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"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

by YokoZar 14y ago

"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?

ChuckMcM 14y ago
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.
asanwal 14y ago
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).
sounds 14y ago
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.
- jeffool 14y ago
  >(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: http://www.theverge.com/2012/8/28/3274739/onlive-report http://www.theverge.com/2012/8/28/3274739/onlive-report
  - jacquesm 14y ago
    If you leave the battlefield to your competitor that's not really a winning strategy. How is GaiKai doing now that OnLive has folded? Are they headed towards running out of cash as well at some point or are they doing better?
    - jeffool 14y ago
      They were bought by Sony a bit back, actually. 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.
      - avolcano 14y ago
        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.
  - cjrp 14y ago
    > 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.

by YokoZar 14y ago

ChuckMcM 14y ago

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.

asanwal 14y ago

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).

sounds 14y ago

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.

jeffool 14y ago
>(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: http://www.theverge.com/2012/8/28/3274739/onlive-report http://www.theverge.com/2012/8/28/3274739/onlive-report
- jacquesm 14y ago
  If you leave the battlefield to your competitor that's not really a winning strategy. How is GaiKai doing now that OnLive has folded? Are they headed towards running out of cash as well at some point or are they doing better?
  - jeffool 14y ago
    They were bought by Sony a bit back, actually. 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.
    - avolcano 14y ago
      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.
- cjrp 14y ago
  > 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.