Thursday, 1 September 2011

OnLive valued at over half of GameStop's market cap

The GameStop/OnLive debacle last week is almost certainly a key milestone in the great retail-to-online migration. GameStop’s streaming game intentions have not been taken altogether seriously to date but last week’s actions show they mean business. What’s it going to take for GameStop to beat OnLive in this market?
Firstly, capital. OnLive have raised a lot of capital, with the majority of it being deployed on data center infrastructure. At a guess (without sources), they’ll probably raise another significant round in the future. So let’s say total capital requirement is high to be commercially scalable. Off course cash is no problem for GameStop (their balance sheet is sizable from the profits of recent years) but is it enough to make them think twice about any other digital acquisitions while they roll this out?

Secondly, people. Having a brief look at GameStop’s executive team, there’s still not a single one of them which has any direct online or ecommerce experience. They’re all retailers (albeit very good ones). Shane Kim is a reasonable addition to their board but if they seriously want to succeed in this space, they need to create a new C-level position and hire an absolute online games rockstar. Heiko Hubertz (BigPoint), Kristian Segerstrale (Playfish/EA) or Alex St. John (Hi5) are the kinds of names they should be thinking about. Although obviously those guys are a little tied up at the moment.

Thirdly. A short-cut. Normally acquisitions are done to speed things up. Buying a small piece of streaming technology (Spawn Labs) without a userbase doesn’t really fall into that category. According to Venturebeat, OnLive’s last investment round valued them at $1.8B. That’s over half of GameStop’s current market cap today, almost certainly ruling them out as an acquisition. Does that mean that Dave Perry’s Gaikai is an inevitable acquisition in the near future?

Off course EA might have something to say about that, because they are closely tied with Gaikai and have grand plans with Origin.

SOURCE: Business Insider.

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