Crowd-Funded Game System Hopes to Take on Microsoft, Sony

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As Nintendo prepares to launch its latest videogame console this holiday season – and Microsoft and Sony continue to prep theirs for an expected 2013 launch – a new competitor for the living room is threatening to steal their thunder.

Ouya – an upstart technology firm with some big industry names behind it – is bypassing traditional financing methods and relying on crowd funding to raise capital. And gamers can't seem to hand over their money fast enough.

The Android-based console gaming system made its debut Tuesday morning on Kickstarter, with a lofty target of $950,000 to complete development and pay for manufacturing of the system. Just before 5pm ET, it topped that goal. (Update: And by 7am ET Wednesday morning, donations had climbed to just shy of $2.5 million).

The project could become the fastest growing in Kickstarter's history. In May, the Pebble e-Watch topped $1 million in 28 hours, which at the time set a new bar. The Pebble eventually topped $10 million in funding pledges.

Roughly the size of a Rubik's Cube, Ouya will retail for under $100, say its creators. The system, which will connect to HDTVs, will use traditional sized, Bluetooth-enabled console controllers (which come with a touchpad as well as the usual buttons and thumbsticks) and will rely on an pure digital distribution model, rather than retail partners to sell its games. And, as an incentive for customers, all of the games sold in that app-like store will be required to at least offer a trial portion for free.

Company officials say they expect to begin selling the device in the first quarter of 2013. It will be sold online, but conversations with retail companies are already underway.

Rather than focusing on large publishing companies, like Electronic Artsand Activision-Blizzard, Ouya will cater more to independent game developers — a number of whom have already pledged their loyalty to it.

"An open console is the next step in democratizing game development," said Alex Schwartz, founder of Owlchemy Labs. "When you're developing for an open console with known specs, it's much easier. So, it's a win-win."

The management team is an experienced one. Founder Julie Uhrman, who has done stints at Vivendi Universal, IGN and GameFly, will serve as CEO – and the company has the backing of gaming luminaries including Markus "Notch" Persson (creator of the hit Indie game "Minecraft"), Ed Fries (who helped design and launch Microsoft's Xbox) and Brian Fargo, co-founder of Interplay, which was a key publisher in the early days of consoles. (All serve on the board of directors.)

Investors in the company include Jawbone founder Hosain Rahman, Digg founder Jay Adelson and Flixster founder Joe Greenstein. Jawbone's Yves Béhar, who designed the wireless Jambox speaker for Jawbone is overseeing the look of the console and controller.

Ouya declined to say how much private money was invested before it began the Kickstarter campaign. However, it did note that all previous fundraising came from individual investors, not venture capital firms.

Going up against video game giants like Microsoft, Sony and Nintendo is a risk, but one industry analyst says he believes the company has a chance..

"I think there may be room for another player, particularly at this price point," said Wedbush analyst Michael Pachter. "It's been a long time since a new console was introduced, and it is likely that pricing for consoles will go up. By coming in at a lower price point and challenging the existing pricing model for TV-based games, OUYA could hit a sweet spot with gamers."

While Ouya certainly won't eclipse next generation systems like the PlayStation 4, its focus on free-to-play games and independently developed games could have a effect similar to that of the mobile market – leeching away some die-hard console gamers who have grown tired of paying $60 per title on non-blockbuster games.

It could also attract some game makers, both professional and garage teams that have historically focused on the mobile market. Ouya will come with development software included, so anyone with game making skills will be able to create a title using Android's open source software. (Ouya will take a 30 percent royalty on all game sales on the system.)

And while it's Android-based, company officials say they don't want it to simply be a way to play Android games on your TV.

"OUYA was not created merely to host ports of existing Android games," the company said on its Kickstarter page. "We've built this badboy to play the most creative content from today’s best known AAA game designers as well as adored indie gamemakers."