Breaking Reaction: What if Microsoft Bought OnLive?

Breaking Reaction is a special edition of the PSLS exclusive feature Daily Reaction, where Sebastian Moss & Dan Oravasaari discuss a breaking news topic on top of the regular daily feature.

With the recent report that OnLive is undergoing a buyout by an unknown party, who seemingly let go of over half of the team’s staff straight away, it makes everyone wonder just who purchased the struggling cloud based service. As Sony have only just acquired cloud based streaming company Gaikai, and GameStop has been releasing information about their upcoming cloud service with Spawn Labs – could the mysterious procurer have been Microsoft? Or could another party just have scooped them up under everyone’s nose?

Dan: I absolutely think the mysterious company could be Microsoft – given that they have already seen their biggest competitor purchase one of the other largest cloud services, they are not going to let their current lead slip by in the upcoming cloud-war. Microsoft has been rumored to be looking at acquiring OnLive for some time now, and the amount capital and red tape required to purchase a company of this size would require a company to have already been in the market. This is not to say that MS is the only company in the market for a cloud based company, as a few others like Valve could really stand to utilize OnLive for its Steam service – it’s just that if MS did not obtain the patents of OnLive, they are really going to be hurting as streaming takes over the market in the future.

If Microsoft is purchasing OnLive, we are just now seeing the future of gaming gear up to the full potential of the internet – as broadband increases, and we move to a completely digital market, we are going to see today as the day war was announced. OnLive is not only a bit of assets for MS to use to stream their products to a future console, it’s a method to stick an already known brand onto almost any electronic product that has an input device and Wi-Fi. Much like we talked about in our previous Daily Reaction, the potential behind a cloud service is monumental, and could really bring the gaming war as we know it into countless consumer products around the world. Microsoft really has the ability to spread a streaming service faster than almost any other company, as it has the potential to input OnLive into its Windows OS, which has already dominated the PC market – giving them an install base that would already put its competitors at a massive disadvantage. As 100s of millions of consumers would unknowingly have already purchased a future proof gaming device, they would, in a single move, make the need for a gaming console obsolete (as long as you have fast internet).

Seb: Yeah, if Microsoft are buying OnLive as we speak, the implications this could have for Sony and the gaming industry as a whole could be incredible. And, while there are a few other companies that would be interested, cloud gaming is still a way off from being profitable and the risks are varied and costly. OnLive reportedly costs $5 million a month just to keep it running, and that figure is only going to rise if it’s made more popular by a major player. Not many companies want to pay that amount of money (on top of the buyout costs) until they know that they have a strong chance at making it a success. Microsoft has that chance, and they also have the $1 billion+ XBL revenue stream to keep cloud afloat until it pays off. Their experience with cloud on Office 365 and other services would undoubtedly give them both the experience and talent to lower costs, as well as an already vast server network that could help support some areas of the service.

Plus, like you said, Microsoft is a major player in a number of markets, namely Windows. And, while Sony can put PlayStation Cloud on browsers, or release an app, Microsoft has shown that they intend to fill Windows 8 with a number of their own products, including a gaming platform. Add in the ability to stream games pre-installed in the OS and a lot of people won’t look any further.

And then, of course, there’s the patents. The whole issue of patents has always been an problem, but with the ongoing Android vs Apple and Samsung vs Apple patent suits, it has become a huge legal minefield in the tech market, a place to stop competitors (hinder innovation) and make money with lawsuits. There are always ways around patents, but OnLive’s CEO described 2002’s USP 7,849,491 patent as “fundamental” to cloud-gaming. Between OnLive and Gaikai, the number of ways to provide cloud gaming without getting sued are likely becoming numbered. Microsoft isn’t above patent trolling (and neither is Sony, folks), and they’ll surely see a lot of value in owning this intellectual property, as well as ensuring someone else doesn’t.

So with OnLive, they could roll out Xbox cloud across this Xbox, the Next Xbox, Windows Mobile and Windows itself, hell they could even put a big “Play games here” banner in Bing. And they have the capital to do it all very aggressively – far more aggressively than Sony, who has had serious financial issues.

More than ever, Sony needs to get Gaikai to the market as soon as possible and onto as many devices as possible. They need to get people financially signed up to their ecosystem before Microsoft. And, even if they get Gaikai out tomorrow, the battle will now be as tough as it is in the home console market – if not even tougher. And, unlike with consoles, there’s no second chances with a next generation of platforms, cloud is free of hardware and should stay updated as long as you subscribe.

Has the biggest chance Sony had at dominating the future just been lost? Has Microsoft secured a future that could potentially put Sony in last place for a second generation in a row? Could Valve, EA, or even Nintendo have scooped up OnLive? Are we just smoking something bad, and this is all just a dream? Let us know in the comments below, and feel free to yell at us on Twitter by following Seb and Dan.