Layoffs as OnLive sells up

Layoffs as OnLive sells up

OnLive has reportedly laid off a significant proportion of its staff and sold its assets to a new, unnamed company. The cloud gaming firm insists, however, that existing and in-development products and services will continue without interruption.

News broke on Friday that OnLive, founded in 2003 by entrepreneur Steve Perlman, had fired all of its staff at a morning meeting. The new company intends to re-hire a substantial number of those laid off, though any accepting the offer will find themselves working at ostensibly the same company without the benefits and stock options they had last week. According to Joystiq, Perlman followed the layoff announcement by telling his staff their stock was essentially worthless.

The news sparked speculation that Perlman himself had set up the company to transform OnLive into a smaller firm with fewer stockholders so he would be the beneficiary of a sale of the company. OnLive has since confirmed that Perlman is not part of the new company and has received no compensation for his exit.

It is claimed, however, that Perlman had fielded several offers for his company in recent months – including one from Hewlett Packard – and turned them all down as he was holding out for a billion-dollar sale. A source told Joystiq that Perlman was fired up by Sony's acquisition of Gaikai, and was planning to hit David Perry's rival cloud gaming service with legal action over patents "when the time is right".

In a statement confirming the deal passed to TechCrunch, OnLive said: "We can now confirm that the assets of OnLive, Inc have been acquired into a newly formed company and is backed by substantial funding.

"The new company is hiring a large percentage of OnLive, Inc's staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services."

There may not be interruption, but OnLive's customers may choose to vote on this sorry mess with their wallets. The company claims to have two million users – though a Joystiq source claims the average number of concurrent users was around 1800 – and it remains to be seen whether this murky business will put some customers off. Until news broke of the sale, the layoffs put into stark relief cloud gaming's most worrying possibility: that the service provider goes under, taking with them your games and the only way of playing them.

Perlman, too, has questions to answer, none of which are satisfactorily answered in OnLive's FAQ on the deal. Chief amongst those is why he turned down so many offers for a company that was, we now know, clearly troubled. Access to finance may not have been a problem but OnLive's overheads were bad enough to enable it to file for an ABC restructuring, an alternative to bankruptcy which lets struggling companies transfer their assets to another, more stable one.

Perlman may have wanted a billion dollars, but while OnLive's technology has proven to be fit for purpose concerns have been frequently raised over its business model. It relies chiefly on subscription revenue in an industry that is rapidly transitioning to free-to-play, and its pricing of full games, while no doubt set by publishers, was uncompetitive.

Turning down offers in the hope of a billion-dollar sale would have seemed fanciful even before Sony set a market rate of sorts by paying $380 million for Gaikai. Perlman has a remarkable CV, spending his 30-year career developing Quicktime at Apple and serving as division president at Microsoft, but the OnLive era is a black mark on his resumé that will be remembered with little fondness in the years to come – not least by the 150 to 200 staff who went into work last Friday as normal, and came home unemployed.