Former OnLive CEO Steve Perlman explains what really happened to the cloud gaming company

We know what you’re thinking. Why the heck are we talking about OnLive in 2019? Well, about a year ago we published a story where we chronicled the company’s rise and eventual fall. However, we were recently contacted by OnLive’s former communications manager, Jane Anderson, who ran communications for the company from 2003-2015.

Jane had an interesting request: would we like to speak with former OnLive CEO Steve Perlman about some factual inaccuracies in the stories about the company?

Well, it turns out there’s a lot more to OnLive’s story. According to Perlman, OnLive was actually doing quite well during the months leading up to its shutdown. As Perlman tells it, there were both man-made and non-man-made forces conspiring against OnLive, and sadly the company couldn’t overcome such forces before it was too late.

What follows is a chronicle of events detailed by Perlman which we gleaned from a recent phone conversation with him.

The dream that was OnLive

You may not have heard of Steve Perlman before, but chances are his inventive spirit has impacted your life in some way. One of Perlman’s biggest claims to fame is that he helped develop the original codec which would eventually become Apple’s QuickTime media program.

We also have Perlman to thank for WebTV, one of the very first pieces of technology that could connect television sets to the internet. In fact, after Microsoft purchased WebTV in 1995 for a cool $503 million (rebranding it as MSN TV in the process), the technologies that Perlman helped create would later be used when Microsoft built the Xbox 360 gaming console.

With OnLive, Perlman wanted to leverage the power of cloud-based computing to make gaming as accessible an activity as possible. When you listen to Perlman describe his vision, it’s easy to want to root for him:

“Our ultimate goal with OnLive was to create a more accessible and universal gaming space. The real vision of OnLive was to make it so that gamers could access their games from any device that could connect to the internet,” Perlman told us.

One interesting tidbit that Perlman disclosed to us is that at one point Apple had OnLive develop a software update which made Apple TV compatible with the OnLive service and game controller.

“So, basically, users could install the OnLive client and play any of their OnLive-compatible games right on the Apple TV,” he said. “It essentially turned the Apple TV into a compact game console. Unfortunately, Apple ultimately cancelled the deal before it could get off the ground, but it at least shows how much interest there was in cloud-based gaming as a concept.”

In early 2012, Perlman and his team expanded their initial cloud-based vision to include the computer desktop experience. With the “OnLive Desktop” service users could access a remotely hosted virtual Windows 7 machine, again, from anywhere and on any device with internet capabilities. However, as Perlman puts it, the inevitable friction this caused with Microsoft was the first major hurdle OnLive had to overcome.    

Server issues

The public consensus is that the OnLive Desktop service started out using Windows 7 as the base for its virtual desktops and that it eventually switched over to Windows Server 2008 after Microsoft threatened legal action. Perlman, however, lays out a different narrative.

“It’s true that we were initially running on Windows 7-based servers for both the OnLive game service and OnLive Desktop, and we were doing so under Microsoft’s Services Provider Use Rights (or SPUR),” he said. “However, Microsoft then went ahead and removed Windows 7 from the SPUR hosting services in February of 2012, roughly a month after we launched OnLive Desktop.

“We had to sort of scramble at that point because we only had until April 1 to come into compliance with Microsoft’s new SPUR hosting terms,” he continued. “We spent the following months working around the clock to port the entirety of the OnLive cloud game library (and OnLive Desktop) over to Windows Server 2008 which was still covered by SPUR hosting. In fact, we ported over the final OnLive game mere minutes before midnight on the April 1 deadline.”

Despite barely making it by the deadline, the transition from Windows 7 to Windows Server was completely transparent to users. From their point of view, all OnLive games kept running the same and OnLive Desktop continued to look and run exactly the same. There was no downtime because OnLive gradually added Windows Server-based servers while keeping the Windows 7-based servers running.

The seamless change even went unnoticed by Microsoft itself. Perlman recalled a funny story about a discussion he had with a member of Microsoft’s licensing department who had called to express his concerns that OnLive was still using Windows 7-based servers.

“He calls me and says to me ‘Steve, I’ve got OnLive Desktop open on an iPad right in front of me and it sure looks to me like Windows 7,’” Perlman said. “So I asked him to open the Notepad program. He asked me why and I just told him to please humor me.

“Now, in case you don’t know, Notepad actually tells you the version of Windows you’re running if you click on the ‘About Notepad’ button. When he clicked on the button, it said ‘Windows Server 2008’ plain as day, and I remember hearing his audible shock since I’m sure he expected to see ‘Windows 7’ instead. Microsoft dropped the whole issue soon after but I doubt they ever knew how close we had come to missing the April 1 cut-off.” 

The Sword of Damocles which had been hanging over OnLive’s head had been removed, but as Perlman and his team were about to learn, many more swords were lining up for their turn.

Costs of doing business

If you were to do a Google search of OnLive right now, you’d find a myriad of stories which paint a rather grim and sordid picture of the company’s eventual closure. Misappropriated funds, plummeting profits, rejected buyout offers, and an overall sense that, at best, Steve Perlman kept his team in the dark and, at worst, he actively betrayed them so he could score a personal payday. However, Perlman says that virtually all of what the public knows about OnLive’s closure is fiction.

“Oh yeah, it’s total fiction,” he said. “I’m not entirely sure why this source said the things that they did, but none of it is true. We were actually in a pretty good spot going into 2012. In fact, we were in talks with Hewlett-Packard (HP) to have them acquire us. They even lent us a $15 million bridge loan so they could secure exclusive negotiating rights.”

In July of 2012, however, HP suddenly cancelled the deal, leaving OnLive on the hook for the entire $15 million loan amount. HP gave no reason why it pulled out. Perlman was quick to secure another potential buyer but the new deal was conditioned on HP extending the loan payback for a few months, a common request for bridge loans. HP said it couldn't extend the loan and again gave no reason. To make matters worse, such an unusual and unexplained refusal from a major tech company like HP scared away both the new buyer and other investors.

Perlman appealed to HP a second time, explaining that if it didn't extend the loan OnLive could not raise funding to pay it back and would be forced to take drastic action. Again, HP remained silent. With no alternatives to turn to, Perlman was forced to make a tough call.

“Since we had no other potential buyers and since we had no hopes of paying back the loan, we entered what is known as ‘Assignment for the Benefit of Creditors’ (also known as "ABC") which basically meant that HP lost almost its entire loan and OnLive's shareholders lost their stakes in the company,” he said.

“OnLive’s assets were then acquired by a new company called OL2, and they even managed to hire about half of the original company’s staff. Everyone else was unfortunately laid off.”  

It was a shock to everyone that rather than being acquired by a major tech company half the OnLive team was suddenly let go. To make things worse, a number of non-disclosure agreements with HP, buyers, and investors were in force at the time, preventing Perlman and OnLive from identifying the cause of the sudden ABC. But even if they could, there was still no explanation why HP chose to forfeit its loan instead of extending it so a buyer or investor would pay it back.

Perlman now knows why HP suddenly backed out of the deal, though he notes the truth didn’t come out until a few months after OnLive’s initial closure.

“So it turns out that, while it was in the middle of acquiring us, HP was dealing with some internal financial problems of its own,” Perlman said. “You can read about this yourself but back in 2011 HP had bought a UK-based company called Autonomy.

“Well, it wasn’t until 2012 that HP discovered Autonomy’s CEO had been purposefully inflating the company’s profit margins (something that’s often referred to as “cooking the books”). We had no idea this was happening until HP announced it in November 2012," he continued.

“In the Summer of 2012, when the HP exec leading the acquisition said he had to ‘take on the Autonomy group and really really dig in there’, I simply took that to mean he was very busy. It wasn’t until November that I realized this is likely why HP went into a sort of lockdown mode, they suddenly pulled out of the deal, refused to extend the loan despite knowing they'd lose it, and also refused to explain what was happening. It was unfortunate because HP couldn’t explain to us what was happening and even when we found out we couldn’t explain it to the general public. It was just a case of really bad timing.”

Perlman did his best to support the laid off OnLive staff after the closure, even contributing $50,000 for their health insurance out of his own pocket, but the terms of the OnLive closure meant that benefits like severance pay were off the table. OL2 continued on in a limited capacity for a while but was eventually forced to sell off its remaining assets to Sony in 2015. By April of 2015, OnLive was shut down for good.

Enemies on all sides

So where did the nefarious narrative of Steve Perlman betraying and selling out his employees come from? We can’t name the source directly, but if you do a little snooping of your own you should be able to figure it out. For whatever reason, this source depicted Perlman as a sort of boss from hell who ran OnLive into the ground and then abandoned ship.

Because of the clout this source held, the dark portrait they painted of OnLive’s closure quickly became unimpeachable truth in the eyes of many. And because of the existing NDA’s they had signed, Perlman and his OnLive team could not disclose the actual reason for the ABC. Therefore, when the source’s publication refused to fact-check its own allegations, all Perlman could do was bear the brunt of those accusations.

During our conversation, Perlman also noted how there were other companies who wanted to see OnLive fail.

“Microsoft and Sony didn’t like what we were doing because we were essentially rendering standalone game consoles obsolete,” he said. “Game publishers like Warner Bros. (who actually invested in OnLive) loved us because they could get a cut from our OnLive Play Pass subscription service simply by adding their games to our cloud library. However, since game publishers showed strong interest in our digital-only cloud format that also meant that companies like GameStop didn’t like us either.”

Perlman also said that he and the OnLive team never intended to step on anyone’s toes, but the very nature of today’s gaming market meant that what they were doing was bound to ruffle some feathers. As cold as it may sound, it’s unlikely that companies like Microsoft and Sony mourned the passing of OnLive.

What could have been

There have been many different portrayals of Steve Perlman in various tech and business publications, not all of them flattering. However, the man whom we chatted with for over an hour on the phone didn’t sound manic or angry or even bitter about what happened to OnLive, he mostly just sounded disappointed.

As Perlman explained to us, the implication that he and his team were somehow trying to compete with the existing PC gaming market was false from the start. Worse, it did little else other than poison the well and make it all the harder for OnLive’s true purpose to shine through.

“Our goal was never to compete with the PC gaming market,” Perlman said, “we just wanted to make console gaming as accessible as possible, and the best way to do that was via PC-based cloud gaming technology.”

In Perlman’s eyes, the current console ecosystem is unsustainable. Physical media will eventually be phased out (such is pretty much already the case with PC gaming) which means game publishers need to find alternate distribution methods.

“I honestly think that physical media won’t last. In fact, I’ll be surprised if Sony and Microsoft end up releasing a new generation of consoles that supports physical discs. I also don’t like the idea of having all these different competing consoles. Gamers shouldn’t have to buy a specific console from a specific company just to play the games they want to play.”

The fact that cloud gaming is slowly growing in popularity makes the demise of OnLive all the more painful to bear, especially for Perlman. A good portion of our conversation was spent wondering about what today’s gaming ecosystem would look like if OnLive hadn’t met such a sudden and unfortunate end.

“I’m not sure what the cloud gaming space would look like now had OnLive not shut down in 2015, but I’m happy at least to see cloud gaming getting its day in the sun,” he said. “I’m constantly amazed by what companies like Google and Sony are accomplishing with technologies like Project Stream and PlayStation Now. It’s hard not to feel some disappointment but I’m just glad that cloud gaming didn’t end up as some forgotten concept.”

Today, OnLive is remembered as little more than a small footnote in the larger cloud gaming saga, which is a shame considering how much Steve Perlman and his team pioneered the cloud-based technology which is becoming more commonplace every day. It may be hard to see the ultimate truth of what happened to OnLive, but the impact it had on today’s cloud gaming ecosystem is something that shouldn’t ever be forgotten.