OnLive has sweetened its early adopter offer.

MAY 30, 2010 • The OnLive streaming game service had offered early adopters three months of free service if they signed up before the June 17 launch. That offer was changed for the first 25,000 to pre-register, who will now get a full year of free service and a free game.  OnLive is priced at $14.95 per month, with games costing extra.

Impact: Technical issues aside, OnLive’s biggest challenge is its business model.  Taking the walled garden approach worked well for Apple with iTunes because the system was made user friendly, heavily supported and most importantly, free to access.  Users only paid for content and the unbundling of individual songs from CDs unlocked tremendous value.   For OnLive, $14.95 a month is a significant access fee that will likely limit its appeal.  The 12 month free service promotion for the first 25,000 pre-registrants is a potentially expensive attempt to build an initial audience.  Once launched, OnLive’s challenge will be to maintain subscriber growth to support its massive investment in technology and mega server clusters.  By contrast, Gaikai is looking to be a very serious competitor as an infrastructure play marketed directly to publishers rather than consumers.  We expect big developments in the cloud gaming business through the rest of this year for certain.