The makers of the Ouya game console want to disrupt the game console sector with a $99 price point—hundreds less than conventional new machines—and a freemium business model. Not only that, but a completely open development platform, too. If successful, it could bring sweeping changes to a stagnating sector. However they are not the only outsider with designs on console gaming, as Apple has been taking a measured approach to entering the competition.
The Apple game console is coming, expected to arrive in the form of the much-anticipated refresh of Apple TV. Airplay mirroring (although still lacking in stability and response time), and the recently announced new game controller framework in iOS 7 should be considered the beachfront from which Apple will attempt to gain a foothold in the console market via the next iteration of Apple TV.
In terms of hardware and software pricing, high tech consoles such as the upcoming PS4 and Xbox One to be their own realm, then the app-enabled Apple TV’s closest competitor is the Android-powered Ouya. There has been much discussion over the last year regarding Ouya’s chances in the console market. However there is a significant issue facing the Ouya that no one’s talking about—payment systems, specifically iTunes and the 435 million people worldwide with active accounts and their credit card information already on file.
For Ouya to have mass market success (which is an absolute must—have you ever heard of a "successful niche console?") they need to court kids without credit cards, that will buying the system from the local GameStop. To be more precise, they need to court the parents of these kids.
And here's the rub, as we come back to the credit card issue: With the kids not having credit cards, they have to go to Mom and Dad for setting up the payment details. Mom and Dad need to learn about a new payment system while nightmares of another "Child spends $2000 on virtual coins" news story dance in their heads. Apple ID and the iTunes on the other hand are familiar and already set up.
Also consider the fact that for many of these younger players, the Ouya will be their first console for a number of reasons—the high price of pre-existing machines and their games, the economy, and Mom or Dad’s smartphone or tablet doing the job until now. Will they feel comfortable leaving their child unattended for long stretches of time with the potential for a (real or imagined) credit card bill disaster in the back of their minds?
User conversion to paid and reducing barriers around this are major issues for games on Facebook and mobile—there’s no reason why it would be different on Ouya, or any other so-called "microconsole" coming down the pipe that is building its business largely on freemium. That the Apple TV game console will be tied to Mom and Dad's pre-existing iTunes account with a simple one-time login procedure is a major feather in its cap for Apple. Centralized billing for all the family’s digital entertainment is one less thing for parents to worry about. This convenience and trust in iTunes will surely be a part of Apple’s marketing for their game console.
For parents, the convenience of paying for transactions via iTunes may not be the ultimate deciding factor for going with Apple TV over Ouya. However I feel confident that for titles released on both platforms, the ARPU on the former will be higher because of the familiarity of iTunes and Apple already having so many families’ billing information. If that is the case, it’s not difficult to know where developers will focus their efforts given the choice, and how that will affect the Ouya’s selection of titles down the road.
Although pre-paid cards sold in stores help, digital distribution is built around leveraging impulse. To that end, cases of the player not having a card handy when impulse strikes, or parents that are unwilling to hand over their credit card info (or account password) are variables that destabilize the platform’s ability to monetize younger players.
As a console built on the back of the freemium business model, Ouya simply needs micro-transactions via free or cheap (under $2) games to be successful. Without this revenue they will have to rely on high priced premium games, $15 and up. But consider that the Ouya is already outdated technically and will be fighting tooth and nail for an install base big enough to attract name developers with the talent and IP that they bring. As such, they will have trouble signing on developers with the money and experience to produce games of the breadth and quality to sell at those prices. Where does that leave Ouya? Relying on bedroom indies to produce such titles is very risky.
The good news for Ouya? They have time. The new Apple TV isn’t out yet. What can the company do?
- Innovate parental controls around spending while leveraging purchase impulse—the ability to "set and forget" a maximum spending limit per week, and features like remote transaction authorization via mobile for when parents are out of the house.
- Marketing material to clearly communicate how their games monetize, the positive/differentiating aspects of Ouya’s payment system, and how these parental controls work. Parents need to feel comfortable surrendering their credit card information.
- Get pre-paid cards into as many retail and convenience store chains as possible.
While the Ouya is not necessarily doomed, it is in a tough position for various reasons. Julie Uhrman and her team should be commended for their attempt to disrupt a sector and business model that is desperately in need of it, both from a developer and consumer standpoint. However the road ahead will not be easy.