Google Teams Up With Razer to Launch a New Android Gaming Console

Google just partnered up with Razer to launch a new Android gaming console. Will it flop like previous efforts from Ouya and Mad Catz?

Jun 30, 2014 at 11:01AM

Google (NASDAQ:GOOG) (NASDAQ:GOOGL) recently unveiled a partnership at I/O 2014 with Razer, a maker of high-end gaming PCs and laptops, to develop an Android-based home gaming micro-console capable of playing games, videos, music, and more.


Source: Razer.

The concept isn't new. Last year, Ouya and Mad Catz launched two lackluster Android micro-consoles, the Ouya and the MOJO. Nvidia (NASDAQ: NVDA) launched SHIELD, a dedicated handheld for Android games, which also fared poorly. Earlier this year, Amazon (NASDAQ:AMZN) released Fire TV, a micro-console running on a forked version of Android.

But Google was not actively involved in the development of any of those systems. With Razer's micro-console, Google will take a hands-on approach similar to its efforts with LG in the development of its Nexus smartphones. With that kind of backing, Razer's consoles have a higher chance of succeeding in the living room where Ouya and MOJO failed.

Why Android micro-consoles flopped in the past
The Ouya was one of the most disappointing products of 2013. The $99 console initially sold out at Amazon and GameStop, but mediocre hardware, a cheap controller, and a lack of killer games quickly sunk the system.

Mad Catz's MOJO -- nicknamed "Ouya 2.0" by many gamers -- had a more powerful system-on-chip (Nvidia's Tegra 4 vs Tegra 3), double the RAM (2 GiB vs 1 GiB), and twice the amount of storage (16GB vs 8GB) as the Ouya. Unfortunately, it was also twice as expensive, with a launch price of $200. Amazon's Fire TV, which is slightly less powerful than the MOJO, only costs $99. For $270, gamers could simply buy Nintendo's Wii U instead.


The SHIELD, Ouya, and MOJO. Source: Company websites.

There also weren't enough controller-based Android games to justify the purchase of an Ouya or MOJO. There are certainly some impressive looking controller-based titles, like Asphalt 8, Deus Ex: The Fall, and Shadowgun, but those games still pale in comparison to mainstream console titles in terms of graphics, gameplay, and longevity. Moreover, most Android developers still develop touchscreen-only titles for a simple reason -- smartphones and tablets still account for the vast majority of Android devices.

An unprofitable business model
But the fatal flaw in the Android micro-console business model is that the manufacturers had to rely heavily on hardware sales instead of software sales. For example, Sony (NYSE:SNE), Microsoft (NASDAQ: MSFT), and Nintendo are willing to sell their consoles at a thin margin or a loss because they recoup those costs through sales of games, which cost $40 to $60 each. They also take a cut of sales of third-party titles.

Android games are free or cost a few dollars each. Yet even at those low prices, Android users aren't willing to pay up -- a recent study from Andreessen Horowitz revealed that the revenue generated per Android user was roughly a quarter generated per Apple (NASDAQ: AAPL) iOS user. Furthermore, if games are purchased from the Google Play Store, Google takes a 30% cut of the sales, with only a small percentage going back toward a distribution partner like a handset, tablet, or console manufacturer. That's the reason Amazon replaced Google Play with its own Appstore on its Fire OS devices.

To retain more software revenues on an Android micro-console, companies have to develop their own Android storefronts with exclusive games. That's the path Ouya took, with mediocre results. The Ouya's top-selling exclusive launch game, Towerfall, has only sold 7,000 copies. At $15 apiece, that translates to $105,000 in sales, of which Ouya retained 30%, or $31,500. That's not bad for a tiny company like Ouya, but it would be disastrous by mainstream standards.

How Google could make Android micro-consoles a reality
Together, Google and Razer's console could address those weaknesses.

Based on its gaming PCs, Razer will likely launch a higher-end machine -- a departure from the low to mid-end performance of the Ouya, Fire TV, and MOJO. This could make it the Android equivalent of Valve's Steam Machines. If Google can court developers as Valve did and secure triple-A titles for the console, it could gain legitimacy as a viable alternative to the PS4, Xbox One, or Wii U. Ideally, Android gamers could get Mass Effect 4 instead of Mass Effect: Infiltration, and Dragon Age: Inquisition instead of Heroes of Dragon Age.

That might actually be quite easy, considering that Sony reportedly charges developers $2,500 per development kit to make PS4 games. The Xbox One functions as its own development kit, and Android and Linux (which Steam Machines run on) development kits have always been free. If Google and Razer follow in Valve's footsteps and convinces developers to sign on, Android could be reborn as a platform for triple-A titles, as opposed to a platform for $1 games that few people want to buy.

Last year, Google launched Google Play Games, a gaming hub similar to Apple's Game Center and Amazon's GameCircle. The service already has 100 million users, making it bigger than Steam and Xbox Live. This means that the pieces of a gaming network are there, but Google and Razer need to figure out how to convert those members into paying gamers.


Google Play Games. Source: Google Play.

The Foolish takeaway
In conclusion, we've seen that people generally don't care about mid-tier Android gaming consoles aimed at the niche $100 to $200 market between the Chromecast and the PS4.

Therefore, if Google is serious about gaming, it needs to strike hard at the high end of the market instead. If Google and Razer can produce an attractive console that can deliver triple-A games to the living room, it could unite the Android and PC gaming ecosystems while disrupting sales of higher-end consoles and all-in-one boxes like Amazon's Fire TV.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Leo Sun owns shares of Apple and Google (C shares). The Motley Fool recommends, Apple, Google (A shares), Google (C shares), and Nvidia. The Motley Fool owns shares of, Apple, Google (A shares), Google (C shares), 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information