a lot of people seem to think that gaming is going to ultimately become a stream only service. Some even think this may happen as early as next gen. I am going to try and explain why I think its not possible and why I believe game streaming will not replace a dedicated gaming box anytime soon. 

First, let's look at what a game streaming business model will look like to be better or at least match dedicated consoles or PCs by 2020

1. the stream should support at least 1080p/60fps
2. the gamer will be paying for a $40-$60 game that they never download but just stream when they want to or
3. A stream subscription service of like $10-$20/month with limited support.Games on the service will be at least 12-18 months old. 

It is but it will take some time and consumer demand's and market realities will have to find a happy medium.

Truly people don't overly care about owning the game physical or digital, they just want to feel they got a good value for their $$.

The bigger problem I see is the issue of DDoS and other forms of network woes. Remember when large parts of PSN and Xbox Live were down at the end of last year for days on end? Imagine if every game were dependent on that network to even function. And if that were the case, the trolls who do this would just grow in number as every network trouble makes even more people more upset and gets them even more attention.

I`d hate it if gaming became a streaming service. If I could only rent a game for so long with a subscription model, I think I`d quit gaming there. I don`t think it`ll happen anytime soon though.

Yeah, even the idea of not actually owning what you invest your money is a pretty bad one.

I'm hoping that this model doesn't happen anytime soon, but it could be inevitable in the distant future.

I don't really like digital downloads in the first place, but I can see this model appealing to some.. No long download times required but is still very similar to digital downloads, etc.

It will happen. Its just that the traditional AAA model is trying to force its viewpoints of $60 games on streaming. That is what will change in the future. Otherwise it is the future.

I don't see streaming going above 1080p very quickly. If you want to play in 4K then buy a game the usual way.

If streaming becomes the mainstream then new games will go straight to the streaming service. As of now, because it's not the main source of gaming revenue companies like Sony only put back catalogue stuff on streaming. But that will change as the model becomes a larger segment of the market.

As streaming becomes mainstream new game design techniques and hardware will be developed that facilitates the ability of one hardware unit servicing more than one gamer at the same time. No one has tried to do this yet because there's never been any need for it. If a high end gaming rig is capable of 4K gaming with high quality graphics and with a lot of action happening on screen, then that gaming rig will have a lot of spare capacity when much less demanding games are being run on it, including the same game at 1080p with lower graphics setting. It just requires more effort to be put into parallell processing. We already have the same game being made available in different levels of quality with the PC/Console split. If people know they have 24/7 access to a library of thousands of games, they will be willing to game at 1080p, or even 900p or 720p as a trade off for access to more games than they could ever hope to own. And of course because people don't game 24/7 the idea of 1 hardware unit for one subscriber is ridiculous. If the average gamer games 4 hours per day then that already drops the number of hardware units down to 1 hardware unit per 6 subscribers (assuming a roughly even distribution of subscribers across the time zones).

What you have listed are just a set of technical challenges that will have a solution, provided there is a good business case and a clearly identifiable path to profitability. Onlive proved the concept was possible, and it will probably take a few other companies to try and fail before the first truly viable game streaming business gets going. But I have little doubt that it will happen, it will become mainstream and it will happen sooner than people think.

Indeed streaming + VR seem to have a natural fit. With streaming you can make the home based processor very cheap, and thus put more of the cost and quality into the headset. This would overcome one of the hurdles associated with VR because right now you have to buy an expensive console (or PC) AND a probably fairly expensive VR headset. But if you can buy a console for $99 then this makes VR much more accessible.

I hope it doesn't happen but the problems you mention are not going to stop it.

While movie streaming is far less costly, what it has proven is that people are fine with lower quality, old titles and not owning anything. A 480p30 game stream service for $15 a month is probably fine for millions of people. Just as Netflix charges more for 4K movies, you can have separate tiers, $25 a month for HD gaming, $35 a month VIP membership for the newest titles and early access.

The initial cost is pretty high, yet a flexible server farm will cost less than designing, manufacturing and selling new hardware at a loss every 6 years. No more splitting your install base with the chance they'll move over to a competitor.

The real problems are latency and stable bandwidth. Bandwidth is always improving, yet latency can't beyond a certain point. With VR launching latency becomes a real issue. Head movements have to be processed locally, frame rates need to be perfectly stable and 75fps or higher. VR will save us from game streaming.

VR fits streaming the least. Sure you can adjust for head movements at home by sending a bigger image to crop on the fly, yet everything else will still lag. Seeing your virtual hand lag in VR will just be as annoying as operating a mouse cursor over remote desktop. Stuttering and temporarily switching to lower quality will easily cause nausea in VR. Nevermind it demands the most out of the hardware. 1080p75 is the minimum, while 720p30 is perfectly fine for streaming without vr.

Think about this. VR and AR are so latency sensitive, Microsoft built the CPU into their hololens headset.