Why Amazon should make a videogame consoleFebruary 12, 2014: 5:00 AM ET
The Seattle tech giant's latest acquisition makes perfect sense.
FORTUNE -- For Amazon, launching a videogame console may be inevitable.
Last week, Amazon (AMZN) revealed it had acquired Double Helix. The Irvine, Calif.-based gaming company of 75 or so employees was founded in 2007, the result of two developers that developed software titles in the 1990s like Earthworm Jim and much more recently, the one-on-one brawler, Killer Instinct. The Double Helix acquisition comes on the heels of a report earlier this month from tech site VG247 that Amazon plans to go mano a mano with Sony (SNE), Microsoft (MSFT), and Nintendo (NTDOF) later this year by launching a dedicated gaming system priced under $300. It will reportedly run on a form of Google's (GOOG) Android operating system.
Such a device shouldn't come as much of a surprise because if history is any indication, Amazon's ambitions are endless. What began as a scrappy online book retailer in 1994 is now a digital empire spanning a staggering array of services, including video streaming, website hosting, original content creation, and grocery delivery. Amazon also now designs its Kindle Fire tablet line in-house at its Cupertino, Calif.-based Lab 126 -- and does so rather well -- so designing a solid console that plays games at an uber-competitive price point isn't impossible.
Ray Valdes, an analyst with Gartner Research, points out that Amazon isn't unique in casting a wide net. Take Google, which leverages its own resources -- largely driven by vast Internet ad revenues -- to fund far-reaching ideas, or "moonshots," like self-driving cars and glucose-measuring contact lenses. "That's to be expected when large successful players need to find 'blue oceans': new areas where they can pioneer and dominate over time," says Valdes. And while gaming isn't a new business, or even necessarily a high-growth opportunity, if Amazon manages to innovate in the space as it did with books, the potential for significant revenues is there.
Double Helix could help Amazon get there by potentially addressing a critical issue traditional console makers like Sony and Microsoft perpetually face. "What Amazon can do is make sure there are a few killer apps, which will make the platform look like it's" explains Trip Hawkins, co-founder of Electronic Arts (EA), one of the largest game publishers in the world and CEO of the educational gaming startup If You Can Company. (Hawkins also helmed the 3DO Company, which in the 1990s released a home console of the same name that failed to take off.) As it goes, game consoles live and die by their software lineup, and the more compelling, exclusive content a console has, particularly early in its life, the more likely consumers will buy in. And the larger a console's user base, the more likely third-party game makers will want to develop for it -- a chicken-and-egg-type scenario industry pundits would argue currently plagues Nintendo's software-light Wii U.
Amazon is in a relatively unique position if it enters gaming. Beyond its financial resources, it can also leverage other revenue streams to potent effect. Just as it did with its Kindle devices, Amazon can promote its game console on Amazon.com, one of the most heavily trafficked sites on the Internet to an active customer base of 200 million-plus. Games could be potentially streamed and played in the cloud thanks to its robust multi-billion dollar Amazon Web Services business. Heck, users could hypothetically rent game content if Amazon eventually tacked it onto Amazon Prime, as it already does with TV and movies.
In other words, many of the disparate-seeming elements for a successful, innovative game console already exist. If Amazon successfully weds them into a compelling experience, Jeff Bezos could have yet another hit business to tuck into Amazon's burgeoning portfolio.