Amazon Is Getting Serious About Video Games -- and That's Terrible for Google and GameStop

Amazon's long-anticipated video game console could pressure Google and GameStop.

Feb 6, 2014 at 6:15PM

Amazon.com (NASDAQ:AMZN) has acquired Double Helix Games, according to Tech Crunch. Double Helix isn't the most well-regarded game studio, but it isn't just some random mobile developer, either. Its most recent title, Killer Instinct, was met with broadly favorable reviews.

Amazon has been dabbling in mobile gaming for some time, but the purchase of Double Helix strongly suggests that the long-rumored Amazon video game console is an inevitability. As Amazon prepares its assault on the living room, Google (NASDAQ:GOOGL) and GameStop (NYSE:GME) should be greatly concerned.

Amazon's set-top box could be more Xbox One than Roku Player
Reports of a forthcoming Amazon box have been around for months. Last fall,The Wall Street Journal said Amazon was preparing to release a set-top box that would deliver Internet video content to owners' TVs. Such a device seemed like a simple "me-too!" product, yet another alternative to the Roku Player or Apple TV.

But it seems Amazon has much bigger plans than a cheap media streaming device. Double Helix's recent work has been aimed at high-powered video game consoles. Killer Instinct was an Xbox One launch title, and its current project, Strider, is set to debut later this year on both the PlayStation 4 and Xbox One.

While it's possible that Amazon could ask Double Helix to tone its games down for far weaker hardware, the prospect seems highly unlikely. If Amazon was planning to target the casual market with cheap mobile games, they could've acquired any number of mobile-focused game studios. By buying Double Helix, it seems Amazon plans to compete with the industry leaders.

Another Kindle?
Could Amazon's video game console do to GameStop what its Kindle e-reader did to Borders Books? Potentially. Given that Amazon is itself a major retailer, I doubt GameStop will play any part in Amazon's video game ambitions.

More than likely, Amazon's console will be wholly digital -- I would be shocked if there was any disk drive whatsoever. Like its Kindle Fire tablets, Amazon's video game console will likely run a modified version of Android with games downloaded directly from Amazon's digital storefront.

Early last year, GameStop shares dropped on fears that Sony and Microsoft were planning to ship next-generation consoles without disc drives -- those fears proved to be unfounded. But a much bigger threat would be an entirely digital video game console from Amazon entering the market and displacing Sony and Microsoft entirely.

Cutting Google out of Android
Amazon's dabbling in mobile has been something of a problem for Google. The operating system running Amazon's Kindle Fire tablets -- Fire OS -- is based on Google's Android, but has been heavily modified to the point where Google's services have been removed entirely.

Rather than download apps, books, or movies from Google Play, Kindle Fire owners purchase their digital goods from Amazon's app store. The same will more than likely be true for Amazon's video game console.

The risk for Google is that Amazon's video game console could ensnare buyers into Amazon's ecosystem, making them more likely to choose Kindle Fire tablets over standard Android tablets that rely on Google's services. Eventually, that could even extend to handsets if Amazon's long-rumored smartphone ever comes to fruition. Even if customers don't buy Amazon's devices, they could still use its app store, which can be downloaded to any Android handset.

There have been reports that Google, too, is working on a video game console. Hopefully, Google is taking it just as seriously as Amazon.

Amazon continues its focus on digital media
Video games are big business. Research firm Gartner believes that by 2015, revenue from video game sales will total $111 billion worldwide. As games go digital, the retailers poised to benefit the most are the ones in control of the platforms.

Obviously, Amazon wants a cut. But if Amazon is successful, GameStop and Google will be under pressure.

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Sam Mattera is short shares of GameStop. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, GameStop, 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.

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