It has begun...

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Google Inc. GOOG +0.31% is developing a videogame console and wristwatch powered by its Android operating system, according to people familiar with the matter, as the Internet company seeks to spread the software beyond smartphones and tablets.
With the game machine and digital watch, Google is hoping to combat similar devices that Apple Inc. AAPL +0.81% may release in the future, according to the people.
Google is also preparing to release a second version of an Android-powered media-streaming device, called Nexus Q, that was unveiled last year but not sold to the public, these people said.
The Internet giant hopes to design and market the devices itself and release at least one of them this fall, they added.
A Google spokeswoman declined to comment.
The hardware plans are the latest sign of Google's determination to build on the success of Android, the software it launched in 2008 that powered 75% of all smartphones and 57% of tablets shipped globally in the first quarter, according to the research firm IDC.
Games that run on Android software have proved particularly popular, and they are growing more quickly than games made for the big-name consoles supplied by Microsoft Corp., MSFT +0.13% Sony Corp. 6758.TO +2.11% and Nintendo Co. 7974.OK +6.29% The appeal of such games has prompted the development of new devices aimed specifically for Android by other hardware companies.
Sony and Microsoft have recently unveiled new versions of their PlayStation and Xbox game consoles, which are expected to go on sale later this year. Together with Nintendo, sales of the games for these devices accounted for most of the $24.9 billion spent world-wide last year on console games, according to market researcher PwC.
The people briefed on the matter said Google is reacting in part to expectations that rival Apple will launch a videogame console as part of its next Apple TV product release.
An Apple spokeswoman declined to comment.
Google has also been watching the efforts of Ouya Inc., a startup that this week began selling a $99 Android-based console and game controller, one of these people said.
The company's hardware efforts come as it wraps up development on the next version of Android, which is expected to be released in the fall. Among other things, the software will be better tailored to the lower-cost smartphones prevalent in developing countries with the aim of firming up Android's market-share globally, said some of the people familiar with the matter.
Google, through its Android unit and Google X hardware lab, is seeking to build devices separately from the company's Motorola MSI -0.40% hardware division. The handset maker was acquired last year and is currently focused on launching an Android-based smartphone called the Moto X, these people said.
Meanwhile, Google has been developing low-cost Android smartphones of its own with an eye toward offering them in developing markets, other people familiar with the matter have said, including in markets where Google plans to fund or help create next-generation wireless networks.
With the next release of Android this fall, Google is also moving more aggressively to use the software in additional kinds of devices, including laptops and appliances such as refrigerators.
Personal-computer makers including Hewlett Packard Co. HPQ -0.48% are already working on Android-powered laptops running the next version of the software, an effort that is separate from already launched Android tablets that can physically connect to a keyboard, according to people familiar with the matter. Android laptops would thus compete with those powered by Microsoft's Windows software. An H-P spokeswoman declined to comment.
Android is offered free to makers of devices like smartphones and tablets, with Samsung Electronics Co. 005930.SE +0.22% the biggest of Google's hardware partners. The hardware helps Google generate revenue from services like Google Search and YouTube.
Last fall Google said it was on track to generate $8 billion annually in gross revenue from mobile devices, though some analysts say the majority of Google's net mobile revenue comes from Web search and YouTube used on Apple devices.
As part of the release of the next Android version—known internally as "K release" and referred to by industry observers as "Key Lime Pie"—Google will give manufacturers such as Samsung greater freedom to use Android in devices other than smartphones and tablets, such as appliances and wearable devices, said people familiar with the matter.
Manufacturers that build devices using the official version of Android—which comes with Google's Web services preinstalled—weren't previously allowed by Google to use the Android name to promote devices other than smartphones and tablets. Over time, Google has changed its "compatibility" restrictions to allow for more device types.
Samsung has said it's working on an Android-based watch with smartphone-like capabilities. Wearable computing is a hot area of development for startups and technology giants. The Wall Street Journal reported in February that Apple was developing a watch-like device with smartphone features.
Google's planned watch is expected to connect to a person's smartphone via Bluetooth technology, said people familiar with the matter. The Business Insider blog said in January that Google was "actively exploring the idea" of making such a watch.
Some industry observers say Google, Samsung and other technology companies are motivated in part by a desire not to let Apple build a big lead in a newer product category, as it did after launching the iPhone and iPad.
For its part, Google is also trying to popularize a new category of wearable devices. Its most serious effort is Google Glass, a device worn on the face with a computer screen above one eye. It delivers information from the person's smartphone, which is connected to Glass via Bluetooth technology. The device, made by the Google X unit, is expected to go on sale to the public next year.
Google has hit some bumps on the road to becoming a legitimate hardware manufacturer and consumer-electronics brand like Apple.
The first version of its spherically shaped Nexus Q home-entertainment device—the first-ever consumer device designed and marketed by Google—was unveiled last year, but its sale to the public was canceled amid criticism that its $299 price tag was too high. The next version of the Android-based device, which is supposed to help Google sell more music and movies through Google Play, will be much less expensive, said the people familiar with the matter.
According to Google, the majority of Android devices currently being used rely on a version of the software released in 2011 that has fewer capabilities than newer releases. Some industry experts say that the most recent versions of Android are better for higher-end devices than lower-end or older ones that had, for instance, 512 megabytes of memory.
The coming version of Android is supposed to remedy the issue, said people familiar with the matter, and also help mobile app developers focus on optimizing their apps for fewer versions of the software.
Google's head of Android, Sundar Pichai, in May said more than 900 million devices powered by Android had been activated worldwide, up from 400 million a year ago and 100 million two years ago.
Jen-Hsun Huang, the chief executive of Nvidia Corp., NVDA +0.55% which makes microchips for devices powered by Android, said in a recent interview that over time there would be three billion people who use Android devices, and that one million programmers globally are already using the software to build applications or devices. He said Android is poised to disrupt the videogame and consumer-electronics industry; computer systems in cars; as well as personal computing, such as desktop computers. He declined to discuss any unreleased products.
"If you're a child living outside of California, your first device is likely to be Android," he said.