Can Google Disrupt The Console Gaming Industry?

Leo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

After conquering the Internet search, display ad and mobile operating businesses, tech giant Google (NASDAQ: GOOG) might have a new target - the gaming console industry, currently dominated by Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT) and Nintendo. A recent report from the Wall Street Journal, citing anonymous sources at Google, claims that the company is preparing to release an Android-powered game console later this year.

This news sent the media into a speculative frenzy on whether or not Google’s effort to bring Android games to the living room would succeed. Let’s take a look at Google’s motivations for suddenly developing a game console, and how it could aid the company’s growth prospects.

Following in Ouya’s footsteps

In my opinion, Google’s Android-powered console is less about challenging the high-powered consoles from Sony and Microsoft, and more about following up the initial success of the Ouya with a product of its own. The Ouya, a $99 Android-powered console that started as a Kickstarter project, recently sold out at all brick-and-mortar and online retailers within the first day of its release. Although the Ouya is simply the guts of an Android tablet wrapped up in a tiny box with a controller, its success confirms that there is a market for Android games in the living room.

Similar to Amazon’s Kindle, Ouya uses a forked version of Android that uses a proprietary storefront, the Ouya Store, to provide Android games specifically designed for its hardware. Yet investors should remember that Ouya is not the industry’s first attempt to make Android a platform for a controller-based console games.

The other contenders

Sony attempted to create a handset-mobile hybrid with its Xperia Play handsets, which were equipped with slide-out physical controllers. Nvidia’s (NASDAQ: NVDA) Shield, which was recently delayed, is an attempt to create a handheld console completely dependent on the Android ecosystem. Both Sony and Nvidia face the challenge of getting enough developers to create games specifically designed for hardware controls, rather than touch screen ones. Sony and Nvidia released their own storefronts, the Xperia Play Store and the TegraZone, respectively, to help gamers find controller-enabled games, but neither service is particularly popular.

Nvidia also made a grievous error by initially pricing the Shield at $349, making it nearly as expensive as a Playstation 4. That price was eventually reduced to $299, but that price tag is still a too high for the casual gaming crowd, since the best-selling Nintendo 3DS only costs $180.

Ouya, on the other hand, didn’t struggle as much, since it had already attracted several major publishers, such as Sega and Square Enix, during its funding and development stages. As a result, the Ouya Store had over 150 titles available on the day of its release, and all of its titles were free to try. Therefore, despite mixed reviews, the Ouya has proven popular with casual gamers on a budget.

Aiming for the living room

If Google is planning to release a console, it definitely won’t be on par with the eighth-generation powerhouses Xbox One and Playstation 4. I believe that Google will release a much cheaper console, likely near the Ouya’s price range, which will be designed to play casual games which require less demanding hardware. The reason is simple - Google’s long-term goal isn’t really about video games. It’s about taking over living rooms across the world.

Google has attempted several times to take over the living room. Its first effort, Google TV, was an attempt to merge the Internet and television platforms through set-top boxes developed by Sony, Logitech and other manufacturers. Several manufacturers, including Sony, Samsung and LG, also released “smart TVs” with the technology already integrated inside.

However, Google TV has suffered the same fate as its predecessors, Microsoft’s WebTV and Apple’s Apple TV. There simply isn’t enough of a market for Internet-enabled televisions, since they cost substantially more than regular TVs with larger screens. Watching television is a passive experience, while engaging the Internet is an active one. Attempting to blend the two together often feels like mixing oil with water. Even people who purchase a smart TV reportedly use very few of its web features.

Google TV, take two

However, that hasn’t kept companies from attempting to create the perfect “all-in-one” product for the living room that unifies television, the Internet and gaming. Microsoft’s ambitious Xbox One, which offers all of these features, is proof that the industry considers the living room to be the next great technological battlefield.

If Google’s Android-powered console is successful at burrowing into living rooms across the world, it could offer many of the Xbox One’s features at a much lower price than the latter’s $499 price tag. Google has a formidable ecosystem in place for gaming, video and audio streaming with Google Play and YouTube. Now it simply needs a viable device to deliver all of this content to consumers on their televisions Considering that Google Android now controls roughly three-fourths of the mobile OS market, the company will have an easier time migrating users over to a gaming console than Microsoft, which is still counting on its Xbox 360 audience to remain loyal.

Let’s not count our eggs before they hatch

Make no mistake, Google’s gaming console could be very disruptive for the gaming industry. However, investors should recall that Google also has a habit of attempting to invest in too many industries at once, often half-heartedly. The gaming industry is a cutthroat one that hasn’t been kind to “half-hearted” attempts to build a market. We only need to see the failures of half-baked products such as the Apple Bandai Pippin, Philips CD-i, Nintendo Virtual Boy and Nokia N-Gage to see what dire fate awaits companies that underestimate the standards of gamers.

Google definitely has the industry clout to convince Android game developers to create games for its console hardware, which would immediately grant it the software support that Sony and Nvidia lacked with their previous Android gaming efforts. By tapping into the casual gaming market, Google could find the elusive backdoor into the living room that it has long desired.

If Google is successful, then Microsoft and Sony will be forced to seriously rethink their strategies at approaching games and media consumption in their eighth-generation consoles, and that could dramatically shift the balance of power in the smart TV and gaming markets.

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Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Google and NVIDIA. The Motley Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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