million, according to EMarketer. The business will grow almost threefold more by 2013, reaching $1.56 billion, the New York-based research firm said.

The ads are being integrated into some of the 225,000 applications created for Apple’s online App Store. Users have downloaded more than 5 billion of them, according to Apple. The iAd system will be rolled out later this year to the iPad, which sold more than 3 million units in its first 80 days.

Apple Chief Executive Officer Steve Jobs said at a conference last month that the company had sold more than $60 million in advertising since the iAd platform was introduced in April. That’s about half the mobile display-ad market, according to JPMorgan Chase & Co.

Google, which this year bought mobile-ad network AdMob, doesn’t report what portion of sales comes from mobile. Google and AdMob may generate more than $100 million in U.S. mobile-ad sales in 2010, says IDC in Framingham, Massachusetts.

Google’s Strengths

From early on, Google has honed an ability to make ads relevant to users. As it rolls out mobile-ad strategies, the company could tap a wealth of information on how people use Web search, e-mail and software available via the Android mobile operating system, said Michael Collins, chief executive officer of mobile-ad agency Joule Inc.

“The question that many of us in the industry are very curious about is how much of that data will Google be making available to target,” said Collins, whose agency is a part of WPP Plc. “The more available data, the better the targeting.”

Apple appeals to a “premium” audience because of the cost of its products, while Google can reach a broader market because its Android operating system is on more devices, said Noah Elkin, an analyst at EMarketer.

“It boils down to the exclusivity of Apple and the customer you can target that way, versus the breadth that you have with Google,” he said.

‘Hype and Buzz’

Some marketers are skeptical that Apple’s success in selling gadgets will translate to advertising. Apple hasn’t proven that its platform will result in more effective ads that are worth the investment, said Thom Kennon, vice president of strategy at Wunderman, whose clients include Campbell Soup Co.

“Right now it’s hype and buzz more than reality,” he said. “There are just not that many people with iPhones in their pockets or iPads in their hands to consume this advertising.”

Companies that opt for iAd, though, say they’re drawn to the marketing prowess that has helped Apple sell about 100 million iPhones, iPod Touches and iPads in three years. Working with Apple was “unequivocally” a reason for choosing iAd, said Chad Jacoby, senior manager of Nissan’s marketing team.

To keep companies paying, Apple will need people to click on the ads and respond with their wallets, said ICrossing’s Pasqua. The better Apple can target ads, the more effective iAd will be, she said.

Privacy, Antitrust

Apple will also need to keep from running afoul of government officials concerned about anticompetitive practices and the way tech companies handle information gathered on users.

Federal Trade Commission officials are preparing to review allegations that Apple is trying to trammel rivalry in mobile advertising, people familiar with the matter said in June. They’re examining app-developer instructions, issued in June, that AdMob says might bar programmers from using Google and AdMob advertising software on the iPhone.

Regulators in the U.S. and Europe are also paying heed to privacy practices. The German Justice Minister last month raised questions about Apple’s practice of compiling data on users of its iPhone. The U.S. Federal Bureau of Investigation also began an inquiry into a security breach that exposed the e-mail addresses of as many as 114,000 users of the iPad.

Apple lets customers opt out of receiving ads based on iTunes download history or location. “With iOS 4, Apple has gone further to protect users’ privacy, particularly with respect to location, than anyone else has to date,” Apple said in a statement, referring to its mobile operating system.

–With assistance from Peter Burrows in San Francisco. Editors: Nick Turner, Lisa Wolfson.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

The chairman of PC maker Lenovo says Apple is missing a tremendous opportunity in China and places the blame squarely on Apple CEO Steve Jobs.

“We are lucky that Steve Jobs has such a bad temper and doesn’t care about China,” Liu Chuanzhi told the Financial Times. “If Apple were to spend the same effort on the Chinese consumer as we do, we would be in trouble.”

iPhone sales in China have been restrained since the phone debuted there last October. China Unicom announced in December that it had sold 100,000 iPhones, a modest figure considering China Unicom’s 144 million total subscribers.

Sales are limited because China Unicom is currently the only carrier authorized to offer the iPhone for sale, although Apple has conducted on-again, off-again talks with China Mobile. The phone sells for $730 to $1,020, according to published reports, much higher than gray market smartphones and iPhone knockoffs.

The phone also lacks Wi-Fi. Chinese regulations had prohibited the sale of any Wi-Fi device that does not use the country’s own wireless standard known as WAPI (Wired Authentication and Privacy Infrastructure). As a result, Apple introduced the iPhone with Wi-Fi disabled in order to enter the Chinese market without delays. However, due to a relaxation of rules, devices sold in China can offer Wi-Fi as long as they also include WAPI.

Lenovo recently began shipping its new LePhone smartphone in China, its first venture into the smartphone arena. Liu said the phone was well-positioned to compete with the iPhone because it was customized for users in China.

“This is a very practical thing,” Liu said. “The iPhone has more than 100,000 content providers, and we have no more than 1,000 But our Chinese customers feel our applications are very convenient to use.”

Apple representatives did not immediately respond to requests for comment.

The Hong Kong-based company recently returned to profitability, recording a fourth-quarter net profit of $13 million versus last year’s fourth-quarter loss of $264 million.