Ouya: This videogame console could change everything

May 9, 2013, 11:04 AM UTC
Despite some harsh early reviews, Ouya remains a promising product. “There are going to be hiccups in our life story as we show things before they’re 100% ready,” admits CEO Julie Uhrman. “But we do that so we can get that feedback. Then, we can feel confident that when we launch, everyone has a product they feel they had a role in. “

FORTUNE — It was 5:45 a.m. on a Tuesday last June, and a bleary-eyed Julie Uhrman kept ogling her computer screen, “scared shitless,” as she puts it.

The 38-year-old ex-investment banker and gaming industry vet sought to raise $950,000 from crowdfunding site Kickstarter to develop an unorthodox idea: a cheap home videogame console called Ouya with off-the-shelf parts using Google’s (GOOG) wildly popular Android operating system. (The idea being that nearly anyone could develop for the system.) She looked to Kickstarter, not only for funding, but for validation of the idea itself. “There was no turning back,” she recalls, fearful that no one would be interested in chipping in.

U.S. videogame hardware, software and accessories sales are down 10% year-over-year to $993 million according to NPD, partially due to the ubiquity of smartphones and tablets, not to mention the rise of mobile hits like Angry Birds. A Los Angeles native, Uhrman had pored countless hours as kid into console games like Galaga and Super Mario Brothers. More recently, Uhrman witnessed something she didn’t like: Mobile devices may be fine for quick play sessions, but she says they lack in deep immersive experiences. That — and the fact that traditional game development carries huge costs — meant there was an opportunity, she says.

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The money flowed in from Kickstarter. Eight hours after the project went online, Ouya passed the $1 million mark; to date, it has raised just shy of $8.6 million, one of the crowdfunding site’s most successful projects ever. And this week, it closed an additional $15 million round of funding from backers like Kleiner Perkins and Nvidia (NVDA), which makes the graphics chips that power Ouya. Ex-Electronic Arts (EA) exec and Kleiner Perkins partner Bing Gordon will also join the board run by Roy Bahat, former president of the game site publisher IGN Entertainment, a division of Fox (NWS).

Ouya also packs some star power in Yves Behar, the Swiss industrial designer whose long resume includes Herman Miller, PUMA, and Jawbone’s Jambox speaker. Behar had little experience creating a game machine, but he wanted to push the boundaries of console design. Cheap it may be, but Ouya should not feel cheap. (Which is why, when the final console and controller start shipping next month, they will sport premium touches like aluminum.) Arriving at the final design was easy: Uhrman liked the first rendering Behar showed, a Rubik’s-sized cube. “Julie makes fast decisions that are quite thoughtful at the same time,” says Behar, who labels his collaborator as a swift, dynamic problem solver.” “This is something that is quite helpful in a design partner: someone who just intuitively knows what will work.”

It’s simple in theory. When a game is ready, it undergoes a two- or three-day approval process to ensure it meets some basic requirements. Approved titles end up first in an onscreen menu area called the “Sandbox.” Popular games get elevated into different curated gaming categories like “short on time” or “fight.” The only real catch? All titles must be free-to-play up front. How developers choose to monetize their games — virtual goods, a monthly subscription — is up to them.

“We’ve taken this product to market so differently from any other hardware, gaming or even software development company,” says Uhrman.

Still, when early units began shipping to some Kickstarter backers this past March — just nine months after raising money on the site — several tech blogs got their hands on them and took the company to task over reportedly rough software and sub-par hardware construction. “Even if the concept is right, the Ouya misses the mark,” wrote The Verge. “The controller needs work, the interface is a mess, and have I mentioned there’s really nothing to do with the thing?”

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Uhrman was well aware there was more work to be done. “There wasn’t a single piece of feedback from those reviews that we didn’t already have on our to-do list,” she says. The early prototypes were meant for backers to test, not for review. “There are going to be hiccups in our life story as we show things before they’re 100% ready, and we did this in order to get feedback.” The L.A.-based startup with 25 employees is rolling out software updates every two weeks now, she says. And in direct response, Ouya has improved hardware features like the controller’s trigger buttons.

In the long run, early criticism may do little to dampen enthusiasm around the tiny console. Over 12,000 game developers, including heavyweights like Square Enix, have already pledged support, with 100-plus games scheduled for launch. And Uhrman is already thinking about the future. Expect new Ouya hardware to follow the smartphone upgrade cycle of once a year. Next year’s edition — an “Ouya 2,” let’s say, that would still play older games — will house a faster processor and possibly more RAM.

A mobile Ouya device isn’t out of the question. Between the upcoming hardware release and raising two young kids with her partner, Uhrman’s schedule is packed, but she doesn’t discount the long-term possibility. Even if version one was meant as a living room device, she’d like to see her brainchild everywhere. If Ouya gets that far, it may be traditional console makers like Sony (SNE) and Nintendo (NTDOY), who end up “scared shitless.”