Is Amazon Primed to Take On Game Consoles?

Early on Friday, images of an Amazon (NASDAQ: AMZN  ) branded game controller leaked out to the Internet, all but confirming rumors that Amazon's upcoming set-top box would be more than a media streaming machine. After the successful launches of Sony's (NYSE: SNE  ) PlayStation 4 and Microsoft's (NASDAQ: MSFT  ) Xbox One the console market is looking much stronger. Nintendo's (NASDAQOTH: NTDOY  ) Wii U console, on the other hand, has lagged well behind historic sales of its previous generation.

In light of the PS4 and Xbox One's high price tags and the Wii U's sluggish sales, Amazon may be targeting a piece of the market Nintendo left behind.


Source: Zatz Not Funny

Current generation sales

Console

U.S. sales (3 months into launch)

Previous generation U.S. sales (3 months into launch)

PlayStation 4

~2,000,000

932,000

Xbox One

~1,950,000

857,000

Wii U

~942,000

1,500,000

Total

~4,892,000

3,289,000

Yes, despite all of the claims that console sales are suffering, the PlayStation 4 and Xbox One have had the best U.S. game console launches in history. Their success has more than made up for weak Wii U sales.

One explanation for the outsized sales of the Xbox One and PS4 may be the disappointment of the Wii U. More likely, however, better sales were due to the longer than usual wait between generations. The Xbox 360 was launched just four years after the Xbox, and the PS3 launched six years after the PS2. The Xbox One and PS4 were launched eight years and seven years after their previous iterations, respectively.

The dearth of Wii U sales may indicate the console didn't differentiate itself enough from the previous Wii. This is where Amazon could capitalize by offering casual gamers something new.

Another Android game console
Several Android-based game consoles have already been released including entries from big names like NVIDIA. They're all priced around $100 and support mostly low-level graphic Android games.

Amazon may have something more powerful in mind, however. The company recently acquired Double Helix Games -- the company behind Xbox One launch title Killer Instinct. So, Amazon may be looking to launch a box that can support graphics near the level of the Xbox One and PS4.

The task might not be as difficult as it sounds. One veteran games developer told Techcrunch "even budget GPUs releasing now in the $150 range outclass these machines." The idea that Amazon could sell a $200-$250 machine with competitive specs is not farfetched considering the company has been willing to lose money on hardware in the past.

Amazon will likely be able to make up for losses with digital sales of games and video in addition to accessories like extra controllers. Additionally, the console may spur sales of its Kindle Fire line, perhaps even utilizing the tablet as a controller similar to the Wii U.

And unlike other Android-based game consoles, Amazon holds the advantage of the largest online storefront in the world. Advertising on the front page of Amazon.com will attract the attention of millions of potential purchasers, a strategy that successfully propelled sales of Kindles.

Casual and powerful
At a price competitive with the Wii U, Amazon may be able to attract a niche of gamers that aren't die-hard Nintendo fans nor are they willing to spend $400 to $500 on a new game console. Similarly, not everyone is willing to spend $60 on a new game. Amazon may let developers set the price of games like in its app store, resulting in many games -- more casual games -- priced much lower than $60.

This dual ability to compete with Nintendo for casual gamers and Sony and Microsoft for more serious gamers may give Amazon the best-cost advantage. It will save money on distribution, integration with its cloud platform and current app store, and, like always, not concerning itself with profit margin.

What do you think? Could Amazon compete with the major console makers?

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