So What The Hell Happened To OnLive?
If you’ve been paying attention to the gaming news world in the last few days, you’ll know that rumours began circulating of the service being closed down, whilst also having to lay off its entire workforce. There’s also been talk of a new investor.
Quite honestly, I’m not surprised. I’m no expert on cloud gaming, but it sounded like the OnLive service was aimed at people who already owned consoles or games. Why bother with a streaming service when they had the media in their own home, free from potential latency or image resolution issues?
And, when this sort of thing happens, are our purchases even safe if the company folds? They’re hosted on their servers, after all.
CNet were impressed with the huge potential that cloud gaming has, but stopped short of advocating OnLive for much the same reason:
Whether or not OnLive succeeds will depend on several things. First, the games need to be numerous and important enough to tempt gamers onto the service, and cheap enough so they keep coming back after making the first purchase. Needless to say, lag will also need to consistently be kept to an absolute minimum, or gamers will take their coin elsewhere.
There’s no denying that cloud gaming has a huge amount of potential. This is a sensible assessment, and if a better business model existed, then it would likely see a lot more success. Unfortunately, spending a huge amount of money on servers – only to discover that the costs of running these servers outweighed the income from subscriptions – did not make for a profit:
“There’s no way to exactly estimate how many servers we’d need. So we literally bought thousands of them, and all the equipment and networks to go with it,” Perlman told employees. Those servers, he said, came with lengthy contracts – contracts that tied OnLive’s capital up in maintaining servers that few (if any) users were actually using. “If you’ve got 8,000 servers and 1,600 users, how could we ever get to cash flow positive, right?” Joystiq on OnLive’s final meeting
Evidently, it didn’t work out as well as hoped, but now that the dust around this company’s crash has settled, what is the damage?
First of all, OnLive didn’t close down. Joystiq informs us that the company is entering an “Assignment for the Benefit of Creditors”, whereby an assignee takes over the assets of the company. In OnLive CEO Steve Perlman’s terms, “the software, hardware, network architecture, our logo, all that stuff.” The company has a new cashcow, basically. That cashcow is Gary Laudner of Lauder Partners, LLC, renowned tech-investor.
Assets will be protected – but what about staff? Following the news a few days ago that ‘at least 50%‘ of the workforce were being laid off, the Onlive press release states:
Almost half of OnLive’s staff were offered employment at their current salaries in the new company immediately upon the transfer, and the non-hired staff will be given offers to do consulting in return for options in the new company. Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.
Essentially, the company has to slim down as much as possible in order for its new investor to afford the risk.
And what about the executives and shareholders? What about Steve Perlman himself?
Like all shareholders, neither Steve nor any of his companies received any stock in the new company or compensation in this transaction at all. Steve is receiving no compensation whatsoever and most execs are receiving reduced compensation to allow the company to hire as many employees as possible within the current budget.
Why execs had to get any compensation at all is strange, but that sort of thing has become common news, by now. The press release explicitly states that the CEO did not gain from this venture, which is the main thing.
All in all? Service is as normal – for now. The company got through by the skin of its teeth.
Android device maker HTC must be smarting, though, as it was also revealed that they lost $40 million of its stake in OnLive as a result of the fallout.
Original Sources: CNet: OnLive Review; VentureBeat: HTC loses $40M from OnLive, invests $35.4M in enterprise app maker Magnet Systems; Joystiq: Documenting the death of OnLive: notes from the company’s final meeting, Source: OnLive losing ‘at least 50 percent of staff,’ bought out by unknown third party