So its official: OnLive is brankrupt, or whatever it is called in California (Chapter 11? ABC?) but it is claimed that all rights, patents and assets have been sold to one individual - but all staff layed off.
So why did OnLive not work? Well first most developers I know never believed in it, even after they saw it. The business model sucked bad. OnLive did not solve a problem for our key markets as most of us have pretty decent machines and the core market buys digital. The markets which needs OnLive do not have strong machines and have a weak internet, thus OnLive doesn't work.
The markets with weak machines actually are mostly f2p online MMO markets - not careing about the games OnLive offered and the company weren't online in those markets anyways.
The lag issue was always discussed away but it really existed. Games which needed fast response were unplayable on it. Games which don't need it were playable fine. So why should someone pay monthly fees to rent games on that service?
Essentially OnLive was a digitzer service to convert 3d games to flash video.
Some reasons why OnLive didn't work:
1) infrastructure too expensive, dependend on high internet backbones only available in industry states
2) low income from users
3) scaling up the userbase is expensive as their hardware was complex
Note that online games solve #1 as they work in most internet quality networks (they are build for them) and also solve #3 as developing cheap server backends is part of the challenge. Therefore online games can afford #2.
Wait, did I just say online games have a low income. Yes I did. Considering most players play 4-6 hours per day for 30 days per month (=120-180h per month or full 5 days) for merely $10-$20 then yes, its damned cheap. Most people spend more money on their internet line than on the game itself. Hell most people spend more on beer than on WoW.
Anyway, my personal opinion: OnLive was already dead when they startet and I said that often enough. I am happy its gone as I no longer need to listen to the bullshit that streaming is the future. It's not.
So why did GaiKai sell for $380 million to Sony? Because Dave Perry is a brilliant man and Sony won't have any use for it. Believe me, if the PS4 will have streaming its either for backwards compatibility or will cost premium.