An OnLive employee who was among those laid off from the online gaming firm yesterday took issue today with the company's assertion that it would be hiring a "large percentage" of the staff for the next iteration of OnLive.
The employee, who wished to remain anonymous, said that "definitely over half" of the company's 150 to 180 employees were unceremoniously fired during an all-hands meeting at 10 a.m. Pacific Friday morning.
Many of those in attendance thought that company execs would be announcing that OnLive had been acquired, but were shocked to hear that OnLive had opted for an "assignment for the benefit of creditors", or ABC, whereby OnLive's assets are transferred to a third party in a bid to avoid bankruptcy.
The employee said that OnLive CEO and founder Steve Perlman went through a "song and dance," complete with PowerPoint presentation, to explain how an ABC worked. Unfortunately, it included a number of layoffs. Those who got pink slips did not receive severance packages - just payment for the days worked this week - or any shares. The employee who spoke to PCMag claimed to have several thousand OnLive shares, and said workers with funds in flexible spending accounts were also out of luck.
"It was a huge blow," the employee said. The initial reaction in the room was one of confusion. OnLive frequently had company-wide meetings, so there were actually people who clapped at the end of Friday's gathering because the reality had not set in.
After the all-hands meeting, employees were broken up into smaller groups and herded into conference rooms. At that point, they were presented with envelopes - some of the envelopes contained offer letters, some did not.
Those who did not receive offer letters, like the employee who spoke to PCMag, were ordered to turn in their keycards by 4 p.m. Pacific and vacate the premises.
The news leaked out rather quickly thanks to an email sent to game developer Brian Fargo, who sent out a tweet that was picked up by the media. Initially, OnLive declined to comment on reports of mass layoffs and would only say that OnLive was not shutting down. But reporters in the area went to OnLive headquarters and captured photos of employees leaving the building with boxes. The employee who spoke with PCMag said that when these photos emerged, management sent an email - one of the last emails this worker received before accounts were shut down - telling people with boxes to exit through the garage, not the front door.
OnLive has not revealed who put up the funding for the newly formed company, but the San Jose Mercury Newssaid that venture capitalist Gary Lauder is one of those funding the company.
The employee spoke of the years he put into OnLive and got choked up talking about those who lost their jobs. There were tears yesterday, the employee said, and many workers gathered at a nearby bar after work to digest what had just happened.
Losing Money Consistently
Why opt for an ABC? The employee said OnLive selected that route because the firm was "losing money consistently" and wanted to become profitable without resorting to bankruptcy.
Operational costs, the worker said, are around $5 million per month, and while OnLive has about 2 million sign-ups, there are usually only about 800 to 1,800 people playing per day, depending on the time of day.
Were there any rumblings that things might be amiss at OnLive? The employee pointed to a May email in which Perlman talked up an investment from Hewlett-Packard. No formal tie-up was every announced, but in the email Perlman discussed the "startup speed" with which HP was willing to invest in OnLive.
Shortly after that, the company shut down for a week over the July 4 holiday, prompting workers to wonder whether it was done due to financial constraints. Perlman sent another email to employees that said yes, the move saved OnLive money, but said it was done because almost half of workers were already taking vacation, so the rest of the staff wouldn't be able to get much done anyway so it was a "sensible" solution.
Around that time, meanwhile, Sony paid $380 million for cloud-gaming service Gaikai. This, according to the employee, made OnLive think that it, too, could bring in the big bucks - possibly up to $1 billion - but a deal was never signed.
There's always the patent route. In 2010, OnLive was awarded what it called a "fundamental" patent for cloud-based gaming. A search of the U.S. Patent & Trademark Office turns up 17 patents issued to OnLive and Perlman. According to the employee, OnLive was not above using its patent portfolio to go after rivals like Gaikai.
Copyright © 2010 Ziff Davis Publishing Holdings Inc