OnLive Not Dead – Restructures To Stay Afloat

OnLive, the popular cloud gaming and desktop solution provider, have undergone a ‘forced restructuring’ over the weekend.

According to Betanews “OnLive Inc. was stripped of all its assets and sold to a new company, at the expense of all of its shares and employees”.

I last wrote about OnLive in January when they launched Onlive Desktop. This was a free app for iPad which provided a virtual Windows 7 interface with full ‘cloud’ versions of Microsoft Office applications including Word, Excel and Powerpoint.

Offering Windows 7 in virtual mode was always going to be a risky proposition as it appeared certain to breach Windows licensing – I said at the time “It remains to be seen whether Microsoft take this lying down”.

Well, Microsoft stood up and were none too happy – as a result of ‘discussions’ OnLive Desktop had to switch to a licensed Windows Server 2008 platform in April. Could that licensing debacle have been a warning sign of things to come? Although the switch to a Server platform was transparent from a user perspective, it did cast doubt on the strategic thinking behind the company.

Just four months later OnLive has gone down the toilet been sold, to be resurrected under new ownership, with the same name… According to Forbes, up to half the staff were offered employment with the new company and “Users should see no change in the OnLive Game or Desktop Services. All of their purchases remain intact and available”.

Cloud Service Woes – The report also states that OnLive has “over 2.5 million subscribers, with an active base of over 1.5 million subscribers” [my italics].

This discrepancy between active users and subscribers could be one of the reasons why OnLive’s pulse stopped temporarily at the weekend – and could affect any cloud service provider in the future (including pure Cloud storage services).

On the one hand they need to purchase and maintain the server and bandwidth capacity to handle up to 2.5 million users. On the other hand, most days they only need 60% of that capacity – but they can’t reduce their contractual commitment for the spare capacity, just in case.

Such scalability is a feature of Cloud services and is great for companies using Cloud – but an expensive luxury for companies providing Cloud. It appears that OnLive may have been stuck with more capacity than they could afford.

Cloud Storage Business Model

Just like most cloud storage services, OnLive Desktop’s business model was to offer a freebie account (2GB of storage) to attract new users and hope they upgrade to a paid Pro account starting at $9.99 per month (offering priority access to the interface and 50GB of storage).

Like most Cloud storage providers, it is a tightrope act to balance free users (by far the majority) with paying users. Cut down on infrastructure too much and the service for free users deteriorates – so they won’t upgrade to become paying customers. Maintain 100% spare capacity and, well, this is what happens…

Although OnLive has avoided bankruptcy (just), their plight should serve as a reminder that ‘in Cloud we trust’ is still a risky strategy due to the immaturity of the market, whatever the popularity of the service.