Ben Gilbert of Joystiq wrote this about a month back about OnLive shutting down:
So, what caused the sudden implosion of the gaming industry’s most successful consumer-facing Cloud Streaming service? In so many words: scale. “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?” Perlman rhetorically asked employees during the meeting.
For those that don’t know, OnLive was a company looking to revolutionize computer gaming. As more and more people move to less powerful computers, and tablet devices, computer gaming was changing. Graphically intense games were being passed over for things like Angry Birds. A big reason is that most people weren’t buying computers capable of playing graphically intense games. OnLive removed this dependancy. They built a farm of servers capable of playing any and all of the newest games. Then they developed a thin client that could live on a lower powered computer, or even tablet, and allow users to play games that would normally required a $500 graphics card, on their $500 computer. A reasonable internet connection was required, but that was really it.
I never got a chance to use the service, so I really can’t say how well it worked. The pricing model hadn’t fully shaken itself out and I was waiting for the next game I really wanted to play (maybe SimCity) before I finally gave it a try. Now it seems that might never happen.
From the sounds of it they simply overextended themselves. They built a massive server farm anticipating big demand. Their service depended so much on a good user experience that they couldn’t afford to be unprepared. But this is a prime example of how sometimes a company can be over prepared.
I don’t know anyone that used the service, and in fact never heard about anyone who used it either. The company was in the tech news from time to time, and lauded for being innovative, but in the end that seemed to be all. They developed a standalone system that could be connected to a TV to play games from the service, and it only costs $99, but my guess is that it didn’t sell all that well either.
The best guess I have come up with is that computer gaming is so niche now that people who care enough to pay for OnLive would rather have their big gaming rigs, and the ones that don’t aren’t willing to pay at all.
It’s also possible that the timing of releases hurt them. I noticed that Civilization V was just released in June despite the fact that this game was released for purchase two years ago. This would also scare aware more devoted gamers.
So what now?
The company isn’t completely dead. It used some sort of loophole to spin itself off into a new company while basically forgiving all of it’s debt. I assume the new company will try to continue the same concept and business model, but it’s too early to tell. I myself still want to give it a shot at some point, but am more hesitant than ever. I had hoped the service would be subscription based, but because users have to purchase games through the service, if OnLive closes up shop again, anyone who purchased games is out of luck.