Perlman’s OnLive: Console-Killer Or Just Another Wannabe?

imageDepending on who you ask, Steve Perlman’s new OnLive gaming service is either the death knell for console-makers like *Sony* and retailers like GameStop, or just another innovative device with a flawed business model that’s going to crash and burn (per Eurogamer).
On paper, the OnLive “micro-console” capitalizes on a number of trends: the rise of digital distribution for games, growth in bandwidth speeds and broadband penetration, as well as the push toward “cloud computing.” It also tries to tackle two of the biggest hurdles that have kept gamers tethered both to their consoles (or PCs) and to video game retailers: limited storage space and slow download times. If priced correctly, the appeal of almost instant access to a huge library of games could be “the beginning of the end” for some players in the gaming space, according to a research note from Wedbush Morgan analyst Michael Pachter.
But that’s only if it’s priced right — and right now, the OnLive team isn’t offering up any details other than to say “we can price it substantially lower than the Wii.” That’s according to John Spinale, the company’s VP of games and media, who kept mum on other costs like subscription fees and new game prices. I asked Spinale about the sustainability of OnLive’s own business model and whether the company would be able to consistently deliver the high-quality gaming experience they demoed during GDC — particularly once hundreds of thousands of gamers were all online at the same time.
The demo looked great, but there were only about six devices connected at the same time. Once thousands of gamers plug in, how will you avoid the system overloads that Linden Lab struggled with during the growth of Second Life? Linden struggled because Second Life is a large, resource-intensive program that needs a really high-end computer to run effectively. With OnLive, you don’t need high-end hardware, and we’ll have the infrastructure to balance out the network strain. This way, if a group of people are playing a high-end game and others are playing something less intensive, it will shift the server load appropriately.
How many data centers do you have? And how will you make money if you have to keep building — and paying to operate — new ones? We have one massive data center that we’ll be able to run more efficiently than most consumer servers, or even most enterprise-level set-ups. Updated: The company issued a correction, noting that OnLive currently has two data centers, one in Virginia, and one in Santa Clara, Calif., with an additional center under construction in Texas. The plan is to have five data centers live by the time OnLive goes to market.
What about bandwidth costs on the consumer end? Have you talked to any of the ISPs about how this will impact users’ bandwidth caps? First, people aren’t actually downloading anything, because we store the games, so it won’t be as much of a strain on a network as someone downloading a two-hour movie. Second, networks are just starting to sort out their bandwidth caps, and not all of them impose caps.
You mentioned movies. Will users be able to stream video a la Xbox 360 and Netflix? Right now we’re focused on games exclusively, but it would be hard not to do streaming video at some point. [The OnLive controller actually has built-in media control buttons.]
What if a publisher decides to end its agreement with you? How do you protect gamers’ purchases? That would just mean no new games from that publisher on the service — anything someone has already purchased will always be there. There’s no worries about vanishing games.
So with all this talk about killing the console, who is OnLive’s target market? If someone already has a console, they’re going to keep playing games that way and this is not necessarily going to make sense for them. But for people that want to play games, but haven’t bought a console yet, and have maybe a low-end PC or a Mac, OnLive is great. This is a long-term play, so we’ll be here for people that are looking for their next “console” in four or five years, too.