OnLive service to continue as company transitions to new form (updated)

UPDATE: On Sunday, OnLive issued a further statement revealing venture capital firm Lauder Partners as the buyer for the newly reconstituted company, and revealing that “almost half” of the former OnLive employees will be hired back at their established salaries. OnLive hopes to expand hiring when it receives more funding, the company said, and employees not asked to return will be offered consulting opportunities in exchange for stock options.

“The asset acquisition, although a heartbreaking transition for everyone involved with OnLive, allows the company’s core innovation and ongoing offerings—the product of over a decade of hard work transforming the OnLive vision into reality—to survive—and continue to evolve,” the statement reads, in part.

ORIGINAL STORY

Following yesterday’s flurry of rumors that game streaming service OnLive had fired its entire staff in advance of a potential shutdown or realignment, the company has announced that its streaming game service will continue while it re-establishes itself as a “newly-formed company… backed by substantial funding.”

The statement gives credence to yesterday’s reports that the company was filing for Assignment for the Benefit of Creditors status (ABC), a bankruptcy-like process that will let the company wind down its current structure and morph into a new corporate entity. All OnLive services will continue uninterrupted during the transition, OnLive said.

The company called yesterday’s reports of total staff layoffs “way overstated” and said the new OnLive will include “a large percentage of OnLive, Inc.’s staff across all departments,” including the management team, and even require “substantially more people” to be hired. But ComputerWorld’s Martyn Williams reported via Twitter that he saw numerous employees leaving the company headquarters with packing boxes yesterday, and an Engadget source suggests that “at least 50 percent” of the company’s employees have been let go.

What caused the obvious financial crisis for the company? A ComputerWorld report detailing CEO Steve Perlman’s message to employees yesterday suggests that OnLive substantially misread its server and networking needs as the service scaled up. At one point, OnLive was reportedly leasing 8,000 servers to support a user base that only included less than 2,000 simultaneous users at its peak.

This hiccup in OnLive’s business plan probably shouldn’t be taken as too much of an indictment on the long-term viability of cloud-based streaming game services like Sony-owned Gaikai and Nvidia’s upcoming GeForce Grid. Rather, this seems like a normal headache for a company that launched with a good idea that was just a bit ahead of its time.

As server and bandwidth costs continue to decrease and average home Internet speeds continue to increase, the user base and technology will probably align to put cloud gaming into a much more viable position. The real struggle for OnLive at this point, it seems, will be surviving in some form to take advantage of its first-mover position when that time comes.

The full statement from OnLive follows:

We can now confirm that the assets of OnLive, Inc. have been acquired into a newly-formed company and is backed by substantial funding, and which will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive’s apps and devices, as well as game, productivity and enterprise partnerships. The new company is hiring a large percentage of OnLive, Inc.’s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services.

While we’re not commenting on additional details, the reports have been way overstated, perhaps because we were unable to respond to initial enquiries until the transaction completed. The management team is intact, the company has substantial funding and we have all our current businesses to run.