Why OnLive Won’t Work
Posted by Ben Zeigler on April 5, 2009
So the big topic of general interest at last week’s GDC was OnLive. Lots of people, both gamers and developers, were excited about the possibility of playing PC games without a PC. It’s supposed to solve piracy and system requirements issues in one go. Well, I tried it out in person at GDC, and I can say conclusively that OnLive’s plans will never work. But, it’s not for the reason you may think. The technology is viable, it’s just the economics that make no sense.
There was a bit of a line at the OnLive booth, but I waited patiently before I got to play BioShock over it for a few minutes. The experience was actually better than I had expected. The image quality was perfectly fine in my opinion, although it got worse when you moved the camera rapidly. There was noticeable lag, but it was still playable. It felt almost exactly like playing an FPS on too-high settings. Basically it was like playing BioShock on high quality settings at about 15 frames per second. It’s not an experience I would consider paying money for, but I can see how it would be acceptable for slightly less picky gamers. So, OnLive can successfully play games remotely 50 miles away from San Francisco to Santa Clara (where the servers were), using a dedicated line, and to a quality level acceptable to an average user but not to the hardcore. That’s actually a pretty impressive accomplishment.
But it isn’t enough to actually make money. Time to do some math. According to what they’ve said publicly about their business plan, they plan to stream games over the general internet, as long as you are within 1000 miles of a server (1000 miles would be significantly worse lag then I experienced), and have a 1.5 Megabit sustained connection (5 Megabit for HD, which we’ll just ignore because it’s even sillier). Ignoring the issue with ISP bandwidth caps (which could be a serious problem) this is mostly reasonable. However, it leaves out a big part of the equation: the servers and bandwidth on OnLive’s end are not free. In fact, they are very expensive.
Thick-client Western MMOs are a space I am reasonably familiar with. Out of your $15 subscription fee, somewhere around $5 goes directly to hosting and bandwith (the rest towards development, support, and licensing). MMO bandwidth is split between patching (let’s say 1 Gigabyte a month per player on average) and runtime (usually pretty light, 100 kilabit/s MAX). At 50 hours of play a month (which is about average) that ends up being around 3 Gigabytes of bandwith per month. On the other hand, 50 hours a month of 1.5 megabit streaming is 30 Gigabytes per month. So, bandwidth costs for OnLive are 10x what they are for MMO hosting. The other part of the cost of running an MMO is purchasing and powering servers. An average MMO server can host a minimum of 50 concurrent players (a lot more in the case of games like WoW which are light on server use). These are fairly buff machines (but not special in any way), so let’s say that either you could buy 5 cheap desktops for that price, or host 5 client instances of OnLive games, giving a maximum concurrent OnLive users per server at about 5. This means that OnLive will need to buy and run 10x as many computers as an MMO.
The two components of hosting are both about 10X worse for OnLive than they are for MMOs (and that’s a very generous number). Multiplied by the wholesale hosting cost of $5 a month for MMOs, this gives an estimated wholesale cost per user of OnLive to $50/month. Remember, this is wholesale and before they make ANY money off of this. So assuming a minimum margin of around $10/month, anyone who wants to use OnLive is going to be paying at least $60/month for it. This is why they haven’t announced pricing yet, because they know what the reaction would be. So, the audience for OnLive is people willing to pay $60/month for pc gaming, but not hardcore pc gamers who care about latency.
This business plan doesn’t make any sense. On the high end, it fails miserably compared to Steam, which is a lot cheaper and more satisfying for the hardcore. On the casual end, why pay $60/month when you don’t care about graphics and are happy playing browser games? There are only two ways to make this work: either contract directly with ISPs (which would negate the bandwidth costs) and get it subsidized through already-expensive cable bills, or sell the company for lots of money up front. Considering that OnLive was created by Steve Perlman, who is the same guy who sold the largely useless thinclient technology WebTV to Microsoft for $425 million, I think it’s obvious what the corporate strategy is: Get bought before you have to launch the service and hope no one digs too deeply into the realities of the business plan.
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