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Why Onlive Died

By on August 22, 2012
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I recently provided some analysis to the Guardian on the demise and rebirth of OnLive. They didn’t use all of the comments, so I thought I would post them here.

OnLive’s problem was that it failed to find a unique hook that would make consumers go “I have to own that service”.

They were pitching convenience: no more physical discs, no more downloads, just fast instant games, whenever you wanted them. The problem was that those fast instant games were games that you didn’t want. They were going up against Sony (with exclusive titles like Uncharted and Little Big Planet) and Microsoft (Halo,  Gears of War)and Nintendo (almost everything) and PC (World of Warcraft). They were going up against those platforms with no exclusive content.

Their marketing didn’t appeal to consumer’s rebellious nature, like PSOne, or lifestyle choices, like PS2. Instead it was: spend a monthly fee to get a whole bunch of games, but not modern ones, and not the ones your mates are playing. A rational message appealing to the logical brain, but without follow through.

Back in October 2010, I argued that Onlive was doomed because it had no compelling content, the equivalent to Rupert Murdoch securing the Premiership football rights that made BSkyB a must have service in many homes. The only equivalent content I could imagine was World of Warcraft, and that seemed likely to cost billions of dollars, if Activision Blizzard was even prepared to sell.

In the meantime, OnLive struggled on trying to create a flat fee subscription service, just when everyone who wanted AAA console gameplay already had PS3s and Xbox 360s, and those who didn’t had great gameplay at very cheap prices on their smartphones and tablets.

The only hope for OnLive, given that it failed to capture the public imagination, was to frighten the platform holders Microsoft and Sony into a sale. When Gaikai was bought by Sony, there was only one buyer left, and clearly they didn’t bite.

OnLive’s gamble was that it could scare a major technology business into a defensive, over-priced acquisition. It failed. OnLive (and more particularly their staff) are now paying the price.

And I believe that we will now see that cloud gaming (meaning streaming from expensive dedicated hardware centres, rather than some sort of browser-like technology) is a technology dead end.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • There was an interesting investigative piece in the French press yesterday, for once :
    http://www.gamekult.com/actu/onlive-les-lecons-dune-vraie-fausse-faillite-A103925.html

    The journalist argues that OnLive isn’t actually dead, it just won’t be ready from primetime until 2015 or so. They went too big (lots of servers), too early (broadband adoptions still relatively low in the US), and yes, without enough content.

    Some companies can get away with this if they can keep getting investors (exisiting or new) to invest. What happen to OnLive is, at some point, investors simply stopped pouring money into the company.

    Except Gary Lauder. Lauder Partners stepped in and did an “Assignment for Benefits of Creditors” to get rid of some of the fat (burnrate & debt) while salvaging the companies most valuable assets : the brand, the tech, and most importantly, the journo wrote, their patents.

  • I do agree with some of what you’re saying, and the lack of PC-friendly fare like Skyrim, Fallout: New Vegas, Battlefield 3, Call of Duty 3, Mass Effect 3, and so forth has been a major problem for OnLive, where the big shooters have been Borderlands, F.E.A.R. 3 and, because the community gave it a second look, Homefront.

    That the games industry is becoming fragmented is one of the reasons why we need more disruptive services like OnLive to shake up the current methods of content distribution.

    The music industry, film industry and book industry have all shifted away from a mass market and split into the unavoidable market (mega-marketed products) dominated by the biggest players and the long tail market dominated by everyone else. This means that a few big releases get all of the attention while everything else is left to languish with a much smaller piece of the pie.

    The gaming industry is going through the same growing pains, and as the costs of development for new platforms rise, we’re seeing the same tendency to focus on those safe mega-blockbuster titles while leaving the rest of the industry (either the niche creators, the “indie” developers or the mobile/social/browser developers) to chase after the crumbs. (My apologies to Nicholas for phrasing it that way, but that’s how I see things from my outside-the-industry point of view!)

    One of the strengths of OnLive is that it’s platform-agnostic and able to deliver the same experience on mobile devices and large-screen TVs without requiring multiple product licenses or forcing the gamer into compromises. When I can play a game like Arkham City on my Nexus 7 tablet, on my laptop or on my HD-TV using the same save files and always on the maximum settings, I’m able to experience something that I can’t get from anywhere else. But again, I think we’ll agree that where OnLive has failed is in articulating that value in a way that makes people stand up and take notice. That’st the hurdle they’re going to have to overcome in their new form if they’re going to move from being a disruptive concept into the next big thing.

    Right now, they’re akin to the Atari Lynx when it was going up against the Gameboy – technically innovative and loaded with potential, but destined to be a footnote in history if they can’t attract a significant user base that can sustain their platform.

    But to back up, where I objected to Nicholas’s analysis is that he’s talking as if OnLive shut its doors entirely and cloud gaming has failed. That view I do take to be myopic, because OnLive was doing something far more subtle and cloud gaming is far from dead. In fact, I’d argue that cloud gaming has a significant role to play in the future as the technology evolves and massive bandwidth becomes more readily available, but I’d also say that this role is more likely to be put to use by demos, rentals and non-dedicated hardware devices like the Ouya than it is to disrupt the next console life cycle.

  • Scott

    Actually, completely agree with Nicholas on this one. The crux of the argument seems to be content (they didn’t have enough) vs. distribution (they were getting there but not there yet). Ultimately what OnLive tried to do is what Netflix did for movies or what Spotify is doing for music: prove that you could make a sustainable business model based on mass easy accessibility of content. The problem with that is that Spotify has done a good job in getting users the content they wanted, and Netflix made it to a critical mass in which a library of catalog releases made sense (and one could argue their challenges in growing that catalog is their primary problem right now). OnLive never reached the level of back catalog or new releases that would make a consumer want to pay a subscription fee. The products you mentioned are all high value, well selling console games but the PC market is dominated by Call of Duty, Battlefield and Blizzard releases. Without them OnLive’s potential is limited to dedicated few who play tons of games and see OnLive as a cheaper option or the more casual players who have a ton of cheaper options everywhere they look.

    Years ago I worked at a major publisher and had dinner with a exec at a video game digital distributor shortly after OnLive was revealed. They asked me point blank if they should be worried. My response then is the same as it is now, the problem they would run into was that no major publisher would give them new releases, only catalog. Without the new releases, they would be in the same spot that GameTap (or Metaboli or Exent) was in at the time: making a small amount of money off the relatively limited amount of users who wanted access to old titles. Except that OnLive would face a second problem, their value proposition required a significantly higher infrastructure cost to fulfill – meaning that if they could compete with those players, they’d spend a lot more money to do so. Ultimately I think their demise, or whatever they are spinning it to be, proves my point.

    Bandwidth would only be OnLive’s primary issue if lots of people wanted to use the service. In that case, it’s a nice problem to have. The reality is that that Game Industry is becoming more and more fragmented. On one hand there’s the users who are willing to pay lots for consoles and games who are increasingly gravitating to the small few of the biggest titles (see: Call of Duty). On the other hand there’s the casual consumer with less money to throw around, those are increasing being distributed across more and more channels (see: social, mobile, F2P, XBLA, etc). Those in the middle are getting left in the dust (see: THQ, the movie tie-in business and yes, OnLive).

    But hey, the one thing we all agree on was that their marketing sucked.

  • That’s a rather myopic analysis, and I don’t think you were paying attention to the subtler goings-on that caused this sell-off/acquisition. OnLive clearly had taken on too many contractual obligations and needed to find a way to restructure without going into bankruptcy. Selling off the company from the founders to a private equity partner was the only way they could do that.

    Also, it should be noted that OnLive represents a disruptive technology, and most disruptive technologies have the appearance of doing poorly during their initial years because they have significant start-up and R&D costs to overcome before they can enter into a rapid growth strategy. OnLive has had trouble establishing itself as more than a niche player to date, and that’s more likely because they are combating a mature industry through a direct distribution model rather than seeking retail distribution. If consumers could easily purchase OnLive accessories to use with built-in apps on their televisions, the platform would gain a wider acceptance.

    As for content, the service has a number of AAA titles available (Assassin’s Creed: Revelations, Batman: Arkham City, Saint’s Row: The Third, Deus Ex: Human Revolution, Mafia II and other major titles have all been available around the same time as their PC counterparts) and the service has done a good job of building up a strong community to build up excitement for using the service for multiplayer gaming. The Playpack is also an attractive proposition, giving gamers an “all-you-can play” approach to a large library of games covering a variety of genres for a low price. As an entry-level service that can run on a lot of hardware, OnLive could appeal to those who aren’t interested in plunking the cash down for another console. The lack of exclusives is pretty meaningless in a world where virtually everything is cross-platform, especially when the service is free and only the games and accessories require investment.

    OnLive’s chief limitation isn’t content – it’s bandwidth. As any of the service’s long-time users will tell you, OnLive doesn’t perform as well during peak times and it can’t be used effectively in a household where others are simultaneously making use of the pipe. (If Johnny is playing OnLive and Susie is watching Netflix, Johnny will find his game lagging and dropping constantly). Again, this is due to the technology being disruptive and ahead of the curve – as more fiber is laid and internet connection speeds improve for households, the service will perform much better and be much more attractive.

    OnLive’s other problem is marketing. The company clearly hasn’t had the funds to take more than a grassroots approach to marketing, and the fact that so many people have no idea what the service is shows that OnLive has a long way to go to build up any level of cultural acceptance. They haven’t been able to build up the mystique of a console launch or the buzz of a major piece of technology. Their biggest blunder, in my book, was launching the service before they’d secured distribution on hardware, and they’ve really languished by not being available on the iOS platform (despite a premature announcement that OnLive would be on the iPad last year). They should have stayed in beta, built up some initial buzz, and then launched the service when they had the right funding. Instead, they took the wind out of their own sails, and they may go the way of GameTap if they’re not careful.