I assume in their case they were investing in the infrastructure as well, which would be a significant cost; if one just resold this service on top of Amazon for cost +x% they wouldn't have that kind of capital exposure, not to mention no marketing / advertising if it's kept as a small side project.

The thing that I would worry more about when running a service like this would be liability for what users of your service do / say.

I guess you're not going to own all the infrastructure and simply have it as a cost of business which you can pass on to the customer.

On top of that hardware costs vs performance along with hardware h264 encoding is getting cheaper.

Do you realize Onlive failed on performance merits alone .. while incorporating tricks like video compression/decompression 'racing the beam' (to avoid waiting for whole frame). Even with all the highly custom magic most games felt LAGGY. Here with this EC2 implementation we see 30-50ms on top of network latency to get you a picture on the screen to begin with.

Almost no one will pay for laggy games at last gen resolution.

some people are clearly willing to use it, especially for games that are a bit more casual and story driven. and like I said there's no huge risk where you're sitting on all this top-end hardware to play the games with this setup.

I wonder if part of OnLive's problem is that their primary competition (people buying XBox etc and playing from home) was highly giftable, both the initial hardware purchase and the individual games.