Monday, 20 August 2012

OnLive Acquired by Lauder Partners Affiliate

As has been speculated, after filing for ABC bankruptcy OnLive has been acquired by an affiliate of Lauder Partners, the venture capital company under Gary Lauder. Below is OnLive's official statement.

OnLive, the pioneer of instant-action cloud computing, announced today that on August 17th all of its assets were acquired by a newly formed company that will continue to operate under the OnLive name. The OnLive Game and Desktop Services, all OnLive Devices and Apps, as well as all OnLive partnerships, are expected to continue without interruption and all customer purchases will remain intact; users are not expected to notice any change whatsoever. OnLive's current initiatives will continue as well, with major announcements of new products and services planned in the coming weeks and months. An affiliate of Lauder Partners was the first investor in the newly-structured company, holding the view that OnLive is the future of computing and entertainment, and a passion to see OnLive's breakthrough technology continue to grow and evolve. The new company structure enables OnLive to do so.

OnLive, Inc.'s board of directors, faced with difficult financial decisions for OnLive, Inc., determined that the best course of action was a restructuring under an "Assignment for the Benefit of Creditors." The assignee of the company's assets then sold all of OnLive, Inc.'s assets (including its technology, intellectual property, etc.) to the new company. Unfortunately neither OnLive, Inc. shares nor OnLive staff could transfer under this type of transaction, but almost half of OnLive's staff were given employment offers by the new company at their current salaries immediately upon the transfer, and the non-hired staff will be given offers to do consulting in return for options in the new company. Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.

The OnLive Service has been in operation 24/7 without interruption since its launch over two years ago, and is expected to continue to operate smoothly under the new company. All games, products and services remain available, and the company has new product and partnership announcements on the way.

OnLive's breakthrough instant-action cloud computing technology has been in development for over a decade and, despite immense skepticism, OnLive successfully deployed this highly disruptive technology as a polished consumer offering with commercial-grade reliability across a vast range of devices, including TVs, tablets, phones, PCs and Macs, connected over almost any Internet connection, including wireless and cellular. Only a few major corporations have ever developed and deployed products and services across such a broad spectrum. OnLive is rare among startups in both the depth and scope of its offerings.

The asset acquisition, although a heartbreaking transition for everyone involved with OnLive, allows the company's core innovation and ongoing offerings–the product of over a decade of hard work transforming the OnLive vision into reality–to survive-and continue to evolve.

Given the widespread speculation about OnLive and the new company, a FAQ is below that addresses a number of questions both for the public and former employees.

Q. Will users see any change in the OnLive Game or Desktop Services? What about their purchases?

A. Users should see no change in the OnLive Game or Desktop Services. All of their purchases remain intact and available. OnLive has been up 24/7 since launch over two years ago and expects to remain so. OnLive has over 2.5 million subscribers, with an active base of over 1.5 million subscribers, connecting from a vast range of devices and networks, with many sessions running for hours. The user base is growing rapidly with OnLive's addition into recently announced devices and TVs from major manufacturers. We expect this growth to continue under the new company.

Q. Is there any cash or stock in the new company provided for any OnLive, Inc. shares?

A. Unfortunately not. The nature of the transaction is such that only assets, not shares, were purchased. This is true for all shares of OnLive, Inc., whether held by investors, employees or executives.

Q. Did Steve Perlman receive stock or compensation in this transaction?

A. Like all shareholders, neither Steve nor any of his companies received any stock in the new company or compensation in this transaction at all. Steve is receiving no compensation whatsoever and most execs are receiving reduced compensation to allow the company to hire as many employees as possible within the current budget.

Q. Did all OnLive, Inc. assets transfer into the new company? Are any assets held by any other party?

A. All of OnLive, Inc.'s assets (e.g. technology, patents, trademarks, etc.) were transferred to an assignee, which then sold the assets to the new company. There was no transfer to any other party.

Q. Have OnLive, Inc. employees been offered positions in the new company?

A. Almost half of OnLive's staff were offered employment at their current salaries in the new company immediately upon the transfer, and the non-hired staff will be given offers to do consulting in return for options in the new company. Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.

So, OnLive's assets were purchased by a new company with the same name under the ownership of an unknown party with additional investors possible. It's not clear if the affiliate of Lauder Partners is Gary Lauder himself or another unknown person or company. If it is indeed Gary Lauder, he is rich and his family even more, but this might not be enough for OnLive. And it could well happen that this investor might get scared by the current backlash of media and gamers, and simply liquidate OnLive or try to sell it to a large company like Microsoft.

It's interesting to note that OnLive Founder and CEO Steve Perlman has received no compensation from the acquisition of OnLive's assets and is receiving no cash compensation or shares from the new company, so he gave away the control over his creation and in a way admitted that he failed from a business standpoint, though he is a genius when it comes to inventing new technology. Gary Lauder said to Mercury News that Steve Perlman doesn't yet have a title or contract with the new OnLive, adding that more urgent issues -- such as employee compensation -- took precedent over resolving Perlman's status. "Since there is no one more committed to the company than Steve, I'm not too worried," finished Lauder. "It is my hope that he will be the CEO going forward."

It's also interesting that OnLive states that they have over 2.5 million subscribers, with an active base of over 1.5 million subscribers. This is somewhat contradicting to sources from inside the company who said that they had only an average peak amount of 1,800 concurrent users, though if one knew the details the numbers could add up when viewed from certain optimistic standpoints.

I think most of us OnLive users felt it in us that a startup like OnLive doesn't have a high chance of making it in the gaming industry, at least not as an independent company. Many of us ignored that voice in us because we want change in how we play games. For us OnLive is like a Kickstarter project that we want to succeed. But fact is that OnLive started in an industry that is already ruled by established players who control the habits of gamers and they decide for the majority of gamers. One has to only look at the comments of articles about OnLive on major gaming sites. Until the big boys bring out cloud gaming, it has almost no credibility in the minds of gamers. One solution for OnLive could have been to start in a country like South Korea which has great internet, many PC gamers and almost no consoles. But that train has left the station as cloud gaming services are now springing up left and right there.

OnLive invested a lot of money in getting gamers with their many promotions. I mean the crazy sales, free MicroConsoles, the cheap OnLive PlayPack with the even more crazy 30% discount, etc. The sad thing is that one black friday erased almost all the hard work and the money that was invested in getting gamers to trust OnLive and cloud gaming.

Many people have prophesied that OnLive will fail. And as we know from the free market when many people think that something will fail and it can't work, the possibility is high that it will really fail because people don't want to support it, so people carry out their own prophecy and it becomes a self-fulfilling prophecy. But such failed experiments are the seeds of the future and very important. It's not the first time that Steve Perlman has created a company that is a seed for the future, and I hope not the last time. Though OnLive is working on, I don't think it will be easy for them going alone and it might well be that they will be sold to a larger company like Microsoft. The world will tell.

One interesting thing is that the new investor believes that OnLive is the future of computing and entertainment. There are other cloud gaming services like Gaikai. But they are trying to integrate themselves with the current internet like embedding in web pages. OnLive on the other side is a coherent platform where everything you get is through a 60 frames per second video feed. Features like the Arena and Brag Clips are great examples of it. No other service has put together such a coherent platform, be it on consoles, PC or the upcoming cloud gaming services. There were some concept videos, but that's it. So it is the more amazing what OnLive could achieve with such little funding and no wonder that they have found an investor who admires what they've achieved.

In a way OnLive has given us a glimpse into the future on how the next generation internet 3.0 could look like. There everything could be delivered to us through a 60 frames per second or higher video feed, be it web pages, e-books, applications, music, movies, TV, gaming, etc. No local hardware, only various interfaces that connect us to the content and to the matrix.


  1. Excellent post with useful references! Company sales, transfers, etc. are never pretty and it is common that it takes a while (if ever) to figure out who was involved in and why the decisions were made that led to the conclusion.

    An update to the article you posted explains what an ABC filing is:

    "Because an assignment can be speedier and less costly than a bankruptcy proceeding, it can help preserve a company's value and help it survive the restructuring, said Geoffrey Berman, senior vice president of Development Specialists, a consulting company that focuses on distressed businesses.

    'It puts (a company's) assets back in the stream of commerce faster because you don't have a court overlay.'"

    Based on that, OnLive might have made a relatively graceful decision to go with an ABC filing in its situation, given that it increases the likelihood that the company gets back on its feet. This is certainly in the interest of its customers (especially given that its a service-based company) and ongoing employees.

    While not everyone takes the same amount of damage in a situation like this (and here is hoping that the employees that weren't yet hired back, will find a new spot somewhere else quickly), there is no one that lets his company get into this position without struggling. That said, I'm sure some mistakes were made but then again, as you mentioned in your post, it was obvious that being a pioneer in the cloud gaming business (and all that that entails) was going to be easy. To that end, it's rather remarkable that OnLive has lasted without other incidents like this for as long, and went as far (establishing service in Belgium and the UK, among many other achievements) as it has.

    1. Hey, thanks for the info:)

      I'm curious how many new investors OnLive will really manage to attract when I see articles on the net that their former investors will have to write off their investments.

      OnLive has some amazing tech, but as we've seen if you have to pour almost all your money into the server hardware you will hardly attract gamers if you can't invest in advertising and game acquisition. They now have a lot of hardware so I hope they will manage to get some money for advertising and the games.

      When OnLive set out to launch their service, they should have established a game development studio or finance some exclusive games to have them available at launch to wow gamers and show them what the cloud can achieve. By having the same content as other platforms in lover quality they showed nothing new for the now, most gamers don't care much for promises that will come true in many years. If they couldn't produce something exclusive then they should have gone more conservative about building the service. OK, this is not the only mistake that OnLive made, but a very important it was. OnLive has a great example in the success of Steam. Valve has their exclusives and for a few years released only their exclusives on Steam, because no publishers dared to release their games on it. We now see to what success Valve came because they had the content.

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