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Google, Amazon, Tencent, and Xiaomi are reportedly among those consider an offer

What happens when you have a struggling console maker who proved its product not to be vaporware, but still failed to live up to its own hype?  Sell to a veteran with money to spend on fostering a console product or in using the startup's features to enrich its existing device line. That's reportedly the approach Ouya Inc. is considering, according to a new report by RE/Code's Kara Swisher and Eric Johnson.

I. Great Expectations

Ouya started on a simple premise -- make a microconsole based on Google Inc.'s (GOOG) Android operating system with a library of indie games.  Launched in 2012 the projected featured a who's who of industry talent:
  • Julie Uhrman: former content distribution VP at News Corp. (NWS)(NWSA) site IGN
  • Ed Fries: former Microsoft Corp. (MSFT) VP and one of the creators of the Xbox console
  • Muffi Ghadiali: an early creator of Amazon.com, Inc.'s (AMZN) Kindle e-reader
  • Yves Béhar: top Swiss born branding and design expert specialing in devices
Within eight hours of launching its Kickstarter, Ouya had already capitalized on substantial media buzz, netting $1M USD in crowdsourced funding.  In the next three days it scooped up $5M+ USD in funding.  The funding closed in mid-August at ~$8.6M USD, making it the second best-funded project in Kickstarter history.  Defying skeptics and critics, Ouya managed to launch its crowdsourced console in Jun 2013 priced at $99 USD.

Ouya console

So far the console has had mixed results.  While it's raised a lot of crowdsourced capital, delivered its product, and established a sales presence on online retailers such as Newegg and Amazon, it also has struggled in some regards.  Early reviews were lukewarm at best and early sales have been disappointingly slow after the Kickstarter buzz.

One key cause of its struggles has been its game libary and policies.  Initially it demanded all developers offered their games for free, at least on a trial basis.  This alienated some developers.  As a result the game library is rather paltry, with around 850 available game titles [source], plus some media apps.  Add in emulators for the Commodore64, SNES, Gameboy, Playstation, N64, and other popular consoles and the playability dramatically expands, but true native content remains scarce.  Adding up emulators, utility apps, and games, there are only 919 official titles for the platform. 

Ouya has tried to jump start developer interest by offering a $1M USD "Free the Games' fund which will match successful Kickstarter game projects' crowd-raised total.  But this too has backfired amid ugly accusations of developers rigging the system by donating to themselves to loot Ouya's fund.

The console also has competitors, particularly Mad Catz Interactive, Inc.'s (MCZ) M.O.J.O. console, a $199.99 USD box.  Unlike Ouya, Mad Catz is pushing compatibility for its console, and hence has access to a far broader array of Android tiles.

Mad Catz

Aside from the Ouya-distributed titles listed above, some Android titles can be side-loaded onto Ouya's console, but it trails Mad Catz's M.O.J.O. in being fully compatible with titles available via the Play Store on Android smartphones and tablets.  The NVIDIA Corp. (NVDA) Shield gaming/streaming Android device could also be viewed as a more compatible competitor to Ouya.

II. Buyout Rumors Intensify

The upsides appear to be tempting several parties to consider a bid for the startup.  Among those rumored to be in early talks, according to a report by RE/Code's Kara Swisher and Eric Johnson, are:
  • Xiaomi Inc. (Chinese device maker; #5 in global smartphone market)
  • Tencent Holdings Ltd. (HKG:0700) (Chinese; fourth largest internet company in the world)
  • Amazon.com, Inc.
  • Google Inc.
The report states:

Sources said the talks are early, but that the company considers it one of its more likely options rather than raising more money. There are no current offers on the table, said sources, but the talks are proceeding.

Ouya already has a relationship with Xiaomi, which recently added its game catalog to its settop boxes and Smart TV portfolio.  Most view Ouya's struggling developer program as a dead end, perhaps, but there's still interest in acquiring Ouya as a means of accelerating the development of an in-house microconsole rival to Sony Corp.'s (TYO:6758) PlayStation 4, Microsoft's Xbox One, and Nintendo Comp., Ltd.'s (TYO:7974) WiiU.

Ouya apps
Ouya's app catalog has over 900 titles.

Earlier this year the world's largest electronics market, China, lifted its long-standing ban on console sales.  While Microsoft, Sony, and Nintendo are expected to see some sales in the region, their consoles may be too expensive for many Chinese buyers.  Chinese firms are eyeing microconsoles as an option to sate Chinese demand for lower cost consoles.  While Ouya may be struggling, it is one of the few such projects not backed by a major corporation to make it to having a released consumer product.

Interest from Google and Amazon likely comes in part due to the potential value of incoroporating Ouya's technology into smart TV or set-top boxes.  Google is rumored to be eyeing making a Nexus microconsole; Ouya could provide a boost to that effort.

Ouya is rumored to be struggling financially after its week 2013-2014 sales.  But it may yet turn its mixed tale into a more-resounding story of triumph, if it can woo a well-heeled buyer to scoop it up.

Source: RE/Code





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