So if onlive was losing money, I doubt Gaikai or any other game-streaming service was ever profitable. Future of gaming? Not so fast.

It is just a bubble that bursted really quick. Zynga and Facebook games are on their way down as well. Next stop is free to play games, before we go to mobile gaming. I am not saying these business models will be dead and gone forever. I am saying they will come back to a more reasonable rating. At the end of the day people will realise that 3 million people paying $60 to play a game offers more chances for profits than 10 million people paying nothing, but a fraction might eventually use microtransactions to buy ingame items for 99 Cent.

Gaikai was purchased and OnLive went out of business to become a shell-company to sit on its own intellectual properties

Both being proof that their ideas will have value in the future, but have very little value now.

Considering the company is probably going to be selling for dirt cheap, it could be interesting if someone like Valve snapped them up. They've got the cash, the people and the creativity to try and make something out of it. Either way, someone will take it and run with the ideas or will strip out its patents while telling everyone it'll be perfectly okay.

Though I personally don't really like the streamed games, innovation is typically positive, so I hope for the former.

Well, Sony bought a competitor, and there is a big push to shove everything in the cloud.  But, there are issues in regards to finding a viable business model that would fit and make things work.  But, it looks like the talk of the death of traditional consoles is a bit too soon.

Thing is that the barrier to entry is so low, and new developers keep jumping into this low end market, that the supply is large that it drives costs down to that point.  Companies can also recycle old IP and put it out there cheap also.  The thing also, about the $60 to play games, is those studios are also going under.  Most games at that price point don't make back their money.  There is talk of, for example, the developers of the Darksiders studio going under, if sales figures aren't met.

Reality is that there may be a contraction going in the videogame industry, that will shrink it and realign it.  There appears to be no magic bullet spot either.  MMOs are now free to play, and Zynga has issues, as does large studios and also the 99 cent arena.  Maybe the target is $10-$20 range stuff as the sweet spot, with DLC added later.

Not surprising.

I worked for a rival company to OnLive for about 3 years. We operated during their initial 1-2 year push. Their technology, as well as their user base, never seemed to be viable. They only existed thanks to massive infusions of capital.

Go look at their Quantcast scores for OnLive.com. They tell the tale of how tepid their user base has always been. Of course, users didn't route their experience through the website, but you always saw huge spikes in users during massive PR campaigns, followed by quick death... Not good for trying to keep a user base, really.

I never saw how they could run it successfully. I'm shocked it took this long for them to get hit with massive layoffs and closure.

Not at all. In transition? Absolutely. But in terms of revenues generated, the industry is stronger than ever. Its just not in the retail space. You're correct that there's no magic bullet, as the way people play and what they play is more diverse than ever. But that doesn't mean it is, or will, contract.

If the person I was responding to is correct, then there is NO segment of the videogame market that is profitable, because they named them all.  If you look at it, the two biggest names in the videogame industry: Blizzard-Activision, and EA, are seeking buyers.  You don't seek a buying unless you are gearing up for retirement or have concerns for your financial future.  Zynga has peaked also.  MMOs are becoming free to play, so shifting there, hoping they can get micropayments.  And then if the 99 cent realm is not going to cut it, what is left, particularly in light of question the OnLive model?  Having a few winners on top, with most everyone else losing money, is not a viable model for business.  I didn't say the industry was going to crash like it did during the 1980s, but there are risks there of contraction and repositioning.  You can't just say, "Based on revenues, the industry is stronger than ever" because it fails to account for profitability.  If they industry has costs exceeding what it generates revenue-wise, to get the revenues, it is going to end up having to contract.

And revenues could shrink also.  The market may not decide to jump on next generation either, or in ways the industry would like either.  

The issue with profitability is that a lot of companies placed a lot of bets on what would, and wouldn't happen during the generation, and a lot of them failed, hard.

You've had a huge transition from AA to AAA+ publishing in the console realm, which left a lot of smaller developers hemoragging cash on their $20m+ blockbuster games. You've also had the same thing happen in most fields, sans maybe mobile gaming. (EA's The Old Republic is a great example of a huge failure of an MMO).

But you can't throw the baby out with the bathwater. There are tons of profitable companies in each industry. The problem is that the major studios aren't on the list, and the ones that are doing well are usually private companies unwilling to sell shares, like Valve and Bethesda. Furthermore, you have players in each field like Nexon (MMO), Rovio (Mobile) and Wargaming (F2P) which are getting larger, yet aren't really talked about because they aren't valuated like retail companies which can at least have their data validated by services like NPD.

DirtyP is somewhat wrong in his assessment about cost considerations, and I should have mentioned them. When it comes to profit, you always have to consider the cost of development. It may be cheaper to develop a F2P game incrementally and create a user base via microtransactions versus a AAA, $60 game that costs $50 million in development & marketing. That is why the indie scene is doing pretty well - there are other price points that work fine.

In the end, what we're seeing is the diversification of the industry, which is a sign of maturity. Most entertainment industries do this, and do well because of it. Ancillary income is a very important thing, and its something that video game publishers have failed to monetize since the arcades dried up. Because of downloadable/online gaming, you can see additional churn for veteran titles, which helps. You can also diversify your cost curve on games, helping to monetize everyone. Call of Duty is a good example of this. You have some people that get in only when the title is cheap at $30, others buy it @ day-1 for $60, and still others buy the game and purchase the download content at $15 a pack. Its a much different world, and it'll be beneficial for everyone, once the stupid players get shaken out.

My argument about revenues still stands, because gaming is more ubiquitous than ever. It will continue to get larger. Yes, some companies may die. Others will be sold. But it still remains one of the stronger, and growing, sections of entertainment.

I would add again that I don't see the videogame industry collapsing. I see, unlike the 1980s, videogames are established as part of the culture now, and entrenched. What I will say is that it needs to struggle to find itself, to figure out the way to be able to deliver value, without bankrupting itself. It has to back off the want to be like Hollywood, and focus on what is sustainable. It has to move away from big budget gambles, to other things.

The thing that is likely going to happen is the idea of building communities to back games, or at least I hold out hope that is the direction, because it is self-serving on my part. I say that also, from trying to figure out what it would take to get smaller games to grab hold and succeed. I see the money is in communities, more than the games themselves.