A Giant Step Backwards for Cloud Gaming

[OmegaFenix]

Struggling cloud gaming service fires all its staff and sells assets to new, unnamed company; "large percentage" to be re-hired.

OnLive has reportedly laid off a significant proportion of its staff and sold its assets to a new, unnamed company. The cloud gaming firm insists, however, that existing and in-development products and services will continue without interruption.


News broke on Friday that OnLive, founded in 2003 by entrepreneur Steve Perlman, had fired all of its staff at a morning meeting. The new company intends to re-hire a substantial number of those laid off, though any accepting the offer will find themselves working at ostensibly the same company without the benefits and stock options they had last week. According to Joystiq, Perlman followed the layoff announcement by telling his staff their stock was essentially worthless.


The news sparked speculation that Perlman himself had set up the company to transform OnLive into a smaller firm with fewer stockholders so he would be the beneficiary of a sale of the company. OnLive has since confirmed that Perlman is not part of the new company and has received no compensation for his exit.


It is claimed, however, that Perlman had fielded several offers for his company in recent months - including one from Hewlett Packard - and turned them all down as he was holding out for a billion-dollar sale. A source told Joystiq that Perlman was fired up by Sony's acquisition of Gaikai, and was planning to hit David Perry's rival cloud gaming service with legal action over patents "when the time is right".


In a statement confirming the deal passed to TechCrunch, OnLive said: "We can now confirm that the assets of OnLive, Inc have been acquired into a newly formed company and is backed by substantial funding.


"The new company is hiring a large percentage of OnLive, Inc's staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services."


There may not be interruption, but OnLive's customers may choose to vote on this sorry mess with their wallets. The company claims to have two million users - though a Joystiq source claims the average number of concurrent users was around 1800 - and it remains to be seen whether this murky business will put some customers off. Until news broke of the sale, the layoffs put into stark relief cloud gaming's most worrying possibility: that the service provider goes under, taking with them your games and the only way of playing them.


Perlman, too, has questions to answer, none of which are satisfactorily answered in OnLive's FAQ on the deal. Chief amongst those is why he turned down so many offers for a company that was, we now know, clearly troubled. Access to finance may not have been a problem but OnLive's overheads were bad enough to enable it to file for an ABC restructuring, an alternative to bankruptcy which lets struggling companies transfer their assets to another, more stable one.


Perlman may have wanted a billion dollars, but while OnLive's technology has proven to be fit for purpose concerns have been frequently raised over its business model. It relies chiefly on subscription revenue in an industry that is rapidly transitioning to free-to-play, and its pricing of full games, while no doubt set by publishers, was uncompetitive.


Turning down offers in the hope of a billion-dollar sale would have seemed fanciful even before Sony set a market rate of sorts by paying $380 million for Gaikai. Perlman has a remarkable CV, spending his 30-year career developing Quicktime at Apple and serving as division president at Microsoft, but the OnLive era is a black mark on his resumé that will be remembered with little fondness in the years to come - not least by the 150 to 200 staff who went into work last Friday as normal, and came home unemployed.

Source: Edge

This Follows Last weeks news from Kotaku.

Weak Traffic, Low Subscribers Meant Something Had to Happen—but OnLive Employees Didn’t Expect the End

All of OnLive's 200 employees worked daily with the cloud gaming service's traffic numbers, and knew that something big had to happen for the company around this time of the year. That's not to say everyone expected to lose their jobs together on the same day, no severance, no benefits, no nothing.
That's according to a former OnLive employee present for yesterday's meeting, at which the effective end of the company was announced. OnLive's assets have been acquired by an unnamed investor, and a statement yesterday said all of its services will continue for subscribers. The problem is, there didn't appear to be enough of them to sustain the ambitious venture.


Published reports, in particular one from Joystiq, have said that OnLive CEO Steve Perlman told workers the company was averaging 1,600 concurrent users on a service with 8,000 servers requiring maintenance.


While Kotaku's source didn't recall Perlman using figures that specific in the meeting, the source also didn't refute the claim.


"[Perlman] had broken the news that the company had ceased to exist," said the former employee. "As soon as you hear that phrase, you kind of stop listening. You're more thinking, 'what's the state of my resumé.'"


As employees whipped out cell phones to text friends or loved ones, they were told they would be receiving no severance and any stock options, if they held them, now had no value as the company was no more. Their only assistance as they find new jobs will come from public unemployment benefits. Some may be asked if they want to contribute to the transition effort the new venture will undertake with OnLive's assets, but it didn't sound like an attractive offer. They'll be paid only in stock options offered by the new company, which will have value only if it is acquired or taken public.


Reaction to Perlman's decision to pursue what is called an ABC—an Assignment for the Benefit of Creditors—was mixed, said the former employee. An ABC is not bankruptcy; it's a form of protection akin to bankruptcy, albeit taken at the state level. A troubled company's assets are assigned to a third party, which allows the old company some kind of breathing room to settle its affairs without a bankruptcy trustee running things.


It's not Chapter 11 reorganization (a common form of bankruptcy that doesn't dissolve the company) nor is it outright liquidation under Chapter 7 of the bankruptcy code, but it is a "destructive" end to the company, said Kotaku's source. Many had been hoping that OnLive would by now either have been acquired, or have been given a bridge loan to stay operating. Those around the watercooler knew the math: the company's annual operating costs were reasonably estimable, the revenue was likewise not a secret. "We knew something had to happen between August and September," the source said.


Weak numbers and a rival's enviable acquisition sent a message OnLive wouldn't have a chair when the music stopped.
Sony's acquisition of cloud gaming service Gaikai in July was spun by management as a potentially good thing, but also seemed to be a warning signal that OnLive was going to be left without a chair when the music stopped. Perlman told employees that it showed an endorsement of cloud gaming technology by a console manufacturer, and it set an acquisition price where none existed before. But it was also a blow to morale that Gaikai ended up with Sony and not OnLive, which had been hoping for one for some time.


As the year wore on and OnLive's marketing and licensing teams, ones typically asking for money to sign up new releases or visit trade shows, were finding requests for travel denied, a sure sign things were going south. OnLive did send a representative to Gamescom, said the source, but other lesser, yet still important industry functions and roadshows were not attended.


Kotaku's source declined to provide specific figures on what OnLive's paid subscriber base or average concurrent traffic was, beyond the fact employees were aware something needed to happen soon. In interviews, Perlman never enumerated the company's number of subscribers, but has been quoted saying it was in the millions. Industry analysts pegged it at two million. How many of those were free or inactive account holders versus paying customers is unknown.


When the meeting broke up, there was the ritual exchanging of hugs and gallows humor among the laid off. "One of the things we were successful at with OnLive, there was a real community, not just in its engineering or some other team," the former employee said. "You could either get really angry or you could laugh. There was more laughter than anger, in my opinion.


"People were hugging, saying, 'I guess I need a box for my things,' figuring out what bar we were meeting at, so we can go get some tequila."

Source: Kotaku

 

[MOnk]

Yeah I read that over the weekend. I found it really strange how companies were partnering up with (and subsequently buying) Gaikai but OnLive was pretty much on it's own. Also from the sounds of things OnLive expanded way too rapidly, stating it had 8000 servers for it's 1600 concurrent users.

I think for gaming, streaming needs to start off as an integrated product which is part of the traditional package before it can properly stand on it's own.

 

[OmegaFenix]

Yeah I read that over the weekend. I found it really strange how companies were partnering up with (and subsequently buying) Gaikai but OnLive was pretty much on it's own. Also from the sounds of things OnLive expanded way to rapidly, stating it had 8000 servers for it's 1600 concurrent users.

I think for gaming, streaming needs to start off as an integrated product which is part of the traditional package before it can properly stand on it's own.

Yeah, Onlive was barely on its feet in the US before launching a huge drive here in the UK giving out free micro consoles at Eurogamer all kinds of stuff but they struggled to keep the momentum. Their library, while packed full of older game, just couldn't pull enough newer ones. Also the pricing model when I looked last year wasn't that appealing it was basically prices the same as retail PC games so it was cheaper to get it off steam. Their little micro console thing also suffered form some designed flaws, no built in Wifi?! I am glad I only bought 1 game, for £1 on a special with my isp, from them. I was hoping if anything MS would pick up onlive and do a Sony by building the tech into the next xbox/xbox live but hey.

 

[matt]

Personally, I'm not sure what to think about cloud gaming. It seems great in concept, and I know that developers and publishers would like it because then they have total control over what people play, and it would eliminate people borrowing games, and the second hand market, and maybe even go a long way to curbing piracy, so I think developers will be more than eager to ditch other platforms in favour of cloud gaming.

But, for us and other third world countries (in terms of telecoms), there's no ways that we could hope to have good enough internet connections to be able to play anything, and we wouldn't get many servers, so even it we had the speed, the latencies would kill us.

Sorry for the slight derail, but at least it's a bit relevant.

 

[OmegaFenix]

Personally, I'm not sure what to think about cloud gaming. It seems great in concept, and I know that developers and publishers would like it because then they have total control over what people play, and it would eliminate people borrowing games, and the second hand market, and maybe even go a long way to curbing piracy, so I think developers will be more than eager to ditch other platforms in favour of cloud gaming.

But, for us and other third world countries (in terms of telecoms), there's no ways that we could hope to have good enough internet connections to be able to play anything, and we wouldn't get many servers, so even it we had the speed, the latencies would kill us.

Sorry for the slight derail, but at least it's a bit relevant.

I think your concerns are valid, I remember the night onlive launched here you could't get online & if Diablo 3 has taught us anything its that the world, let alone the 3rd world, is not really, infrastructure wise, for the cloud. So maybe in a few years.

 

[matt]

I think your concerns are valid, I remember the night onlive launched here you could't get online & if Diablo 3 has taught us anything its that the world, let alone the 3rd world, is not really, infrastructure wise, for the cloud. So maybe in a few years.

Ya, maybe in a few years we'll be a little more up to speed with what the US or UK has currently, but by then they will have moved on to bigger and better things, and we'll be behind again. We're really on the wrong side of the digital divide, and although it's getting better, the rate of improvement seems to be slower than the rate at which other countries are developing. Plus we're just so far away, that anything international causes major problems.