When OnLive first came out of stealth mode just over two year's ago it was met with cynicism and disbelief because it had such high goals - to stream AAA games to any internet connected device for a seamless gaming experience. Users would need no expensive hardware and they wouldn't even need to own the games - the cloud service would do everything for you, and more. The fact that OnLive even thought of a business on such a scale was met with derision. It would never be possible.
Fast forward to today and it's delivering on the initial plan and then some. The original vision has been adapted to consumer pricing expectations and expanded, with more social features added, and the original MicroConsole is being replaced by installing OnLive tech in TVs, Blu-ray players and set-top boxes that are getting ready to ship this winter. At E3 earlier this month GamesIndustry.biz sat down with founder and president Steve Perlman to dig deeper in to the recent announcements, this year's big push into European regions, and why OnLive is more like Zynga than any traditional console business.
Q: You've recently announced a deal with Facebook, amongst other things - talk us through that, what was the thinking behind that?
Steve Perlman: It's been so much fun working with those guys. We can connect social networking with core gaming. Some of those Zynga games are cool, they're good for what they are, but they're just not the kind of games you'd have on console, PC games.
Q: Every publisher is building social features into their games, but what you've done is just go straight the biggest social network.
Steve Perlman: That's correct. We have social capability in OnLive, so you have friends there and so on, but this allows you to go and connect outside and connect back in. You know the other thing that's cool is that you click on a link and you jump right into a game. It's also a great way to engage people who didn't even know OnLive existed and didn't know much about it. You literally put up a brag clip and you just click on it – I think it's says "watch me" – you click on it and it takes you right to that user's profile page, it can dive you right into the game, it can drives you.
One of the things that makes Zynga work really well is the notion of no friction, the fact that you can go from your Facebook page into Mafia Wars or CityVille and then right back into Facebook and right into the web. The reason you can't do that with a core game is because you don't know if the person has that game, you don't know if the person has the computing power to do it, you don't know if they have the right console, whatever. But with OnLive they can click on it and at the very least we can throw them into a demo of the game and then they can decide if they want to buy it or not, or be referred etcetera. And then anyone can go and spectate, so we've made the friction, that same go inside/go outside, without any kind of barrier that's going to prevent that happening. And that's one of the reasons social gaming works.
Our total addressable market is much more similar to that of a television channel, or perhaps Netflix or LoveFilm
Q: One of the other big announcements was your partnership with Intel. Did Intel approach you? Did you approach them?
Steve Perlman: I guess it was a little bit of each. We've announced Vizio so far, it's building OnLive into their TVs and Blu-ray players, but essentially every manufacturer wants OnLive built in because it adds value. And the minute one of them has it then they all feel like it's a potential reason to not buy their TV if they don't have it. And it adds no cost to their TV. So there's a lot of TVs being built now with Intel silicon in. For one thing any Google TV has Intel silicon in, for example. And so we were working with them anyway and then of course they see the demos and they're like "oh my god, this is amazing" and then they're like "can we work together on this? Can we work together on that?" And of course we're using a lot of Intel processors, a vast number of Intel processors, in our data centre, so they were like "we have got to go and talk about how we're working together" so to say they approached us, we approached them, it was a mutual decision – this relationships got pretty big, let's go and tell the whole world about it.
Q: So the first hardware will be out at the end of the year, is that right?
Steve Perlman: Yes, so in the States you'll be seeing Vizio TVs and Blu-ray players that have been announced but there will be other manufacturer's as well. And Vizio does not have a presence in Europe, but the other manufacturer's do.
Q: So what you're saying is you've already got European deals in place?
Steve Perlman: Yes. Our expectation is, you never know exactly when the timing is, but our expectation is that we'll launch in the UK and you'll be able to get a TV with OnLive built into it.
Q: By the end of the year how many TVs do you expect to be on the market with OnLive built in?
Steve Perlman: We expect, given the estimates given to us by manufacturers – we can only go by those – about 25 million internet TVs and about 50 million Blu-ray players. So, you know, combine that with iPads and Android tablets, there's always PC and Macs, and then of course OnLive game systems, and you're talking about a pretty large total addressable market. If we were a TV network they would talk about "TAM", total addressable market, because of course anything can carry a TV network, satellite TV, cable TV, broadcast TV, or you can set it on the internet right?
With videogames what you're talking about with a total addressable market is how many Xbox 360s, or how many PlayStation 3s right? OnLive is different. Our total addressable market is much more similar to that of a television channel, or perhaps Netflix or LoveFilm. People will begin to stop thinking about videogames as a type of software tied to a particular platform, and begin to think about video games as a type of media, the same way we think about television or music or pictures or the written word. The thing that's interesting about those is video games and the videogame industry – first of all OnLive does what the cloud has done for all the other industries in making it so it can reach everywhere – but video games are in a very special place. Although the cloud does that for distribution, in terms of every other industry unfortunately it makes it easier to pirate all other types of linear media, the written word and things like that.
When it comes to videogames, there's no way to pirate a cloud based game. Because the game is not running locally, it's running in the cloud. And there's also no used games, so the margins zoom up for them. And what that means of course for the consumers is that prices can come down. From the publishers point of view they want to sell as many of these as they can and right now it's tough because they have this cliff right after the game's released because the used game market begins to carve into all their sales. It gets harder and harder to sell new games after they've been out for a couple of months. And then of course, especially on the PC side, but also now on Xbox 360, they're getting increasing amounts of piracy and it's easier to distribute through bit torrent and so forth.
Q: Is that how you're pitching the business to publishing partners? You're basically saying come to us second after you’ve launched your games and we'll pick up the slack?
Publishers have this cliff right after the game's released because the used game market begins to carve into all their sales
Steve Perlman: No no no, we're all day and date. So 2010, we're catching up, two or three day and dates in 2010. 2011 virtually all of our games are, there are a couple that are a little later. They're working hard to make sure we're day and date with consoles. The thing is their margins are so much higher with OnLive than they are on either consoles or downloads.
Q: Why are the margins higher than on downloads?
Steve Perlman: Piracy. And reuse and so forth. It's very hard for them to control that. With OnLive if somebody wants it they get it. And the other thing is they have rentals with OnLive, and demos that can lead to rental or demos that can lead to purchase. So it's tough for someone to do a 1GB or 2GB download just to do a demo because they have more friction getting someone into it. With OnLive what we've found, and it's funny, we came to them with our statistics of "here's our conversion rates from demos to purchase, how does that compare with other demos to purchase now" and they said "we don't know". They're completely unaware, they don't really know how many demos link to purchase, they just put them out there, they know demos help. So it the first time they've ever had any data.
Q: You give users proper, detailed metric feedback.
Steve Perlman: Yes. If you look at Zynga, there's many things you can say about that, but the one of the things I see as complete genius is that they study the data so carefully to understand what makes the best sense for the users and what makes the best sense from a business point of view, and they come up with this happy medium where people love playing their games and they make a lot of money. What's not to like about that? It's been very, very hard to do that in the core game market because of the very high friction it takes to getting the games out there, and of course with the decline of PC gaming, there's fewer and fewer high performance PCs out there, most people have laptops if not tablets, once again its very hard for the publishers.
At least that market they could kind of directly reach instead of going through publishers. So we gave the publishers tons and tons of data, they love it. It allows them to go and make decisions, to design games better. Now in the design process we can actually go and put up games in a beta group that's closed off from the rest of the world even though it's running on the same servers but no one else can spectate that. And then the publishers are the only ones who can spectate that. They can actually watch their users testing their games. What they get stuck on, what doesn't work and so forth. They're loving it. So we have again a very, very unique way for people to look at the whole process of development in addition to the opportunities for merchandising.
This is managing core gaming with metrics the same way that Zynga manages social gaming, that they've never been able to do before
Q: What I find interesting is how you've adapted your pricing bundles and ways of paying since launch. I'm guessing you've done that on the publishing side as well?
Steve Perlman: If you'd asked me at E3 2010 if we would have a hot game that's two and a half months old, in a flat rate tier for $9.99 a month, I would tell you there's no possible way that's going to happen. But when you look at the economics and you look at the business and you look at the usage patterns it makes an incredible amount of sense. There's even a slight bit of genius that if you really knew what the metrics were measuring you would understand, that the version that's available in the flat rate package is only multiplayer, for Homefront. And the single and multiplayer is still available for full price. This is managing core gaming with metrics the same way that Zynga manages social gaming, that they've never been able to do before. And you're right, we've gone from thinking – because we were using NPD and Nielsen numbers to figure out usage patterns and so forth, and try to decide how many hours a month people were going to be spending, what type of patterns and such. So we were terrified about just being overloaded and not being able to provide the service. So we built in all these mechanisms for virtualisation and so forth in order to manage the load, deal with peaks and so forth. And I guess we overachieved.
Put it this way, we did such a great job we thought when we launched, we saw with all these technologies we built in to the platform was that we believed, even exiting beta, there was enough revenue coming that we could offer the service without charging anything for the basic access for demos and things like that, and sure enough that proved out in practice once we had enough people using it, enough sales, enough different types of users and so forth. And you're right. What we did is we adapted.
Q: Can you talk a little about the European market? You say you're launching in the UK later this year and presumably you're going to roll out across Europe...
Steve Perlman: That's correct. At least another country, maybe two, by the end of the year, but we'll see. And I say that with my vice president of engineering grimacing! But nonetheless, we're going to try. There's no technical obstacles, we've been in Europe for well over a year. It's just to get a system to not just work for demos but to actually work for hours on end of gameplay, over any internet connection, even in Wales it's not just engineering, its a matter of testing and logs and understanding and having a record of all the different types of ISPs, all different types of connections that people have and then having them adapt.
For example if we were connected to your home, it would go and see what ISP, what region it's in, what's the route is to it and it would go and find what type of compression algorithm is the best one to use, of the over a hundred that we have available. And then you would look at the different statistic for what was happening, from the time of day and so on. It would even adapt the compression algorithm based on the type of game you were playing. It's a very, very complex thing, it took years to get that data. And Europe's similar to the US, but it's not the same.
We've done all that, it's complete. So the trials that we've done, we can't go through the details of what BT has done but let's say they were very comfortable with us going in and putting their name on OnLive.co.uk and launching this autumn.
Do you know one person who really got this early on? Chris Kingsley down at Rebellion in Oxford. When we were working with him during launch last year he was thinking about all these different economic models. I forget the words he used but it was like the diversity of economic models you can create on a platform like this are infinite, you can really adapt it to the needs of consumers and find a price point that meets their budget. I'm sure next year we'll have some new models we didn't even think of now.
The diversity of economic models you can create on a platform like this are infinite, you can really adapt it to the needs of consumers
Q: The living room seems to be a two screen room now. It seems to be a trend that continues to grow, and I wonder how game developers and publishers are going to adapt for that?
Steve Perlman: Nintendo has essentially given credibility to the idea that there are going to be multiple screens in games. The difference between us and what Nintendo are is offering is that we'll work on iPad, Android, smartphones, we're completely hardware agnostic and we'll work with a TV where you can be seeing the same thing controlling, even use a smartphone to control it if you want touch, but if you want to take it with you, you just take it with you wherever you are. You can be on the train, you can be at work, you can be hanging out at a cafe, whatever it is and you still have the capability here. Or you come home and you want to pick up the controller and use that. So what Nintendo has described in old world terms, non-cloud terms, of the two screen experience is what we're showing in cloud terms with compete generality. In 2012, I think we'll be quite well established. And the publishers totally get it. They're designing stuff with the OnLive SDK that's going to do very much the same kind of thing that you saw with the Nintendo announcement. But the difference is that it will be on platforms generally rather than to one.