An Android Tsunami to Wash Away the Video Game Establishment

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

First it was indie projects like the Ouya. Then a major tech company, NVIDIA (NASDAQ: NVDA),  stepped into the market with its handheld SHIELD. Next came reports that Google (NASDAQ: GOOG) was working on a console of its own. And now, Internet retailer Amazon (NASDAQ: AMZN) is said to be preparing a console to be released this year.

All these devices have two things in common: they’re designed to play video games, and they reportedly run Google’s operating system, Android.

Although Android gaming remains in its infancy, with titans like Amazon, NVIDIA and Google behind it, Android could become the premier video game console.

The benefits to Android gaming

As a video game platform, Android offers a number of advantages, both to consumers and to developers.

From a developer’s perspective, it’s a question of cost and profitability. Mobile development is a streamlined process -- one need only code an app and upload it to the corresponding app store. This is why indie video game development has flourished on mobile platforms.

Nat Brown, co-creator of the original Xbox, blogged about a potential revolution that could take place if mobile gaming was brought to the living room. Brown was writing about Apple specifically, but his sentiments could easily apply to an Android console.

Brown praised the concept of an open 30% cut app store -- a model that allowed him to easily “make money” creating games.

On the other side, from a consumer perspective, it’s also a question of cost: mobile games are generally far cheaper, and given the recent trends in mobile hardware, the consoles themselves could be cheaper. Moreover, they’re largely cross-platform (a game purchased for a consumer’s smartphone can be played on their NVIDIA SHIELD).

Don't be confused by Android’s current limitations

Most video gamers and video game analysts, looking at the current state of Android gaming, may be inclined to dismiss the upcoming Android revolution.

That’s understandable, but the current landscape of Android gaming is a far cry from its potential.

For starters, the existing Android landscape is a muddled mess of devices -- there are literally hundreds of different Android smartphones with screen sizes ranging from 3-inches to 6.3-inches; 7-, 8-, 9-, and 10-inch tablets. This makes it difficult for developers, and is likely a key reason why someone like Brown favors iOS game development over Android.

But there will be far fewer Android consoles -- perhaps just two or three -- making life easy for game creators.

Secondly, the lack of a physical controller really limits a game’s potential. Touch screens are nice, but as any game player will tell you, nothing beats the traditional keyboard/button setup. Both Google and Amazon’s consoles are said to come with full-fledged controllers.

Lastly, the current hardware is limited in its ability to output high definition graphics. There are some good looking mobile games, but they’re nothing compared to the graphics offered by Xbox One or PlayStation 4.

But that’s temporary, and will no doubt change in the coming months. As I've previously written, NVIDIA has already demoed next-generation mobile chips capable of outputting graphics every bit as good as the traditional dedicated consoles.

More importantly, the mobile space continues to be highly competitive and profitable. Mobile chips grow more powerful each and every year; traditional video game consoles stay static for 5-7 years.

Android gaming could strengthen Google’s operating system

For Google, the shift to Android-based gaming should benefit the search giant by further strengthening its mobile operating system.

Despite absolutely overwhelming Apple’s iOS on a market share basis, Android continues to lag Apple in software -- in particular, games. Although most might view gaming as a superfluous activity, it occupies a surprisingly large amount of the time people spend on their mobile devices (Business Insider says 43% of the time people are on their mobile devices, they’re playing games).

At Google’s I/O conference in May, it emphasized the new features it’s building into Android to make it better for gaming -- online multiplayer, achievements and leaderboards.

Clearly, the search giant understands that gaming is an important component of a mobile operating system.

For Amazon, it’s about selling digital goods

Video games, like other forms of media (books, music, movies), are going digital. But whoever controls the hardware, controls the sale of this digital media. In order to continue selling media, Amazon has had to invest in hardware.

The Kindle allowed Amazon to dominate the digital books business; the Kindle Fire tablet has supported digital video. Amazon’s widely rumored smartphone could help boost sales of if its mp3 files.

But what about video games? As games go from physical discs to digital files, Amazon needs yet another piece of hardware: enter its rumored video game console.

Amazon has yet to confirm the console, but video game-centric magazine Game Informer has said they've heard it from credible sources. Given Amazon’s recent foray into hardware, it would certainly make sense.

Amazon has even started its own video game studio. So far, the unit has released only one game (Air Patriots). But Amazon’s entrance into game development makes the rumor of a forthcoming console more credible.

NVIDIA could be a key chip supplier

NVIDIA has solidified its dedication to Android gaming with the SHIELD, and the company’s management has said it sees a bright future for the mobile platform.

Demo videos of the company’s Project Logan show that it’s possible to produce impressive graphics with a mobile chip.

In recent months, NVIDIA’s mobile chips division has struggled. Last quarter, revenue from NVIDIA’s Tegra chips took a dive; the primary culprit might have been the Surface RT -- Microsoft’s tablet, which utilizes the Tegra 3, sold worse than expected.

But NVIDIA, as a company that’s always been focused around the video game market, could have the edge when it comes to Android-based consoles.

Until they're announced, it can't be said with any certainty, but I would not be surprised to see NVIDIA’s chips powering Android-based consoles.

The Android gaming revolution

Currently, Android gaming remains in its infancy. Android lags iOS in terms of games, and the existing Android-powered devices pale in comparison to the major consoles.

But with Google, NVIDIA and Amazon backing them, Android consoles should not be taken lightly. Ultimately, the devices could be far more successful than investors believe. Developers find the app store model attractive, while consumers get cheaper games.

This trend is just getting started, but its one investors should keep their eyes on.

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Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Google, and NVIDIA. The Motley Fool owns shares of Amazon.com and Google. 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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