What Will It Take For GameStop To Overtake OnLive?

GameStop

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The GameStop/OnLive debacle last week is almost certainly a key milestone in the great retail-to-online migration. GameStop’s streaming game intentions have not been taken altogether seriously to date but this week’s actions show they mean business. What’s it going to take for GameStop to beat OnLive in this market?Firstly, capital. I’ve questioned the ROI potential for cloud gaming before. OnLive have raised at least $56M, with the majority of it being deployed on data centre infrastructure. At a guess (without sources), they’ll probably raise another significant round in the future so let’s say total capital requirement of at least $75M to be commercially scalable (note that doesn’t necessarily mean either profitability or an actual ROI). $75M for GameStop is not a lot of cash (they have about 10 times that on their balance sheet) but is it enough to make them think twice about any other digital acquisitions while they roll this out?

Secondly, people. Having a brief look at GameStop’s executive team, there’s still not a single one of them which has any direct online or ecommerce experience. They’re all retailers (albeit very good ones). Shane Kim is a reasonable addition to their board but if they seriously want to succeed in this space, they need to create a new C-level position and hire an absolute online games rockstar. Heiko Hubertz (BigPoint), Kristian Segerstrale (Playfish/EA) or Alex St. John (Hi5) are the kinds of names they should be thinking about. Although obviously those guys are a little tied up at the moment.

Thirdly. A short-cut. Normally acquisitions are done to speed things up. Buying a small piece of streaming technology (Spawn Labs) without a userbase doesn’t really fall into that category. According to Venturebeat, OnLive’s last investment round valued them at $1.8B. That’s over half of GameStop’s current market cap today, almost certainly ruling them out as an acquisition. Does that mean that Dave Perry’s Gaikai is an inevitable acquisition in the near future?

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