Interview with OnLive CEO, Steve Perlman

Raised as an unabashed skeptic, I wasn’t exactly ready to drink the OnLive Kool-Aid when the service was announced at 2009’s GDC. The promise of an on-demand video game streaming service that required nothing more than a mid-level PC and and a solid Internet connection seemed a little too good to be true. Since then, OnLive’s venture for world domination has continued with a slow-paced but still surprising amount of success. PC and Mac users have logged over “2 million sessions” and there’s no sign of them slowing down. The month of October saw more OnLive usage than all the previous months of usage combined. Combine this with a growing army of publishers on board, including Ubisoft, THQ, 2K Games, and Warner Bros, and I think it’s safe to say that the future of OnLive isn’t looking too shabby. I recently had a chance to check out the brand new MicroConsole (which is now available for pre-order on OnLive.com) in action and chat with OnLive’s CEO, Steve Perlman about the company’s past, present, and future. Hit the break for a long, long interview.

Inside Gaming: “Last month you announced that OnLive would be dropping it’s required monthly fee. Players can now jump into OnLive for nothing. What was the motivation behind this? Was this move a direct reaction to negative feedback that you received about the subscription fee.”

Steve Perlman: “Look, we never wanted to have subscription fees. We had no data to go by. When we announced $14.95 a month… nobody minds when you go down in price. We’re not a Microsoft and we’re not a Sony. We can’t afford ten years of loses. You know what I’m saying? Let’s put it this way: the worst case scenario we could imagine as far as usage would have required us to charge $15 a month. But what we did between the announcement and launch was what we call a commerce beta where people were buying games to test the credit card purchases and everything because you can’t get real usage numbers until somebody actually buys a game. It’s fascinating watching how usage for the exact same game, free or purchased, is different. So we were rolling up to release in June at E3, we’re like ‘jeez, I don’t think we’re going to have to charge anything.’ But we couldn’t be sure. So we decided to go this way: we partnered with AT&T and announced that the first year is free and after that it’s $4.95 a month. Okay? Just to get people on there so we could get real usage and track that usage. We collected the data and tuned the system to optimize it for usage and after three months we were able to conclude that we don’t have to charge any on-going fees. Which is great.”

IG: “Was that sort of the plan from the beginning? When you you guys started was it like ‘Ideally, we won’t have to charge monthly fees?’”

SP: “So here’s the thing. The plan was to make it so there were no monthly fees, if you play a game, either way, we get paid because you’re playing a demo [Editor’s Note: Steve mentioned to me earlier in a presentation that OnLive is compensated when users play free demos] or we get paid because we get a revenue share on a sale of the game. But we had to go and ran the numbers. You know? You’re a start up so you go and run the numbers. ‘Here’s the best case scenario and here’s the worst case scenario.’ By the way, the only reason we could afford to do is we were so worried about the worst case scenario we built in all these optimizations in the servers to minimize the cost of operations. And it’s because we built in all these optimizations…that we are able to offer a free service. If we just took off-the-shelf servers, we wouldn’t be able to. But what you just saw there is that you’re sharing servers amongst a lot of other people and it’s using them very, very optimally.”

IG: “So, in my mind, the biggest up-hill battle that OnLive has is having to prove that this technology works. Obviously we are in a controlled environment right now and everything is working great. But how do you instill faith in the everyday consumer that OnLive will work in their living room, on their home Internet connection?

SP: “The way we did it is we let people try it on their PC and Mac on OnLive.com, it’s free, and if it works their then it will work just fine on the MicroConsole. We had to do this very gradually. First we said you needed a wired connection and we went and tested literally millions of connections around the United States to see what the performance was with like. Then we gradually introduced Wi-Fi…and we now have extremely high reliability through out the United States and through out the world. Now that we now everything has been really reliable we are introducing the MicroConsole. We’ve taken a very slow, methodical path from beta, to live PC/Mac, to wired, to wireless, and finally to the MicroConsole because that’s the way we had to do it. It’s a little slower than maybe any of us wanted to do it but you’re exactly right, we had to instill confidence.”

IG: “Where do you see Microsoft and Sony relative to you guys? I know you mentioned briefly that you don’t see them as direct competitors. Do you see them complimenting you guys? Do you see them potentially using your technology in their next machines?”

SP: “Absolutely. Look, both those guys have Netflix on their machines. Sony has a movie studio and they have Netflix on the PlayStation. They sell Blu-Ray players. They actually have Netflix running on their Blu-Ray players. So I think everyone is getting to the point where they recognize that they’ve got a brand, they’ve got a world of products they can use to reach customers and so long as they’re participating in the ecosystem they’re pretty happy to see good things come out of it. I mean those guys have uncertainties about us just like everyone else does. Right? We had to essentially prove ourselves. But you’ll be seeing OnLive built into TV sets next year. There will be NO MicroConsole…”

IG: “Along those same lines, what about Steam and other digital distribution platforms?

SP: “We’re very happy to send people over to Steam. We don’t have an agenda. I do think that doing a 6 GB download on Steam for a demo then doing a 10 GB download for the game, it’s much better for the guy to demo it on OnLive and say ‘I like’ or ‘I don’t like it’ and then do the 10 GB download. If somebody wants to own a copy of the game then God bless them. Maybe they want to mod it, or have a particular performance capability they want. Who knows? We have no agenda there. It’s a $50 billion dollar market and we’re a 200 person start-up. We don’t need to make a very big splash in order to pay our bills.”

IG: “So you mentioned mods. This is one of the concerns I’ve heard whispers of. You’re esstentially buying the PC version of the game but with everything on your end, there’s no ability for the owner to mod. Right?

SP: “So we usually start with the PC SKU but not always. In fact, some games we are working on for next year are not going to be released on the PC. And some of the games are different. Sometimes it’s fairly subtitle but the OnLive version of games will be different from all the other versions and you’ll see that gap widen over time. So what we want to be able to do is make it so that if there are some cool modes out there that are stable, we want to be able to showcase them. You’ll be able to play the game with this mod or that mod. I think the good thing about that is for people who are not technical enough to do these things, they’ll be able to get into that. And here’s the other thing. When you play multiplayer, who wants to play with a guy who has an auto-aim mod that you don’t have? But it would be perfectly cool to have the auto-aim version of multiplayer and the non-auto aim version of multiplayer… That brings up another cool thing that you can do. Because there is no cheating to speak of, we can do cash prize contests and you could never really do that before in multiplayer because there’s always somebody who’s going to do a mod that gives someone an advantage. So we want to have the good part of mods which is that you can do things that weren’t there before and the publishers are generally okay with it. And as I mentioned before, the machinima elements of this whole thing. These guys [publishers] want to open up the worlds and give you direct control along with video editing stuff and the ability to post it. Take Assassin’s Creed, you open up that world for machinima and do a whole story that takes place in ancient Venice and it may have nothing to do with the game.“

IG: “And how about retail? You guys are currently just taking orders on OnLive.com but can we expect to see this box on store shelves?”

SP: “I can’t name particular stores but yes, the MicroConsole will be hitting retail next year… We’re survey hounds so we asked people how interested in this thing and we’re like ‘oh my God, how many can we make this year?’ and so we said ‘Alright, looks like we’ll just have enough to sell them from OnLive.com.’ And the other thing is that you have to vie for shelf space around Christmas and we didn’t want to get into fights like that.”

IG: “Yeah,  Activision has it all taken up with their Guitar Hero boxes.”

SP: “They do, or Rock Band 3. Which we just picked up for a Christmas present for our kids… It’s all wrapped up. I can’t play it until they open it (laughs)… and actually Lego Universe, too. That’s a good game and I don’t want to pick on them but I was trying to install that for my kid. And first there was what must have been a 3 hour download, why even bother with the disc?…  And then all this registration crazy stuff. By the time we were done he had to go to bed because it was a school night…. I worked all night on that damn thing. Anyways, people are so fed up and I as a parent am so fed up with installing games.”

IG: “You’re no stranger to working on innovative technology. I know you worked with Apple on QuickTime and more recently on WebTV. How have your experiences shaped the direction of you guys are taking with OnLive?

SP: “It took a whole career to do what no one has ever pulled off. And that’s launch a successful video game platform from a start up. It’s only been done once and that was called Atari. The other time they tried it was the 3DO and they couldn’t get it off the ground… And that’s why you’re seeing such a cautious unveiling. This is already a pretty ambitious thing. And we don’t have everything. We don’t have Call of Duty… and those guys don’t need us. But it’s just like Netflix. Netflix doesn’t have everything… And I think when a lot of people look at the console market they see a dog-eat-dog thing… And it doesn’t have to be that way.”