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.