Kickstarting Ouya: Crowd-Funded Venture Capitalism or Maybe Just a Big Scam

Can technological innovation be funded the same way as an indie film?

In February, three-year-old crowd-funding site Kickstarter drew buzz for reaching a remarkable threshold: Two projects seeking money reached $1 million in funding.

That’s small potatoes now. Six months later, a campaign to develop a new video game console that would be cheap and friendly to independent developers brought in a whopping $8.5 million dollars.

Ouya is the console’s name, and if it succeeds (no, $8.5 million isn’t enough to make it a sure thing), crowd-funding could move beyond a tool for individual projects into a new way of bringing innovative system changes to product and hardware development.

That’s a mighty big “if” though, to be sure. Ouya (pronounced Oooh-yah) promises a $99 game console that uses Android’s operating system and is pretty much completely open to game developers of any size. It’s a big gamble—is there enough of a market interested in moving from mobile platforms back onto consoles? Ouya managed 63,000 backers on Kickstarter. When the Playstation 3 launched in Japan in 2006, more than 81,000 units were sold in the first 24 hours.

Ouya also recently inked a deal with Vevo to stream videos through the console, because no consumer technology can survive in the market doing only one thing anymore.

So the major pressing questions before evaluating Kickstarter’s success in creating product systems vs. just individual products or projects appear to be: One, will Ouya actually ship; and two, will Ouya be able sustain its online marketplace and survive as an entertainment system? These contributions to Ouya aren’t donations—they’re pre-orders. The backers will be expecting an Ouya to be shipped to them in March 2013 and they will expect to be able to purchase from and develop games for distribution in its online market.

Earlier this week, Mark Milian took note at Bloomberg of some of the challenges Kickstarter faces in becoming a tool for crowd-funded venture capitalism. A recent study showed that a full 75 percent of technology or design-related Kickstarter projects fail to finish on time, leaving backers wondering where their products are.

That figure lacks comparative context. We have no idea how frequently projects in these fields normally face delays (it’s actually fairly common in tech industries). The difference, though, is that most venture capitalism isn’t taking place on a website where backers can post pointed comments about the project’s delays for the world to see like it is on Kickstarter.

A more interesting statistic is that tech and design products make up only 4.2 percent of successfully funded projects through Kickstarter, but draw in 21 percent of the money. But then, if you compare the projects in these categories to the projects in the fashion category, by way of example, the tech projects simply require more financial backing.

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A lot of eyes are on the Ouya right now to see what comes of it. Sascha Segan at PC Magazine dismissed the console as a likely scam in July. Crowd-funded innovation is one thing, but dealing with mass manufacturing and supply chains is another matter entirely. He also rightfully points out that people who back Kickstarter projects aren’t really venture capitalists. They don’t have an actual stake in the company. They are consumers paying in advance for a product that doesn’t exist yet with no real assurances they’ll ever get what was promised.

Ouya founder Julie Uhrman took to Reddit to answer questions about Ouya, most of which revolved around game development and the operations of the console’s marketplace. Her response to skepticism about whether the Ouya will meet production deadlines is that the proof will be when it meets the production deadlines (an Ouya spokesperson requested that Reason submit questions for Uhrman via e-mail but then never responded to those questions).

Whether the Ouya succeeds or not, the appearance of tech projects on Kickstarter has drawn attention to a new generation of hardware start-ups. Milian noted that new business incubators are working with these new innovators and putting them in front of actual venture capitalists. So even if the projects fail to get all their funding or hit walls in the production process, it may not be the end of the ball game.

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  • ||

    ummm...

    Yeah if i was a developer i would not trust an android based anything with my Video game IP and as a player i would not trust it for my 200+ hours Skyrim save let alone my credit card information.

  • Mo||

    No

  • ||

    If only Ouya ran on the iOS...

    Then we would get some comment posts up in here.

  • Agile Cyborg||

    This is a really strange tip from a drunken man... yes. I've retyped this many many times.... IKEA has a great piece of metal that runs under their drawer units. Get drunk, listen to Gogol Bordello, take these metal pieces and hit to tunes... unreal awesome gypsy nots

  • ||

    Gogol Bordello is awesome, especially when drunk and high, I concur.

  • JeremyR||

    It's really neither - it's essentially a voluntarily funded grant, rather than the government handing out taxpayer's money, it's the people themselves that choose where to spend it. If you get something back, great.

    So why should you fund? Not to invest, but to enable something you want to (possibly) see made that otherwise wouldn't. Is there a chance that someone will just take the money and walk off? Sure. That happened about a month ago with this KS for a board game. But you have to gauge the risks.

    In the Ouya's case, it's got some decent names involved with it. I see it as more like one of the many early computers - Commodore, Atari, Sinclair, TI, and so on than a console. It's certainly feasible to make it - Chinese companies are producing very similar products, and there is the Raspberry Pi, which is only $35 - slightly less in terms of specs, and no controller, but not a far cry from the Ouya.

    That's actually the funny thing about today - how is it that 30 years ago probably two dozen companies could field their own computers, yet today, when electronics are only a fraction of the cost, there apparently isn't any room in the market for them? It's like that with a lot of products (Hyrox, for instance, was the original Oreo and tasted much better. But apparently there isn't room for two competing types on the market).

    But in electronics, it's funny because it's the one area were product costs have gone down.

  • ||

    So why should you fund? Not to invest, but to enable something you want to (possibly) see made that otherwise wouldn't.

    One thing that is interesting...creating a site like kickstarter that instead of grant money gave out shares is technically illegal.

    One wonders what wonders would be created if it was not.

  • Sevo||

    JeremyR| 8.24.12 @ 8:21PM |#
    ..."how is it that 30 years ago probably two dozen companies could field their own computers, yet today, when electronics are only a fraction of the cost, there apparently isn't any room in the market for them?"...
    In all likelihood, simply because there are fewer mfgrs; economies of scale competed smaller outfits out of business.
    I can't think of a piece of hardware that hasn't gone through the same evolution to a few suppliers.

  • ||

    huh?

    Ever look who makes mother boards, ram, flash ram, and the trillions of other parts that go into our gizmos?

    I just assumed everyone would see through Jerry's claim and so I ignored it.

    There may be a small number of end suppliers but the suppliers of those end suppliers have not shrunk. They have grown far beyond two dozen companies.

  • Sevo||

    JC,
    His comment was: "30 years ago probably two dozen companies could field their own computers, yet today, when electronics are only a fraction of the cost, there apparently isn't any room in the market for them?" And he mentions, oh, Commodore as an example.
    Sounds to me he's commenting on those who sell the things folks get at Best Buy, etc, not components.

  • Brett L||

    That's actually the funny thing about today - how is it that 30 years ago probably two dozen companies could field their own computers

    Off the top of my head HP, Lenovo, Apple, Sony, Samsung, Dell, e-Machines, Asus, and Toshiba all make computers. I could go to newegg and find more.

    Also, although unit costs have gone down, capital costs are intensive for most of these things. Intel spends $5B on a plant and spend $500M retooling it every 18 months. Then they go out and sell $8B worth of chips in the same time frame. This is a significant barrier to entry. You literally can't get your garage clean enough for a 45nm die width silicon chip. Assembling components could still be a garage deal, but the fab costs are out of reach.

  • ||

    Off the top of my head HP, Lenovo, Apple, Sony, Samsung, Dell, e-Machines, Asus, and Toshiba all make computers. I could go to newegg and find more.

    'But they only use windows and mac os...that is only two!!'

    forget it Brett look at Sevo's reply to my comment.

    It is a moving target based on some golden age perception that we are always worse off then we were in the some magical Edan of the past.

    Markets change competitors move around...and there is always some way to rhetorically bend the facts so that market changes over time are a turn for the worse.

    Haters gonna hate.

  • Brett L||

    I've had mixed luck on Kickstarter tech projects. My Printrbot finally showed up (yay!), and I've yet to find time to set it up and test it. The computer I was going to use to control it crashed and I've not got around to doing surgery on it. I also bought (funded?) one of the PID controller espresso makers, and those guys have been through several redesigns. I continue to hold out hope that one day I can finally tune my coffee maker to make a cup of decent espresso in a Mr. Coffee footprint.

  • AlmightyJB||

  • EDG reppin' LBC||

    Kickstarter is bomb dot com. But like with any other venture, don't risk more than you can afford to lose.

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