OnLive was a frequent customer or Prolific Oven Bakery in Palo Alto, said Regina Chan, daughter of the owner of the local chain. By the time the company went through its insolvency in August, it owed the bakery $2,000, which represented about a month's worth of Onlive's orders, she said.
Although they might have lost $2K on cupcakes, but the amount of money they would have made by attracting customers on credit is huge.
So generally offering things on credit is like bait to catch customers, there is risk I agree. But profits from such schemes vastly exceed losses, to make them almost negligible.
Lets say you own a bakery, you sell cupcakes on credit. Say you sell $40K worth cupcakes an year to a company. There are chances that you may go under a loss of $2K if the company folds. Will you go for it, or do not offer any credit and lose $40K worth cupcake businesses to somebody else?
Doesn't this depend on your profit margin, which I suspect is larger for cupcakes than muffins... If you sell $40k of cupcakes that cost $39.5k to make, credit risk is much more of an issue than if they cost $20k to make.
Agreed, but generally there is an opportunity cost associated with any risk.
You just have to decide if you are ready to lose the opportunity if you don't want to take the risk. I know it sounds unfair, but unfortunately that is how things work in the real world.
If there was no risk associated with opportunities, then the number of people who be would competing for an opportunity will go up by a large number. Nature puts filters to keep the size of the game limited.
I would have disliked it more if it was the original owners, once Ms. Chan bought it the quality of the cakes suffered, especially in the Saratoga store. It went from being my 'go to' place for a delicious chocolate on chocolate cake to 'I've not been there for like 3 years now.'
Come on - your local bakery (even if it's a chain, even if you don't like it as much as you used to) is a low-margin enterprise. Getting screwed out of thousands of dollars is tough on places like that.
Plus that was just the example. If they were net-30 on the break room food, it's a safe bet a bunch of freelancers and other local businesses also had losses.
"In a statement, the new OnLive said its predecessor's basic problem was not its business model but that it simply hadn't raised enough cash for its business to take off."
How do you tell when a startup is just desperate for cash and when they actually mean something like this?
Came to comment on this specifically. OnLive was doing "cloud gaming" as in pre-render frames in the cloud and stream them to the device. It has the initial wow, but the devil is in the details, and OnLive had to solve them all at once:
1. Data caps are now the norm. A service that streams video 100% of the time is swimming upstream. OnLive would also need to recoup the significant costs of an uplink capable of serving all its customers full-HD streams. Typically a video service heavily uses a CDN (think Akamai) to only upload a few streams and then have the CDN push those out to edge servers. OnLive needed enough bandwidth to be its own CDN. And cellular data is an even thornier problem in terms of reliable throughput AND latency, which both have a direct effect on OnLive's service.
2. Game Studios are famously protective of their high-value assets. OnLive needed to convince some AAA studios to do a new release of their titles on its service. Engineering the games to work well with OnLive isn't the only problem here: it would be easier to be wholly acquired by a big studio than to convince anyone in the industry to do a deal that fit OnLive's marketing. Game studios want to see big up-front profits on opening day. OnLive's marketing was more along the lines of a trickle of profits over a longer term.
(Yes, they had some titles, but they needed bigger ones.)
3. The OnLive marketing about enabling some amazing capability (like cinema-quality graphics or breakthroughs in AI) swims upstream against what the "cloud" is supposed to offer. An OnLive session for one customer takes several machines, while the "cloud" basically makes money by stacking idle VMs so it's many customers to a machine. The only way OnLive would make money is if everybody rented the AAA title and nobody played it.
There is some really interesting tech in that space, but those are some basic problems with what OnLive was trying to do.
>(Yes, they had some titles, but they needed bigger ones.)
The tragedy here is, they had bigger titles. At the last minute before launch, they pulled all EA titles from their service. When rival Gaikai got the rights to offer demos for EA games (not to actually sell them,) CEO Steve Perlman went batshit-crazy irate and pulled the plug. From then, even games that had been confirmed or greenlighted were pulled if Gaikai got them first.
I recommend anyone who's interested in what went wrong read this story from The Verge:
"At the last minute before launch, they pulled all EA titles from their service. When rival Gaikai got the rights to offer demos for EA games (not to actually sell them,) CEO Steve Perlman went batshit-crazy irate and pulled the plug."
Yikes, that's not a library at all. Think of this analogy "My local library was going to offer the most recent Stross novel, but it turns out that's available at the library in the next town, so they had a book burning party instead"
And OnLive folded, and sold themselves to a newly created company named OnLive. So, it's still there. And I think still has a lot of potential under the right person. (With enough money.)
I still half-expect Steam to eventually offer streaming of games players already own for a small monthly fee. I'd expect them to make gangbusters if they did.
Not only were they bought by Sony, they were bought by Sony for $380 million dollars.
Shows what a difference a business model can have. They both had cloud gaming technologies, but while OnLive wanted to sell it right to consumers, Gaikai went for the publishers.
> From then, even games that had been confirmed or greenlighted were pulled if Gaikai got them first.
Maybe these titles had high licensing costs (regardless of whether any OnLive users rented them or not), and they figured if their competitor had the game less people would be playing it with OnLive? So they'd be more likely to make a loss on the licensing cost.
Former staffers told us Mass Effect 2 and Dragon Age: Origins were ready and would have launched on day one if it wasn't for Steve Perlman. At GDC 2009, when OnLive revealed itself to the world in style, a rival named Gaikai did the same behind closed doors, and when Gaikai CEO David Perry came by the OnLive booth to greet his competitor, Perlman starting screaming at him. On June 17th, 2010, the day OnLive launched, Gaikai announced a multi-year deal with Electronic Arts. Perlman received the news in the OnLive booth at E3 2010. "He went ballistic," one witness recalls. "We had to slam the conference room shut and crank up the music so people wouldn't hear him."
That doesn't sound like a business decision to me...
4) The supposed benefits of cloud gaming were never as big as a deal in the first place, and quickly becoming less and less interesting.
Today even almost the lowest-end of notebooks you can buy will get you a better gaming experience than OnLive (better graphics, less latency, no internet connection required, choose all your own games), for gaming on the go phones and tablets are pretty capable, and last but not least you can pick up a used PS3 or 360 with a whole stack of games for less than 1 year of OnLive.
I've said from day one that the whole idea of building expensive, specialized data centers in the hope that people will pay to play games on them, is simply a stupid business idea. Casual gamers will happily use whatever cheap device to play simple games, and serious gamers will always want the best possible gaming experience, which is not what OnLive will ever be able to offer. Cloud gaming is a lost cause IMO.
2. I can run games that would barely work at a stutter on my integrated graphics.
3. I can try games out in seconds without installing 7gigs
4. I can rent games for a day or so without installing 7gigs
5. I can subscribe to hundreds of games and play them without installation.
6. I can play (some) PC games on my phone or tablet
7. I bought a £40 online mini-console as small as cigarette packet that came with a great quality gamepad and lets me play my games on the TV without needing to wire up a PC.
8. My entire game library is instantly available anywhere without installing anything other than the OnLive app.
So you are one of the few happy customers who is prepared to pay for an OnLive subscription to get the benefits you listed, great for you. I can make a list of downsides of cloud gaming that would be at least as long, which are prohibitive for me to use the service.
The million dollar question is how many people there are that -like yourself- prefer paying for a service like OnLive, compared to the number of people that will simply buy their own hardware, or just use whatever hardware they already have anyway.
You can justify spending money on OnLive as much as you want, but my point was not that the service is completely useless, just that the target audience is too small to make the service profitable. Hardcore gamers build their own rigs or are prepared to buy a console once every few years, casual gamers will play on whatever they have available, people who don't play games don't care. It appears there's just not that many people who are so hell-bent on being able to play all their games, anywhere, on any platform that happens to be available, that they want to pay for a subscription service that somewhat allows them to.
I'm not really sure why I'm even debating this anymore (like I had to when OnLive just launched and got flamed by hordes of people with the same arguments like yours, because OnLive would surely be the future of gaming). I think the 'economics of OnLive' more or less have proven my point sufficiently.
My untested hunch is that there is a good enough market for these services.
I might be a customer too, I'm a former gamer that now has to cope with work, study and very soon a family, having an "instant-on" service would be worth it for me.
And why is it prohibitive for you? It says it used to cost U$ 4.95/month, which I perceive as really cheap (as compared to U$ 50 for a title like Diablo III).
Much like the Nintendo Wii, I don't think that hardcore gamers is the target demographic.
Edit: see sshirkov's comments, I fall in the same demographic I guess.
For starters, there are no data centers near enough where I live, so the service is not available ;-)
But even if it were, there are many reason a service like this has no value for me:
- I have 2 consoles, a tablet, a laptop and a desktop, so when I'm at home I already have plenty of options. I can't imagine this will ever change, because I need my computers for work, and the games I like most are very often console exclusives.
- I never take my tablet on the road, and I only take my laptop with me if I need it for work, so a cloud gaming service for playing away from home doesn't make much sense for me.
- In terms of cost savings, I don't really see the benefit either. To play OnLive games you still have to pay for the game license (in addition to the subscription fee). Since I buy almost all my games second-hand or over a year after their release, I'm not going to save a lot of money on the games themselves. All my consoles have tradionally lasted over 6 years, so the write-off on them is minimal. On a side note: if I was strapped for cash and couldn't afford to buy hardware or games, I wouldn't be subscribing to any subscription gaming service anyway, I would spend however little I had on useful things.
- I don't really play games a lot, less than 10 hours a week, and I almost exclusively play a single game at a time until I finish it. This means it takes really long before I finish games, often over 2 or 3 months. This basically means the rental-model for individual games does not work for me.
- I like to play classics and 'vintage' titles, e.g. PS2 games or classic XBLA games. OnLive seems to mostly target mainstream, popular and newer games.
If I think long enough I can come up with other reasons why a cloud gaming service like OnLive is not for me. Just to be clear: I can see how it would be great for certain players, but I'm highly sceptical about their numbers, and how much they would be prepared to pay for the service.
My conclusion is (and has always been) that when it comes to cloud gaming, downsides > benefits, and costs > profits, which makes it a no-go in terms of business case. I have yet to see someone prove me wrong (GaiKai being acquired for big $$$ doesn't count, because it was obviously bought by Sony for other reasons than profitability).
Ah, I didn't get the point that you have to pay for the game license. I thought it was something like a Netflix for games.
That would be a deal-breaker for me.
Thanks for the clarification and explaining the downsides.
Many wouldn't apply for me (my latest console is a PS2, for example), but certainly the non-availability in my region is probably a given, and having to pay for each game is the deal-breaker for me (unless the price is minimal/equivalent to a rental).
1. Buy the game outright (or until OnLive folds ;-)
2. Rent the game for a short period
3. Buy a bundle (the 'Play Pack') which gives you access to a huge list of indie or older games for a pretty low monthly cost). They are a mixed bag. Some old A-list games, some really interesting indie games and some junk.
My OnLive story is I paid for a game because I was curious about the service, every other auto save it crashed. Poked around the internet for a few min, found out there is a race condition that can be avoided by turning on V sync. The lack of control and being able to fix my own issues will stop me from being a long term customer for them, but I will keep them in mind for rentals.
You are absolutely right and it is kind of obvious. Nevertheless, knowing that, what surprises me the most is that they achieve to secure $40M in funding.
Investment companies should be a bit more careful when they put their cash on the table ($23M from Belgacom, for instance).
The concept is called 'capitalization' and the statement is that Onlive was under capitalized to execute on their primary strategy.
The basics are pretty simple, you start with some money (capital) and you spend it to build the product, somewhere along the way you start selling product and getting revenue, the revenue grows and eventually it provides enough money to pay all your bills (operationally cash flow positive).
You capitalize the company such that you have enough money to do what you need to do until you get that cash flow positive point. If you don't have enough money your bank account goes to zero before revenues cover cost. If you have too much money you still have a lot of money in the bank when it starts growing again.
This is a cop out when it comes to explaining failure. It wasn't a management, technology, vision, etc problem which are all attributable to decisions made but instead we ran out of cash (something mgmt has less control over by implication).
When companies succeed, it was management prowess. When they fail, it's exogenous "headwinds". It's commonly seen in big and small cos.
What's more interesting is that based on this statement, the company's biz model actually seems to be raising financing. Very 1999-2000 of them.
Btw, this is not to imply that capitalization is unimportant but if you are running out of money and need more, you either convince someone to give it to you or you make some hard resource allocation decisions and reduce your short-term plans so you can live to fight another day. Failure to do so is simply a management failure (no matter the nice spin).
I'm wondering if you could expand on that some? I had tried the product several times and just consistently found it lacking (sluggish controls, etc.).
I got out of hardcore gaming, and quite enjoyed the idea of booting up a game in a few seconds on my laptop, playing it for an hour and forgetting about it.
It worked very well for things like Borderlands and a few indie titles (Madballs, The Ball).
I also owned the physical console, so the transition of "I want to play Borderlands for an hour on my laptop immediately after finishing this work thing" to "My day is over, let me pick up that same game on the TV" was pleasant.
As far sluggish controls, on a connection that exceeded 10Mbps, the experience was only slightly worse than a wireless controller on a console, and after a few days of it being the only time I picked up a game I adjusted quite well.
I've since accepted that the service was aimed squarely at the market that my situation happened to exactly occupy (high bandwidth, casual gaming, multiple physical devices, just the right titles..), so your mileage may very well vary.
Thanks for taking the time to explain that some more. I'm in a similar spot and _really_ was hopeful that OnLive would be awesome, but just for connectivity reasons I think it was never sufficiently playable.
Personally, having loud audio blaring at me when simply starting the program was enough of a turn off. Nevermind the fact that my connection speed was consistently too slow to actually play a game. Certainly not their fault, but I know I'm not alone in having crappy internet.
Forget that, the service has about 10 games. Total. No way am I going to make a long term investment of $50 per game into a service that can't grow its library with the new stuff coming out, and that could implode at any second.
How many of these games are exclusive to OnLive? How many of them have better experiences (multiplayer, controls, DLC) on other platforms like PS3 or XBOX 360? Pretty much all of them.
In modern gaming responsiveness is the prerequisite to everything. You can't fight the laws of physics. Server-side only latency hiding just does not work: there is always a noticeable delay between a key press and visual response.
In addition a decent gaming PC doesn't cost much these days and games on mobile devices are as enjoyable as desktop and console ones. They will get even cheaper and cooler with time.
There is no reason for existence of such a service.
It is not available in my country, so no. Actually after your comment I've read and watched several modern reviews of the service. Players don't seem to be complaining about the latency so maybe it is really not that noticeable as I thought it would be. Thus my initial point about the latency does not hold much water.
I never much cared for UT3 on the service (maybe it was the game, maybe it was the connection, but it felt sloppy) but Red Faction 3 was fantastic. That's a physics-based third person shooter/action title. I beat the whole game on OnLive.
That's not bad. What really does a software company have other than IP and a few computers? Even considering this, IP is a risky asset which probably won't create much cash flow on its own the way a piece of real estate would. The real assets are in knowledge, but those can only be rented.
I was talking to a person who had started a company and went toast. He bluntly put it, what remains after a software shop shuts down are 'just files' on the hard drive.
This is especially true when the company doesn't own any real estate at all. After the shops shuts down, nearly everything gets sold for half price.
My chair at home costs 25K INR if I buy it in the showroom, I bought it from a scrap shop for 2K INR, the guy in the scrap shop told me the chair came a software shop which closed recently. That is how low things like infrastructure get sold.
I think this was the time when OnLive could have gone for "debt restructure" and save the company for a few years. Either it would have been successful in business or could get more payout.
OnLive was a frequent customer or Prolific Oven Bakery in Palo Alto, said Regina Chan, daughter of the owner of the local chain. By the time the company went through its insolvency in August, it owed the bakery $2,000, which represented about a month's worth of Onlive's orders, she said.