Will Google or Microsoft buy OnLive?

"We, in Playcast, did achieve a three orders of magnitude improvement in the processing time of the video compression process. I can only assume that OnLive have reached similar results. Our system is operating in closed systems with guaranteed quality of service, so performance issues are completely different."

In the Playcast boss' opinion it is simply wrong to assume that other "potential applications are so much more staggering and immense, one, because this video processing technology is relevant only for computer generated video, and, two, the video games market is 100x bigger than the entire video compression markets combined."

Latency: the insurmountable challenge?

The Playcast boss agrees that the real difficulties OnLive will face are "not in producing a demo in a show" but "in scaling it" in a real world situation.

"In order to compete with the consoles, OnLive will have to build a distributed data centre which will be in every local network, invest serious money in network capacity and buy all the bandwidth to support it.

"After they build all that, they still have to convince millions of users to one, buy their micro-console, two, Install it, three, subscribe to their service, four, use it for hours a day, and five, establish billing relationships and payment methods.

"The total investment in such a project is huge. The best way is to compare this to the effort required to build a cable TV system (after all, the micro-console is nothing more than an IPTV set top box with a proprietary decoder). The cost of rolling out a significant foot print in the US alone would be hundreds of millions of dollars. And the return?"

OnLive demands a massive cash investment that "would never be covered," claims the Playcast boss, and – more importantly- "this entire footprint already exists at cable and IPTV networks (including the "micro-console" - it's your cable and IPTV set top box).

To do what OnLive is proposing – effectively building a third overlay (cable being one, and telco being the other) "is difficult to justify."

Who will buy OnLive?

"As superbly funded as OnLive may be, they are no match to compete with the Comcasts, Verizons and AT&Ts of this world. So are the OnLive people stupid?" asks de Beer.

"No, they're probably pretty smart - they want to develop this model (which would work in small scale), and sell it to someone bigger who may be able to find the business case to compete with the Comcasts and Verizons. Maybe someone like a company that starts with an M, ends with a T, is based in
Redmond WA, and has been trying to build such a parallel private network for a product that starts with an X and ends with a Box?"

"The OnLive system and the Micro-Console is not supposed to replace the consoles in the real world, all it's supposed to do is prove that it technically can, and convince someone else to buy into it. If they are
asking now for a pre-money valuation of $350M, their selling price would have to be in the range of $2B to justify the investment."

Though de Beer agrees that "today two billion dollars is a lot of money for a hype," that perhaps even Microsoft wouldn't spend.

"Maybe Google?" he speculates.

Adam Hartley