OnLive

What did it do?

OnLive was a cloud gaming service that ran games on its own servers and streamed the picture to users as video. This meant new games could be played on computers without powerful hardware, on smart TVs and on the company's own MicroConsole device. The company also offered OnLive Desktop, a cloud-based Windows desktop service accessed from tablets.

Why did it shut down?

The gaming experience depended on the user's internet connection; critics wrote that latency and picture quality varied from game to game and caused problems in titles that demanded fast reflexes. In October 2010 the company scrapped its subscription fee altogether. In August 2012 it laid off all its staff and went through an assignment for the benefit of creditors; shareholders lost their stakes, and the assets were sold for USD 4.8 million to a new company set up under the same name. The new OnLive operated for a few more years, but in April 2015 it sold most of its assets to Sony and shut down all its services.

The story

Taking the stage at the Game Developers Conference (GDC) in San Francisco in March 2009, Steve Perlman presented the games world with an audacious idea: games would no longer run on the player's computer but on distant servers, arriving on screen as a video stream. There would be no need to buy an expensive gaming PC or console. Part of the gaming press was sceptical from day one; Digital Foundry, Eurogamer's technical team, published a piece explaining why OnLive could not work.

The Mountain View-based company brought on board investors such as Warner Bros., Autodesk and Maverick Capital, and in a later round AT&T and Lauder Partners. The service launched in the US in June 2010 and in the United Kingdom in September 2011. Users could rent games, play demos and watch other people play from computers, smart TVs or the USD 99 MicroConsole. For a good experience you needed to be no more than roughly 1,600 kilometres from one of the company's five data centres.

The problem surfaced exactly where the critics had predicted. The experience depended on the user's connection; Digital Foundry wrote that during intense moments of play latency frequently exceeded the acceptable limit. In October 2010 the company scrapped its monthly subscription fee. Then, on 17 August 2012, it laid off all its staff and went through an assignment for the benefit of creditors. Shareholders lost their stakes, and the assets were transferred to a new company bearing the same name. Information that emerged later showed the sale price was just USD 4.8 million, whereas analysts had at one point estimated the company's value at around USD 1.8 billion.

In 2014 the new OnLive made Mark Jung its CEO, launched a new service called CloudLift and signed deals with device makers. But in April 2015 it announced that it had sold most of its assets to Sony and would shut down all its services at the end of the month. Sony was running PlayStation Now in this space, built on the infrastructure of Gaikai, OnLive's former rival.

OnLive's vision was not entirely wrong; the fact that a major platform company kept the same idea alive shows as much. But the company tried to scale with expensive infrastructure while the broadband infrastructure the idea depended on was not yet ready, and it paid the price.

Lessons for founders

• If your product depends on the user's internet speed, do not scale it without testing under the real connection conditions of your target market.
• In a model that needs expensive server infrastructure, going free does not make the unit cost disappear; build your pricing around infrastructure costs.
• Even if your patents are valuable, if you are forced to sell in distress you have no bargaining power left; build a cash buffer before the crisis arrives.

Sources

1. OnLive (Wikipedia)
2. OnLive's video gaming tech was sold for less than $5m (BBC News, 2012-10-10)
3. OnLive shuts down streaming games service, sells patents to Sony (Ars Technica, 2015-04-02)

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