Friday last week wasn’t much of a TGIF for cloud-based gaming company OnLive employees as the company laid off its entire staff and closed its doors. According to an article in Polygon this caught the entire gaming industry by surprise and the confirmation came down from a report out of Kotaku that confirmed that OnLive is planning to file for a bankruptcy-like process involving an out-of-court insolvency proceeding.

Although the company is apparently being bought by a third party (in line with the insolvency proceeding) the entity of OnLive is probably going to cease to exist as a company even if its assets and some of its employees continue to produce the same product.

This happened so quickly that few news outlets have a coherent timeline of events, however, following tweets and reports, it seems that today we’re looking at the aftermath.

“I wanted to send a note that by the end of the day today, OnLive as an entity will no longer exist,” reads an e-mail forwarded to Polygon and later tweeted by Fargo. “Unfortunately, my job and everyone else’s was included. A new company will be formed and the management of the company will be in contact with you about the current initiatives in place, including the titles that will remain on the service.”

Presaging the sudden crumbling of the cloud-based gaming company, an employee described to GamePolitics a “bizarre all-hands-meeting” that limns the suddenness with which this event struck:

“So there was an ‘All-Hands’ and we’re in this big open space.. he [referring to OnLive founder, CEO, and president Steve Perlman] literally had a presentation that he pitched to us and the punch line was ‘…and under this variation of bankruptcy which is valid in California the company as of this moment does not exist and portions of it are being acquired by a brand new entity but what that means is all of your options are gone.’”

Currently Engadget is reporting that the company has been bought by an unknown third party.

OnLive Built Too Early for the Market to Sustain Itself?

We have reported on the leaps and bounds what OnLive was doing and what an amazing service a cloud-gaming outfit could provide for mobile and Internet-connected apps via TVs, consoles, and other devices. The first signs of trouble started to manifest when a primary competitor, Gaikai, got a foot in the door with Sony and had OnLive dropped from their devices.

Although nothing seemed to be wrong with the company, and they seemed to be reaching into further devices, the competition in the market from Gaikai seemed to be taking the lucrative free-to-play MMO ecology from OnLive even as it seemed to be thriving with branching into streaming office apps and the like to mobile devices.

According to Engadget the reason for the failure of OnLive appears to rest on a tremendous debt and operating costs not being defrayed by consumer adoption. The article cites a $5 million a month operating cost and a concurrent user number somewhere between 1,100 and 1,500 a month—with a peak around 1,800—with numbers like those the subscriptions could not have come close to scratching the operating costs.

While it’s well known that cloud-based services can reduce overhead by a great deal, it appears that OnLive was operating at huge costs with few consumers using their services. It is well known that the gaming industry is currently in a slump, but from the looks of it OnLive simply didn’t find a functional market to tap into.