Today’s Wall Street Journal has a good article on the state of the iPhone/iPod touch mobile gaming segment.
Netting it out: the data points suggest that iPhone/iPod touch is emerging as a classic low-end disrupter to the dedicated handheld gaming segment.
First and foremost, the raw numbers show that iPhone and iPod touch owners have downloaded about 50 million games, representing about 25% of the 200 million TOTAL apps downloaded from the iPhone App Store to date.
This level of uptake so soon after the launch of the iPhone 2.0 Platform is a testament to a few things. One is pure diversity of gaming options, with more than 2,000 iPhone games available, virtually all of which have been created by the third-party developer ecosystem that Apple is cultivating.
Two is cost. Simply put, a disproportionate number of the downloads are for free games, and virtually every game is priced under $10, placing them well under half the cost of the games available on dedicated gaming consoles.
Three is the seamlessness of the App Store distribution model. Enticing pricing is great, but when you couple it with the impulse buy friendlessness of App Store’s wireless browse, click, buy, download, use & enjoy model, you really have a winning combination.
Finally, the fact that the iPhone/iPod touch is not a dedicated gaming console, and as such, lacks optimized physical input controls and is technically less powerful (in the hardware sense) than its dedicated competitors, is arguably its greatest virtue.
Why? iPhone’s sweet spot are casual gamers, and the early data suggests that everyone at some point of the day/week/month has a casual moment for which gaming is the antidote.
Plus, because gaming is just one of the tasks that consumers use their iPhone/iPod touch for, the device is never far from their clutches – and their (virtual) pocketbook.
I see this truth play out several times a day, EVERY DAY, when my three and six year old sons ask if they can use my iPod to…play games, listen to music, view our photo albums, watch YouTube videos, use their favorite drawing program, etc.
The Developer Case Even More Compelling
On the developer side, the data is even more heartening. Even with Apple keeping 30% of the proceeds of software sales through App Store, Simon Jeffery, the U.S. president of Sega notes that, "Games sold via the App Store are the most profitable in terms of any of the formats we work on."
(SIDEBAR: Sega has sold 500,000 copies of its middling “Super Monkey Ball,” although it's worth noting that Apple has heavily promoted the game and that while Sega sold 300,000 copies in its first month of release, it has ‘only’ sold 200,000 copies over the last three months.)
Part of the key here is that the combination of Apple’s built-in App Store marketplace for game review, purchase and distribution, and a stellar development platform (see my post ‘iPhone 2.0 - Swinging for the Fences’) has lowered distribution costs and made it possible to profit on games that sell for just a few dollars or are supported by alternative monetization models, such as advertising.
Thus, devotees of Clayton Christensen’s classic book on new market/product innovation, "The Innovator’s Dilemma" are entitled to smirk a bit when they read about Sony’s assessment of the potential of the iPhone/iPod touch to emerge as a serious threat to the Sony PSP:
"Sony doesn't consider Apple as big a threat because gaming is secondary to its devices," said John Koller, director of hardware marketing for Sony's PSP, adding that "The consumer is using the mobile gaming on the iPhone and iPod Touch as a time waster."
Good So Far, What's Next?
I won’t spend any more cycles on Sony-think for the moment. Instead, I would like to close by noting some of the less obvious aspects of this evolution in mobile gaming.
One example is Apple's support of elastic pricing models within App Store such that developers can test demand for their products by changing product pricing as frequently as they like.
In fact, many a developer I know has tested pricing models for days or weeks at a time – some have even created event-oriented pricing, such as tying a temporary discount to the presidential election.
All of this empowers developers to let the data tell them what the right pricing model is, in the process providing them oodles of near real-time user and usage data.
(SIDEBAR: In some respects, this hearkens back to the way Google disrupted the online advertising market by making the process of creating, selling, buying, monitoring and managing ad inventory a more malleable, transparent and market-driven process than the incumbent approaches afforded.)
A logical extension of this approach is product hybridization in the form of the embracing 'free-mium' product segmentation models, where a pared down version of the game is free (or ad-supported), and a premium/paid version supports deluxe functions or provides greater customization/personalization options.
It is not hard to imagine this model evolving to the point where complimentary product/solution providers bundle downloads of iPhone games with their products, similar to the way Apple did deals with Pepsi to offer free iPod song downloads with the purchase of Pepsi products.
Similarly, how hard would it be with certain types of games to offer custom-sponsored, custom branded versions of a given game, similar to the way that Hasbro has created different city and theme-centered variants of Monopoly?
On a completely different front, this model changes the nature of the traditional six-month product development 'develop,' 'release' and 'update' cycle.
Why? Because the App Store model provides built-in hooks for automatically notifying users when application updates are available, and makes it one-click easy to grab and apply the update.
As a result, I have seen many a developer release frequent updates of their product seemingly so that they can realize the marketing potential of such updates; namely, to use update cycles as a periodic opportunity to connect with their customers and affirm their value proposition in the form of new features and enhancements.
So where is all of this headed? History suggests that some smart developer or gaming house will leverage a variety of these elements to build a new kind of mobile gaming suite that fosters deep engagement and creates brand loyalty in the same way that Microsoft collapsed word processing, spreadsheet and presentation building tools together to create the 'Office' category killer.
How will such a game developer accomplish these lofty suite goals? By aggregating scores and accomplishments across all of the games that you play from them; by connecting you with like-minded or similarly-skilled players; by supporting head-to-head challenges with prizes and other recognition systems; and by integrating with your favorite social networks, media, utility and locative services in a value-added fashion.
Namely, by embedding richer mobile, social and connected attributes into the gaming fabric's DNA, a construct that is only in its infancy today. That said, it bears reminding that the iPhone 2.0 Platform launched less than six months ago (on June 9), so logic suggests that this 'infant' will grow up fast.
UPDATE 1: Ars Technica reports that hidden SDK features allow iPhone/iPod touch to be used as TV gaming device. Very cool. Also, good interview with Bernie Stolar, former games evangelist at Google and a veteran of many game companies, on state of gaming biz,.
UPDATE 2: Good VentureBeat interview with Atari president Phil Harrison on creativity and the future of video games. Excerpt: (VB) Where do you see the future of games heading? (PH): I don’t think the games industry is going to be making too many single-player epic stories any more. I think consumers are demanding that games be embedded with multiplayer, community and expandable options moving forward. Those are the games resonating most with our audience and single-player games are becoming less relevant as time goes on.
UPDATE 3: Great post by James Currier of Ooga Labs, “Gamification: Game Mechanics is the New Marketing.” Excerpt: After all, there is no more consistent way to predictably induce desired behavior in humans than engaging them in a a context that uses game mechanics such as leader boards, leveling, currencies, stored value, privileges, super-powers, status indicators, random reward schedules, etc. It’s like life, and we were designed to respond to these stimuli… Gamification is coming to everything in the next few years. The next portal is a game. The next email is a game. The next social network is a game. Your next trip to the supermarket could be a game. Your next job could be a game. That means a lot of things, but for one, people with an understanding of those mechanics and how to create contexts will be highly valued.
UPDATE 4: Good article in The New York Times on how 'Apple's Shadow Hangs Over Console Makers.' I especially like the quote from top Japanese game maker, Square Enix, that "The next breakthrough in gaming is not going to be in hardware. It's going to be in how to create a successful business model." Major transformation for that segment in the months ahead.
Related Posts:
- iPhone 2.0 - What it Means to be Mobile: a detailed summary of my experience to date with the iPhone 2.0 platform.
- iPhone SDK - Mobile Reasons for Optimism: why the iPhone Universe is a big deal.
- iPhone 2.0 - Swinging for the Fences: an analysis of the WWDC Keynote by Steve Jobs.
- iPod touch: the first mainstream Wi-Fi mobile platform?
