Yesterday’s big headline from Dean Takahashi’s GamesBeat column read: Cloud-gaming service OnLive reveals details behind its asset sale and new investor.

Translation, OnLive just went kaplooie. Or, to state it more accurately, the company sold all its assets, trademarks, IP and toilet paper to a new company (not named) who will continue to run the service under the OnLive brand. All employees were let go (although half received job offers from the new operation), all shares and equity were essentially worthless. If that’s not kaplooie, it’s pretty close.

A Great Idea
I remember feeling very excited when I first heard about OnLive’s cloud-based gaming service when it came out of stealth mode in 2009. Incubated for a number of years by high profile serial entrepreneur Steve Perlman, this looked to have all the makings of success, including that OnLive

Was on the forefront of leading technology trends (in this case, cloud-based applications)
Was disrupting a large and potentially lucrative market – the $50 Billion games industry (that’s the way to attract users, investment and carve out revenue)
Had sex appeal - see above, plus don’t underestimate the value of high profile founders, leaders and investors

I viewed OnLive as a terrific product idea and consumer proposition. I thought it was a game changer and watched it with high hopes and best wishes. I believed in their model and was rooting for them to be successful.

What Happened…?
I’m not close to the situation, so I really don’t know what happened, especially in terms of how the company went about managing itself, marketed its services, etc. But, if I had spent Just a Marketing Minute thinking about potential issues and challenges, maybe I would have been more careful in how much koolaid I consumed.

Now, with the advantage of hindsight, here are some fundamental market factors that likely contributed to OnLive’s demise:

Supply Issues – OnLive relied on game companies for content, and they just did not have many good games (at least not the AAA titles). In games, as in any form of entertainment, content is king. I’m pretty sure that major companies were cautious about providing their precious content to be delivered through this new service out of concern that they would be shooting themselves in the foot. Making your top tier entertainment IP available through a service that might disrupt your business…well, that line of thinking can be scary in a hits driven business. That’s closely related to…
Channel Issues – OnLive offered a new channel of distribution for game companies to get IP into the hands of gamers. Ironically, that may have actually been a key part of the issue from the industry’s side; companies were (and mostly still are) wed to the retail distribution of hard goods, i.e., game disks sold through stores. Fear of “upsetting the channel” likely froze many company executives in their tracks when OnLive came a-knockin’.
Competitive Issues - Given the proliferation of cloud-based, digitally delivered technology capabilities, many companies have chosen to essentially do what OnLive proposed to do, but do so themselves (thereby saving the middleman fee). Whether it was developing online distribution on their own or white-labeling services such as Gakai, OnLive’s potential customers essentially became potential competitors.

If We Build It, They Will Come…Not
Finally, as a marketer, I can’t forget about the consumer issues, in particular consumer need/demand and the ability to change or alter entrenched behaviors.

Being first to market is usually a good thing…except when consumers are not ready or interested. In that instance, being first to the party is like going to a party where not many people show up…it’s kind of lonely.

Most gamers already have entrenched habits and plenty of options for playing their games (Xbox, Playstation, Wii, computers, mobile devices…). The promise of “instantaneous access” may have been a solution to a problem that was, well, not such a big issue for gamers, especially when you consider the above noted factors: a) they couldn’t get their favorite games through OnLive and b) other companies were making their favorite games available either offline or via digital distribution (e.g., via Xbox Live). Net: OnLive may have been “solving” a non-problem.

I still believe the concept of games that are delivered digitally, reducing the friction for the consumer, is a great idea. It not only will disrupt the games industry, but IS disrupting the industry today. That’s why I see so much potential in free-to-play, digital content. So, OnLive had a great idea and was early to the party.

But, in the end, the countervailing market factors seem to have won out. Which goes to show you -- some time good ideas, while necessary, are not enough if you don’t recognize your potential challenges and properly address the prevailing market dynamics.

What do you think?