OnLive: Can They Handle Being a Niche?

You might recall a while back me ranting about Cloud Computing and how it was just an idea that died a long time ago but managed to resurrect itself under a flashy web 2.0 name. In that post I made a passing mention to a gaming service called OnLive which promised to deliver high definition gaming experiences to any platform that was capable of streaming video over the Internet. Although I really didn’t mention it in that post I was pretty skeptical that it could deliver on any of its promises and had many conversations with my gamer pals along those lines. Still they had open their services up for a closed beta for carefully selected people (most notably only in the US) but details had still been scant. That was until one of the guys at PC Perspective managed to wrangle himself a login:

Of course things aren’t always as easy as they seem.  Immediately after the 2009 announcement technology and game journalists began to wonder how the game service could work as easily and and as effortlessly as OnLive claimed.  By far the most troubling question was regarding latency – how would a service like OnLive deal with the input latency (time between data leaving your PC and arriving at the data center) of a mouse, keyboard or controller?  With as much as 100 ms of delay between servers on the Internet, that is a potentially long time between your mouse movement and your mouse movement appearing on screen.

Well, obviously looking for answers, I found a login for the closed OnLive beta and decided to sit down for a couple of weeks and give the service a thorough evaluation.  In this article we’ll look at both the ease of use of the service as well as the real-world experience of playing a few of the games.  I think you will find the results to be interesting!

Indeed the results were and I encourage you to follow the link above and read through the article in its entirety. He raises some good points and also highlights what the big road blocks are for the service. There was one thing that he didn’t end up mentioning though, and that was the business model that OnLive is going to be relying on.

For game publishers OnLive is a dream come true. No longer are gamers buying physical copies of their games which have that nasty effect of generating the second hand market they can’t profit from (not for lack of trying, however) and are also rife with piracy. Instead you’re now only renting a copy of the game and the second you stop paying, you stop playing. It has the effect of turning a one off sale into a continuing revenue stream. Much like a MMO without the continual investment in providing new content. You can see why nearly every major publisher has jumped on the OnLive bandwagon, it’s a huge potential cash cow.

However the problems that Shrout notes in his review of the OnLive service are real threats to their bottom line. For instance let us assume that their service works flawlessly given you’re within a certain range of the data center. The range limit then shrinks the potential customer base substantially since, although Internet access is pervasive amongst the gamer community, not all of them are within a short distance from a data center. There’s still a large potential market of people who are (namely any city with a population over 100,000) but this still requires that OnLive servers be installed at these locations and here’s where the problems start to arise.

With any new installation there’s going to be an overhead of minimum equipment required to provide the OnLive service. This then rules out most of the smaller cities since they won’t be able to guarantee there will be enough subscribers to justify the install costs. As such it would appear that OnLive would be limited to medium to large cities who could have a large enough population to guarantee the minimum number of subscribers to make the installation viable.

There’s also the fact that the service really only appeals to the casual gaming crowd. Sure I’d love to be free of the upgrade cycle but if I have to deal with input lag, blocky compression and having to pay a continuing fee to access the games I want suddenly buying my own PC capable of playing the games doesn’t seem like so much of a hassle. Casual gamers on the other hand would rather that they just be able to play the game and would be less concerned about the issues I meant above.

So in the end the target audience for OnLive is the casual, city dwelling gamer and to be honest most of them are pretty satisfied with their consoles or Pop cap game collections. Don’t get me wrong there are definitely people out there who would use and love the service however I keep getting the feeling that the idea of OnLive somehow revolutionizing the way we play games is just plain marketing hyperbole. But then again I guess that’s what all good marketing companies do when they’re pushing a product that’s completely different from anything else that’s been offered before.

The real question then becomes: can OnLive survive and profit from this niche? Only time will tell. With our gaming rigs lasting a lot longer due to the console revolution most gamers aren’t too fussed when their rig needs an upgrade. Couple that with the average age of a gamer being somewhere in their early 30’s with a much larger disposable income and the advent of digital distribution you’re looking at a market who doesn’t really need the services that OnLive provides. They may attract enough of a crowd to continue on for as long as they need to but I doubt they’ll ever become the pervasive service that they were initially marketed to be.

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