By Rob Fahey
For a technology which is supposedly going to completely change the way we access and consume video games, cloud gaming is certainly having a bumpy start. The latest chapter in the saga of OnLive, the hugely ambitious and much hyped cloud service, is perhaps the murkiest yet, with the company being shut down and its assets shuffled quickly into a new company, managed by the same CEO – leaving investors and staff in the original company high and dry.
If that sounds dodgy to you – as it does to a lot of people – that’s because it is, albeit not in a legal sense. It’s a piece of corporate manoeuvring which is permissible in the US, using a system called “Assignment for the Benefit of Creditors” (basically a pre-pack of a failing company, although the creditors in this instance are unlikely to feel that much has been done for their benefit), but while the legal ends may be neatly wrapped up, the morality of such a move – keeping the same people in charge while dumping staff and investors – is certainly deeply questionable.
Ours is not really the place to make moral judgments, though. What’s more interesting is the question of what has come out in the wash regarding OnLive’s market position – and what that says about the whole grand cloud gaming experiment.
The most oft-quoted figure, over the past week, is a number which purports to be OnLive’s peak concurrent user figure – around 1800 users. It’s tough to extrapolate subscriber numbers from that figure without additional data, but somewhere south of 20,000 seems plausible. Meanwhile, the service was costing around $5 million a month to run. This is not, in any sense, a viable business.
OnLive made some specific mistakes which reflect on extremely poor management and a deeply flawed understanding of the market. The company spent a fortune distributing OnLive streaming consoles for free in an extremely naive attempt to build an installed base – but few of those consoles are actually in use, not least because they were distributed to gamers who generally already own hardware capable of using OnLive services.
Many recipients also discovered that their broadband connections weren’t up to OnLive’s requirements; and of course, there’s the simple reality that if you give someone something for free, they’ll consider it to be of no value. A major part of the reason why the razors-and-razorblades model works for games consoles is because having made an investment in a console, users want to justify that investment by acquiring more games. With no investment in OnLive, users felt no such urge. Not only was OnLive wasting its money, it was actively devaluing its own service in users’ eyes.
That speaks to the other fundamental flaw with the OnLive business. Who, exactly, was it targeted at? The marketing and promotion for the service seemed to be pretty directly targeted at core gamers and early adopters. Yet they’re precisely the people who are most likely to be unwilling to suffer the flaws in OnLive’s performance – the lag and graphical degradation which are an inevitable consequence of streaming high-definition interactive content over home broadband connections.
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