A Bright Future for Cloud Gaming at Sony.

It is with mixed emotions that we acknowledge the sale of much of OnLive’s assets to Sony. It has been a long road for many talented people. Ultimately, Sony is the beneficiary due to their correctly appreciating the eventual importance of cloud gaming  and sticking to their beliefs prior to robust commercialization. OnLive and Sony’s PlayStation Now are the two leading cloud gaming services that offer the highest-end games over the open Internet. They each have their respective advantages. OnLive’s service will continue until 4/30/15. It can be tried on PC’s, Macs and many other platforms.

In the process of OnLive’s 2012 restructuring, a new company (OL2, Inc.) was formed to buy the assets. Although the new company continued all of OnLive’s services from that moment forward without interruption, the public perception was that OnLive was gone. That misconception continues well into 2015. In fact many of the recent articles that mention OnLive refer to it as “defunct” or something similar. Overcoming the perception of being dead has been one of the unanticipated challenges of the turnaround.

Since 2012, the company has dramatically improved its technology and business models such that all of its 5 services are gross margin positive, ranging from 43% to 86% margin. The fact that we had such positive margins should prevent repeat speculation that we were “crushed by infrastructure costs.” The company also was able to achieve conversion rates from free trial to paid of between 64-78% for its services. Despite these positive metrics, the lifetime value (TLV) of a subscriber was still less than the cost to acquire subscribers (CPA), but they were converging. While we knew we could not get to break-even on our own, we believed that there were many large companies who would be able to get there due to: 1) being able to communicate broadly and inexpensively (lowering CPA), 2) having their own distribution platform for the service, and 3) being able to license the most popular games and MMO’s, the latter 2 would have had the effect of both reducing CPA and reducing churn (thereby raising TLV). Despite these positive developments, we were unable to entice an acquirer who wanted to continue the service, and Sony already had their own service.

In 2012, Sony bought Gaikai for $380M, and we felt that we were worth at least as much, but we did not anticipate the “hype cycle” running its course and the resultant disillusionment and skepticism of cloud gaming that ensued. See graphic shown by NVIDIA at a cloud gaming conference:

Hype-Cycle

Most of the companies that declined to acquire us did so due to the perception that they did not know how far off in the future cloud gaming would be. Predictions that cloud gaming will only be far off in the future are self-fulfilling prophesies.

We were driven by analyzing the opportunity based on first principles, and held off selling until we had proven critical milestones. We are happy that Sony is validating the innovations of OnLive by purchasing our IP and selected assets, and are immensely proud of the work that has been done by the talented team at OnLive, and we thank them for their amazing work. We are also grateful to our customers, game publishers, distribution partners and many other partners who have helped make this a reality over the years. We look forward to a bright future for cloud gaming at Sony.

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