Thursday, 29 September 2011

OnLive vs Consoles

To anyone who is writing OnLive off in the face of competition from the big three in the cloud, don't be so quick. First off, the others have to catch up to OnLive, which spent a decade developing a proprietary, dynamic video codec expressly for non-sequential, low latency applications like games. If Sony, Microsoft and Nintendo were to jump into the cloud today, they'd be relegated to simply using H.264 or something similar, and with that comes performance issues that OnLive simply does not have. OnLive also owns a fundamental patent on cloud based video game streaming, that could be used to fend off competitors.

Then there is the matter of business models. So long as the big three have content being sold in brick and mortar retail, they still have to produce $400+ consoles (and sell them at a loss) to play those games. But not only that, in order to keep retailers carrying their hardware and software, neither of the big three can undercut retail prices without pissing off their retail partners. So if a game is $60 at retail, that is how much it will cost on an N7, Xbox 3 or PlayStation 4.

OnLive does not have either of those problems. You don't need their game console to play their games, as they will play on any PC, Netbook, or Mac . . . and are coming soon to iOS, Android, as well as being embedded in tens of millions of HDTVs, Blu-Ray Players, and DVD Players by the end of the calendar year. But even if you do get an OnLive console, it costs OnLive less than $40 to make and package one, which is why they can give so many of them away for free. Selling them for $100 each is nothing but pure profit, and is still a whole lot cheaper for consumers to buy into, than having to fork over four times as much (another $400) for the next-gen consoles from the big three.

But what really sets OnLive apart from the big three is the business model. OnLive may list their games at retail prices in their Marketplace, but unlike the other three companies, because OnLive does not have to keep retailers happy by not undercutting retail prices, OnLive very often undercuts retail prices on all of their games. I'll give you some quick stats to help you understand exactly what that means. Since January 2011, OnLive gamer Invadr Phlegm has been running a little experiment. He's been gaming exclusively over OnLive for a period of 365 days (one year) to see how the service stacks up on it's own, and versus the other three consoles, which he has owned since their respective launches. In that time (January to today), he has purchased exactly 30 games from OnLive. When compared with retail pricing at time of purchase from the local GameStop, his total purchases for 2011 should have equaled $1,286.24 (this is of course including the local city and state sales tax of 7.5% applied to all retail purchases). By way of comparison, his actual out of pocket for these 30 games from OnLive was only $325.00. No bullshit, he only paid $325 for almost $1300 worth of games. That is a savings of $961.24, which equates to ~75% off of retail.

And here is the rub, these are everyday, commonplace prices from OnLive. Visit any OnLive community forum like OnLiveFans or OnLive Informer, and you will find tons of threads, filled to the brim with actual customer testimonials on this fact. The company puts on sales so regular, that it is not even funny. And the discounts are deep, and the company actively encourages it's users to stack discounts whenever possible. And these are not rubbish games either, that you had to wait months and months after release to pick up on sale. Take for example the fact that he picked up Assassin's Creed: Brotherhood, just a mere two weeks after it released for only $12.50 (not the $50 it goes for on PC, and not the $60 it goes for on console) . . . and he got the game with a free copy of the first DLC. Here is another example, he recently picked up both Deus Ex: Human Revolution and Warhammer 40,000: Space Marine for only $17.50 each . . . on their respective release dates.  He just picked up Tropico 4, for a mere $7. And a friend of his just picked up Deus Ex: HR for only $8.50.

Now ask yourself this question, with having to continue to carry their games at retail the way they do, do you honestly think that any of the big three are going to be able to sell any game, much less a serious Game of the Year contender for only $17.50 the day it comes out?

You already know the answer to that question. That is a 71% discount off the retail price (before taxes). No retailer on the planet is going to allow Microsoft, Sony and Nintendo to sell the exact same game the retailer has in stock, for 71% off for the first six months the game is out, much less the very day the game is out. OnLive can get away with it, because their business model, even the part that covers OnLive's relationship with retailers, is completely different from the big three. And so long as the big three have to carry physical copies of their games in retail, they are not going to be able to do what OnLive does.

And this all comes into effect. OnLive provides a console-free gaming experience, or if the consumer has to buy a console, then it will be 4x less than competing consoles. Either way, the consumer saves hundreds of dollars/pounds/euros, right away. Then OnLive can undercut all of their competitors on the most important bit, the games themselves. And they can do so on an average of 75% over cumulative purchases. And I think when you stack it together, all the money that is saved. Money you can spend on other games, or on other stuff, or simply just save for a rainy day, even if any, or all of the big three were to come out with something similar to OnLive as they roll out their next-gen consoles in 2012/2013, the sticker shock compared to OnLive alone, will not only keep OnLive running strong, but will only serve to increase OnLive's popularity and user base in the face of competitors.

SOURCE: Invadr Phlegm.

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