Moving on from latency, there is the business model. So, I'm just going to quote Dave Perry [head of cloud-based gaming company Gaikai]. People compare Gaikai and OnLive, but really, to me, they seem like quite different things at this point as far as the business models go.
Anyway, back in March, he was criticizing your business model. He was saying you're "paying $15 only to have the opportunity to buy the games. So, $15 gives you no games. If you decide, 'I don't want to keep paying that subscription,' you've just lost access to your games bought at full price." What would your argument be about that?
SP: What we said in March is we were going to charge $15 a month at a maximum, and then we would announce promotions before we launched. And in fact we did. So, OnLive is free, and then after the first year, if you want to stay, and it's completely optional, it's $4.95 a month, and it's month to month.
Plus, it's not in the press release, but it's in our terms of service. You can suspend anytime you want. So, if you were going on vacation for three months and you're not going to have internet service or something, we will hold onto your games and your game saves and anything else you've got, right. So, I don't think there's any real cost to using OnLive, and I don't think there's any real risk.
I think in retrospect, I probably should not have even said anything about pricing. We had a lot of people pushing us to say what kind of price it would be. So we said, "Look. How are we going to tell you how much it won't be more than, and then say that it expects to be less than that?" The reason we had to be very cautious about announcing a price back in March is that until then, beta only had back catalog games.
So, we looked at usage patterns, but we really didn't know what usage patterns would be if you have a brand new game that someone's likely to play through the end, right. And the other thing is we had a bunch of different equipment that we were doing from an engineering point of view, and we expected that to go through to reduce the cost, but you really don't know and you can't really get a quote on components, on servers, and you know, we have custom silicon in there, until you get to very large volumes.
So, we said, "Alright. Let's go put out a very cautious number." We figured nobody would be too upset if the price came down. So, in fact, we were able to bring the price way down. And so here we are. And to the point where AT&T is really happy to sponsor the first year.
So, I think that concern that you need to spend money in order to use OnLive evaporates. First of all, demos are free, so there is really no cost in that. And again, for the first year, actually for the first two years, I think you can take $4.95 a month, you know, for 12 months, which would be the second year, and amortize it over two years, it's less than the cost of Xbox Live if you get Xbox Live on an annual basis. And you can't cancel that on a month to month basis.
A lot of the concerns that people have about the cost of the service, month to month, probably should have evaporated at this point. In some ways, you're asking me a question about, "How you would respond to a misconception about old news?"
At this point anyway, [the free year is] a promotional thing, and we might be talking two years from now. It sounds like you guys want to keep it as low as possible, possibly through other sponsorships or partnerships in the future.
SP: There will be such amazing announcements coming. So, we're not worried about people thinking OnLive is too expensive. That's fair to say. [laughs] You know, we have a zero million unit install base right now, so publishers need to be concerned about maintaining consistency across all the different places where they sell their games.
Games usually are priced the same as they are with other things, with Steam-type systems and so on, or Direct2Drive, etcetera, or retail. But the opportunity with OnLive to package games in many different ways that are difficult to do through either downloads or physical media.
So, you'll see things like, instead of a rental for some number of days, you'll see, if you will, you can pay for a certain number of levels. "Oh, you really do like the game? Well, how about some more levels." What today we think of downloadable content, you know, DLC, I think you're going to begin to see as like these are just option packs that you click and they go right away, you know what I mean. There's no downloading.
And then there's going to be, you know, models like they have with Facebook and Zynga, where the games themselves are free and they're paid for by in-game purchases. I mean, you'll see ad-supported games where there's no cost at all. They're promoted with ads.
And you'll see ads that become games -- somebody has a product or an offering, and you actually get to try it out. I mean, an example would be like a new car, and you click on it, and you take the car for a drive, and it looks just like the real car, you know what I mean. "I think I'll try it with a larger engine option," and see how that happens. Or try different tires and see how well it corners on a really serious race track.
The ways we can package the OnLive experience are just innumerable. There are many, many different possibilities. You know, we are a start-up company. [laughs] We're not Sony or Microsoft. With Sony or Microsoft, or Nintendo, they have enough money in the bank that they can go and say, "Alright. It's going to be three months before launch, it is going to be free for the first people, then $4.95. Then after that, we're going to have this program. Then after that, we're going to have that program."
Unfortunately, I don't have the privilege to do that. I have to kind of wait until all the ducks are lined up before I say, "Okay, here's the promotion that we have." I think people should take what they're seeing with this announcement on June 15 as an indication of the direction OnLive is going.