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Can a $99 Game Console Destroy Sony, Microsoft and Nintendo?

Ouya, the $99 game console concept on Kickstarter, has raised more than $4.4 million from more than 34,000 backers. Should Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT) or Nintendo (NTDOY) be worried?

Depending on the source, Ouya (pronounced "Oooh-ya") is either a disaster in the making or the best thing to happen to the game industry. Time Techland called it a "wake-up call for video games," while PCMag proclaimed, "Ouya looks like a scam."

"Hardware development isn't something that can be done easily in a Silicon Valley garage or a DUMBO loft," PCMag's Sascha Segan wrote this week. "Hardware concepts can be done, and Pebble and Ouya are both great concepts. But actually building a reliable, functional product requires expertise in supply chain management, mass hardware QA, and negotiations with component makers and assemblers that these companies by and large entirely lack."

Slashgear's Chris Davies concurred with that assessment. "Being a player in the mainstream gaming market is hugely expensive," he wrote this week, adding that the Kickstarter earnings are a "drop in the proverbial ocean for a console."

"That's before you take into account the presumably tight margins involved when you're selling your fancy box for $99 rather than double or triple that," Davies added. He made an interesting comparison to the Nexus 7, which will reportedly cost $152 to manufacture, leaving Google (NASDAQ: GOOG) with $48 in revenue. By taking away the screen and battery, Davies believes that Ouya (which runs Android and features a Tegra 3 processor, just like the Nexus 7) could be $75 cheaper to manufacture. However, the wireless controller and metal casing could raise Ouya's expenses.

According to Engadget, Ouya does not know what to do with the additional funds it has earned on Kickstarter. (The current $4.4 million haul is much greater than the $900,000 total pledge that the company had requested.)

PCWorld's Alex Rubens brought more bad news this week when he wrote about the dangers of Ouya becoming a haven for pirates. "One of the biggest issues with Android is piracy," he wrote. "The whole appeal of Ouya is that it's open-source, the console manufacturer doesn't decide what is allowed on the console and what isn't. That also means that they don't really decide how things go on the console. Any Android application is available illegally by simply searching for the name of the application and file type and I see that being the case for games released on Ouya as well. According the manufacturer, the console will have a USB port for expanded storage, and that could very well be used for this nefarious purpose."

At its worst, Ouya is an underpowered, piracy-friendly game console that may never be completed -- and if it is, it could retail for more than $99.

But if the critics are wrong -- if Ouya's developers can deliver on their promise of creating a low-cost game machine with free and/or cheap software, it just might change the future of our industry.

For U and for Mii

Nintendo is the king of what it does best: developing great and unique interactive experiences that are meant to be played on a game-specific device. The company is much less effective at producing games and systems that are designed to cash in on a current fad.

Case in point: the Nintendo 3DS. This handheld device came after three-dimensional movies (namely Avatar) started making money. But in the days surrounding the system's launch, Nintendo started to back away from promoting the 3D element. The company thought it could sell the device on 3D technology alone. But sales remained flat until the price dropped and new games were released.

Even with the price drop, it looks like sales of the handheld could be slowing down again.

By comparison, sales of Nintendo's previous game machines, the Nintendo DS and Nintendo Wii, were entirely original concepts. When the first DS arrived, Apple (NASDAQ: AAPL) had not yet announced the iPhone. Google (NASDAQ: GOOG) had not acquired Android. Touch screen gaming was a brand-new concept that people could barely fathom. But it was something that consumers ultimately wanted.

The same can be said for Nintendo Wii. Before the Wii arrived, motion control was practically unheard of in gaming. Nintendo made the concept fun, cool, and unique. The company did so by releasing a plethora of games that people eagerly purchased. As a result, Wii sales were off the charts, causing years of system shortages that surpassed even the longest hardware droughts from other tech companies, including Apple.

Nintendo was expected to deliver a powerful upgrade in the form of Wii U. But the consumer response has been less than positive. Most of the complaints surround the lack of quality games. But the hardware -- which comes with a touch screen controller that resembles a tablet -- is also being questioned.

Bitmob's Rus McLaughlin said that after laying out his criteria for a successful game console, he found that Wii U "missed every condition."

"Nintendo President and CEO Satoru Iwata still wants a console that crosses the hardcore-gamer/casual-player divide, but he spent five years trying to crack that puzzle with only two true successes: Mario Kart Wii and New Super Mario Bros. Wii," McLaughlin wrote. "He expects Wii U to rake in a colossal casual install base while bringing alienated fans back. Neither will happen."

Mario Kart Wii sold more than 32 million units worldwide, most of which were sold with an MSRP of $60 (with a plastic wheel) or $50 (without a wheel). New Super Mario Bros. Wii sold more than 25 million units with a starting MSRP of $50.

Nintendo was only able to accomplish this by selling millions of Wii consoles first. If Nintendo fails to sell a large number of Wii U machines, it will be impossible for the company to repeat the success of the aforementioned games.

Thus far, Nintendo has not proven that it can win over casual gamers. But in many ways, Ouya already has. As an Android-powered console, Ouya has the ability to provide consumers with a better experience than the one they used to while gaming on a smartphone. If the company can find a way to sell the device for $99, and if it keeps its promise to offer free software (as well as demos for every game being sold), Ouya could be hard to resist.

To be fair, Ouya does not have any groundbreaking franchises on its side. Nintendo has Mario and Zelda (among many others), Microsoft has Halo and Forza, and Sony has Uncharted and God of War. Without any such games, Ouya must rely exclusively on third-party developers to make the console a success.

This is not necessarily a bad thing. iOS and Android fans would argue that both platforms are great even though Apple and Google do not develop their own games. Likewise, when the original PlayStation was released, Sony enlisted in the help of outside developers to produce great software.

If the Ouya project is ever completed, the company could easily persuade Electronic Arts (NASDAQ: EA) and Activision (NASDAQ: ATVI) to develop a few games. But the real, long-term test for Ouya's success might be what the company does after the console is released. Ouya's owners might not care about selling anything more than hardware. But if the console is successful and they choose to invest their profits in software development, they might just create the next Gran Turismo or Gears of War.

In that scenario, Ouya would pose a serious threat to other console manufacturers. But in the months to come, Sony and Microsoft's biggest threat will continue to be their reluctance to release new hardware. By waiting another year or more, Sony and Microsoft have given an existing competitor, Nintendo, the chance to gain a huge lead, while opening the door for new players to enter the fray.

Follow me @LouisBedigianBZ

Posted-In: 3DS Apple DS Microsoft Nintendo Nintendo 3DS Nintendo DS Nintendo Wii Nintendo Wii U Ouya Sony Wii Wii UNews Crowdsourcing Success Stories Startups Tech General Best of Benzinga

 

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