Size limits, contract negotiations, and competition across platforms defined Xbox Live Arcade this current console generation. While the service originated on the Xbox, it truly blossomed once it showed up on the Xbox 360.

The beauty of downloadable games.
Among classic bundled titles like Hexic HD, high-caliber success stories like Pinball FX 2, and phenomenal titles like Braid, Limbo, Shadow Complex, and Bastion launched through summer promotions, Xbox Live Arcade is the premiere service to get great games in small pieces on Xbox 360.
So where does the service go next?
When Xbox Live Arcade took hold of its new home on Xbox 360, the original size limit for all games was 50MB. This was originally due to the limitations of the Xbox Memory unit that plugged into the spare slots on the original Xbox 360 (which no longer exist on the Xbox 360 Slim). As the service changed through the years, the limit grew to 2GB, 40 times the original size.
So with the advent of a new system and an angle towards cloud storage, I think XBLA's future will leave size limitations in the past. Not only is a download over 2GB easy with generally faster internet speeds, Games on Demand already proves that people have no problem paying for, and downloading, huge file sizes.
But size limits bring up an interesting trend in Microsoft's downloadable service and may hint at signs of the future. I'm talking about Games on Demand. Not only are full retail games available through this service via actual currency rather than Microsoft Points, certain Games on Demand games are exclusive to the service.

This is now a downloadable world.
Crysis, a classic PC-pushing graphics-test, dropped onto Games on Demand late in 2011. Crysis on Xbox 360 isn't available via retail outlets and is too large to fall under the XBLA heading. Resident Evil 4 took the same route. So, due to this exclusivity, it stands as a new flagship leading the charge toward the downloadable future.
By blending Games on Demand and Xbox Live Arcade into a single entity, the future of digital gaming on Xbox Live could just be an extensive library of titles, retail or otherwise, available with the click of a button.
And with rumors of the Xbox 720 utilizing the cloud, a transition to digital availability makes sense. Steam has achieved immense success on PC, and XBLA has proven to be a profitable route, so a larger transition to available titles is the next logical step. If the cloud becomes the home of Xbox 360 storage, can streaming game content be far behind? Services like OnLive have proven that full-sized games can run smoothly while streaming from the cloud (just check out the iPad OnLive demo), so there's no reason the idea can't expand.

Still one of the most popular games on XBLA.
One area things may not change is the restrictions enforced by Microsoft on what they'll allow to arrive on their service. Current Games on Demand offerings have a checklist of requirements including "must have sold 1,000,000 copies at retail." This is a stumbling block Stranger's Wrath ran into. JustAddWater's game exceeded the 2GB size limit for XBLA and couldn't meet the requirements for Games on Demand. Their quality title is stuck in a downloadable limbo for Xbox 360 owners. A future where limitations no longer exist means gamers get more games, rules be damned.
Additionally, a downloadable-title tug-of-war between XBLA and PSN promotes top talent coming to both marketplaces (ideally Microsoft's). With a bevy of exclusives through year-round promotions like Summer of Arcade and House Party, bolstered by great support both on the dashboard and online, the platform is significant in quality and sales for developers. Castle Crashers exemplifies this: It remains one of the top-played games to date after three years. Sure, there have been a few stumbles like Team Meat's frustrations with Microsoft, but it appears most developers didn't end up with the same problem.
If the thin line between XBLA and Games on Demand vanishes, then the hurdle to leap is Microsoft Points. Microsoft Points only come in specific point-bundles, and almost no products actually cost the same amount as a bundle. That means the remainders only afford Jersey Shore abs or crumbling walls from Battlefield 3 rather than anything meaningful. In the future, kill Microsoft Points; real money for real content.

Looking on Microsoft Points, disappointed.
What do you want out of the next generation of Xbox Live Arcade? Do you want to see dedicated retail-size games only available online? I say as long as XBLA remains a powerful portal for fantastic experiences, then everything's going to be okay -- but maybe they'll need to change the name to Summer of the Cloud.
Peter writes for IGN's Xbox 360 team. You can follow him on Twitter and MyIGN.
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