Ouya - just how disruptive is it?

Gamasutra editor-in-chief Kris Graft puts the Android-based Ouya console to the very first (and probably last) Gamasutra Market Disruption test. Should Microsoft, Sony, and Nintendo watch their backs?
[Gamasutra editor-in-chief Kris Graft puts the Android-based Ouya console to the very first (and probably last) Gamasutra Market Disruption test. Should Microsoft, Sony, and Nintendo watch their backs?] I found it cheeky -- even somewhat obnoxious -- when the folks behind the Ouya game console sent us a link, just prior to their Kickstarter campaign, that temporarily redirected to the Wikipedia entry for "disruptive innovation." It seemed a tiny bit presumptuous, because it's a term reserved for industrial sea changes prompted by elite innovators, and we hardly know anything about the actual product. I'm skeptical of Ouya, just as I'm skeptical of anything that makes such big promises. Here's a company promising a $100 game console with standardized hardware, a very low barrier of entry for developers, and hacker-friendly openness. Ouya's openness will lay the foundation for community, innovation, creativity, financial success and a health care solution for the U.S. that everyone can agree on. My goal isn't to rain on Ouya's parade. I'm not here to dwell on how, in usual Kickstarter fashion, we will end up handing over multiple millions of crowdfunding dollars for a product whose business strategy has more information holes than "Prometheus"; or that this sounds like it'll turn into an uncurated mess of random free-to-play games; or that it's essentially vaporware that was able to cash in on starry-eyed notions of what a TV-connected open game console could become; or that piracy will be a big issue; or that it doesn't really sound "open"; or that we don't really know for sure which devs are on board; or that it doesn't seem much different from the current developer ecosystem on consoles, which takes 30 percent chunks of revenue. (Ok, I rained on the parade a bit there, but Ouya's creators can now afford designer umbrellas, because the Kickstarter is now over $3.4 million in under two days with 28 days to go.) When a refined sales pitch from an unknown startup with a ridiculous name like "Ouya" (yes I run "Gamasutra") can create this kind of crazy hype over the course of one day, it's strong evidence that the console business is ripe for disruption. And Nintendo, Microsoft, and Sony should give some serious thought to what just happened this week, because more than ever, they have giant bullseyes on their backs. Will the Ouya as we know it today be the product that kills off consoles? No -- and to be fair, that's not what its creators are claiming when they march under the banner of "disruptive innovation" (and disruptive innovation doesn't automatically mean that the disruptee is completely obliterated). ...All right, maybe the Ouya team wasn't being so cheeky or obnoxious when throwing around the term "disruptive innovation."

Disruption Potential

Well, let's examine what disruptive innovation really is. Harvard Business School professor Clayton M. Christensen, who coined the term, describes it as "a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves 'up market,' eventually displacing established competitors." Whose market exactly is Ouya gunning to disrupt? The traditional TV game console companies Nintendo, Sony and Microsoft, of course. Christensen says market leaders that have seemingly unassailable leads exhibit the exceedingly common tendency to continually pursue what he calls "sustaining innovations." This can be seen easily in the games industry, for example, in previous video game console cycles, when the latest and greatest hardware simply introduces more horsepower and more buttons, while essentially maintaining the status quo. Christensen says companies that primarily rely on customer feedback and market research tend to leave the door wide open for crippling disruption. This trend of sustaining innovation eventually leads to products like the Xbox 360 and PlayStation 3 -- high-tech, high-priced devices that offer average consumers way more than they really need, want, or have the ability to utilize. But of course, they've found success for now, because they're delivering exactly what customers expect, and are better versions of their predecessors. Back to the question, is Ouya a product that will disrupt this market that is reliant on sustaining innovation? Drawing from Christensen's own explanation of the phenomenon of disruptive innovation, we can examine if Ouya: ...Takes root in initially simple applications at the bottom of a market? I'd say that a crowd-funded game platform based on an open source OS is about as bottom-market as you can get. Oh, and it has an open marketplace, and it comes from a no-name startup. Disruption +1. ...Relentlessly moves 'up market,' eventually displacing established competitors? Of course, we don't know yet if Ouya or platforms like it will displace current console makers. Some people think mobile tech will do exactly that. But disruptive innovation is something that happens over the course of many years, maybe even decades. It's technically something that you look back on and identify, or at best aim for, not something you proclaim you're doing before you even have adequate funding. Disruption +0. ...Allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or skill? According to Julie Uhrman, who's heading up Ouya, the console will cost $100 -- much lower than Nintendo, Sony and Microsoft's consoles. Price undercutting is a key factor with disruptive innovations, as this inherently opens up a market to a new population of consumers. At $100, it holds a key component for a disruptive innovation. Disruption +1. As for the "skill" part of the question, perhaps we can take a slight liberty, and also think of Ouya's audience not only as gamers, but in many cases, game developers. Ouya hardware comes with a free SDK as part of the package, and the game marketplace is apparently wide open for any developer to publish games. Trust me, if this starts to take off, there will be plenty of developers with almost no money and no skill making games for this thing. The question is if Ouya can provide a discovery system that weeds out the garbage. For better, Disruption +1, or for worse Disruption -1. Christensen also has offered some characteristics that are often unique to disruptive businesses that are in their initial stages. So we can also examine if Ouya is: ...Adopting lower gross margins? Nope, appears not, at least on the software side, where platform holders make most of their money. Ouya's creators have already said that even though it's touted as an "open platform," the company will be taking 30 percent of the revenue from developers' video game sales. We're not privy to the details of expected gross margins for Ouya, but the company's core business model seems to emulate the current digital strategies adopted by today's mobile, PC and console platform holders. Isn't this 30/70 split exactly what's happening within the current developer ecosystems that Ouya is trying to disrupt? Disruption -1. ...Addressing smaller target markets? Ouya's Kickstarter campaign might appear squarely aimed at the mainstream market of console gamers, and the company is surely hoping for widespread adoption in years to come. But it is initially targeting a smaller subset of console gamers, as opposed to going head to head with the established features, services, and marketing muscle of the current console market leaders. Disruption +1. ...Technologically straightforward, consisting of off-the-shelf components put together in a product architecture that is simpler than prior approaches? It's not as though Ouya's creators are buying up a bunch of Nexus 7s at Best Buy and shoving them into a sleek box, but the Tegra 3 processor and other familiar components, along with an included SDK, open source OS and standard controller make for what I'd consider a "technologically straightforward" product that's simpler than, say, a PlayStation 3 with a multicore proprietary Cell processor. Disruption +1

The Verdict

That means the Ouya gets a Gamasutra Market Disruption Rating (GMDR) of +2 or +4. So I guess they are both above zero, and this completely, utterly unscientific exercise shows that Ouya has some ingredients for disruptive innovation, albeit with some very big questions and concerns about actual execution. It's one thing to create hype and have a massively impressive Kickstarter campaign. It's a completely different thing to release a successful commercial product. Ouya's Kickstarter timing is pretty great -- people have been clinging to the same game consoles for several years, and are wanting something different. People who've backed the console seem to have pledged not because they wholeheartedly think it'll be a success, but because they want to support new ideas. It's exciting. And speaking of new consoles, of course Nintendo is poised to launch its tablet-based Wii U this year, and Microsoft and Sony could offer something that is utterly surprising (Sony clearly had disruptive innovation in mind with its $380 million Gaikai purchase, so that's one way to go about it). No matter what today's console kings come out with for the next generation, this initial version of Ouya won't be the one to disrupt the traditional console market, just like the Motorola DataTAC didn't render your landline useless. It's typical for disruptive businesses to enter the market with products that are technologically lacking. But just as General Motors ignored Toyota's crappy little subcompact market, Sony, Microsoft, and Nintendo will ignore what's happening with Ouya and products like it at their own peril. [Gamasutra will have another Ouya article surveying developers' opinions on the device in the near future.]

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