Seems OnLive Couldn’t Handle Being a Niche Product.

It’s no secret that I’ve never been much of a fan of the OnLive service. Whilst my initial scepticism came from my roots as someone who didn’t have decent Internet for the vast majority of his life while everyone else in the world seemed to since then I’ve seen fundamental problems with the service that I felt would severely hamper adoption. Primarily it was the capital heavy nature of the beast, requiring a large number of high end gaming PCs to be always on and available even when there was little demand for them. That and the input lag issue that would have made many games (FPS being the most prominent genre) nearly unplayable, at least in my mind. Still I never truly believed that OnLive would struggle that much as there definitely seemed to be a lot of people eager to use the service.

For once though I may have been right.

OnLive might have been a rather capital intensive idea but it didn’t take long for them to build out a company that was getting valued in the $1 billion range, no small feat by any stretch of the imagination. It was at that point that I started doubting my earlier suspicions, that level of value doesn’t come without some solid financials behind it, but it seems that since that dizzying high (and most likely in a reaction to Sony’s acquisition of their competitor Gaikai for much less than that) that they only had one place to go and that was down:

We’re hearing from a reliable source that OnLive’s founder and CEO Steve Perlman finally decided to make an exit — and in the process, is screwing the employees who helped build the company and brand. The cloud gaming company reportedly had several suitors over the last few years (perhaps including Microsoft) but Perlman reportedly held tight control over the company, apparently not wanting to sell or share any of OnLive’s secret sauce.

Our source tells us that the buyer wants all of OnLive’s assets — the intellectual property, branding, and likely patents — but the plan is to keep the gaming company up and running. However, OnLive management cleaned house today, reportedly firing nearly the entire staff, and we hear it was done just to reduce the company’s liability, thus reducing employee equity to practically zero. Yeah, it’s a massive dick move.

We’ve seen this kind of behaviour before in companies like the ill-fated MySpace and whilst the company will say many things about why they’re doing it essentially it makes the acquisition a lot more attractive for the buyer, due to the lower ongoing costs. Whoever this well funded venture capitalist is they don’t seem to be particularly interested in the company of OnLive itself, more the IP and massive amount of infrastructure that they’ve built up over the course of the last 3 years. No matter how the service is doing financially those things have some intrinsic value behind them and although the new mysterious backer has committed to keeping the service running I’m not sure how much faith can be put in those words.

Granted there are services that were so costly to build that the initial companies who built them folded but the subsequent owner who acquired everything at a fire sale price went onto to make a very profitable service (see Iridium Communications for a real world example of this). However the figures that we’ve been seeing on OnLive’s numbers since this story broke don’t paint a particularly rosy picture for the health of the service. When you have a fleet of 8000 servers servicing at most 1600 users that doesn’t seem sustainable by any way that I can think of lest the users be paying out the nose for the service (which they’re not, unfortunately). It’s possible that the massive amount of lay offs coupled with a reduction in their current infrastructure base might see OnLive become a profitable enterprise once again but I’ll have to say that I’m still sceptical.

Apart from the monthly access fee requirement being dropped none of the issues that I and countless other gamers have highlighted have been addressed and their niche of people who want to play high end games without the cost (and don’t own a console) just isn’t big enough to support their idea. I could see something like this service being an also-ran for a large company, much like Sony is planning to do with Gakai, but as a stand alone enterprise the costs of establishing the require infrastructure to get the required user base are just too high. This is not even touching on the input lag or the ownership/DRM issues either, both of which have been shown to be deal breakers for many gamers contemplating the service.

It’s a bit of a shame really as whilst I love being right about these things I’d much rather be proven wrong, especially when it comes to non-traditional ideas like OnLive. It’s entirely possible that their new benefactor could turn things around for them but they haven’t done a lot to endear themselves to the public and their current employees so their battle is going to be very much up hill from now on. I’m still willing to be proven wrong on this idea though but as time goes on it seems less and less likely that it’ll happen and that’s a terrible thing for my already inflated ego.

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