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What to make of the iPhone?

April 9th, 2010

Cross-posted from David’s blog, Game Tycoon.

Lots of people are talking about the iPhone announcements today. Most relevant to game developers: Apple is putting viral invites, matchmaking, achievements, and leaderboards into the OS; adding the ability to gift apps; introducing a slick in-app ad network called iAds; and (finally!) limited multi-tasking if you possess a 3GS or better. This is an impressive list of features, and as a consumer, I’m pretty excited about it.

As a developer, it doesn’t change my feelings about the platform much. It has been evolving into an ecosystem in which F2P is the most viable business model (as exemplified by Ngmoco) and it will continue to evolve in that direction. In fact, the introduction of iAds will likely accelerate the trend as developers race to compete with one another for a share of ad revenue. When Steve Jobs says of iAds: “This is us helping our developers make money so they can survive and keep the prices of their apps reasonable,” he really means “this will help maintain downward price pressure in the app store, which I love because cheap apps help sell iPhones!” (Btw, was anyone else struck by Jobs’ use of the word “survive?” I think that’s the closest he’ll ever come to admitting that life for developers is rough in the world o’Apple.) And if you’re still not convinced that F2P is the future of Applesville, let me remind you of now-common revelations that anywhere from 60% to 90% of app downloads are pirated.

Console Killer?

Piracy is just one reason why I balk when people call Apple’s products “console killers.” The truth is that the iPhone+Touch+iPad triumvirate defies simple categorization and collectively represents a new kind of market for games. It isn’t being positioned to destroy the console market, though it’s clearly having some impact on the portable console space in particular. (Gotta say, I love the title of that article –> “iPhone Is Eating Sony PSP and Nintendo DS’ Lunch.” I guess Nintendo’s 70% of the market doesn’t qualify as a full meal anymore..?)

Successful game consoles have historically limited piracy in Western markets to a great degree. Successful game consoles have historically supported (if not required!) high game prices. Successful game consoles have sharply restricted who can develop content for them and who cannot. Successful game consoles have, as a result, made experiences like GTA 4 and Call of Duty MW2 possible, and there is a non-trivial segment of the population that still wants to buy those games. And perhaps a non-trivial segment of the population will still want to buy the games that will be available on the successor to the Nintendo DS, even if those games cost $30… as long as they are sufficiently differentiated. But Apple doesn’t care about any of this, because Apple doesn’t need to own the “high end” game space or become a “traditional console!” Apple is perfectly happy catering to the mass market consumer (and/or the pirate) who is buying its high-margin devices, watching its iAds, and generating microtransaction revenue via in-app purchases.

What about quantity?

This is partially why I am not impressed when people point out that there are only 2,500 Nintendo DS games as compared to 50,000 iPhone+Touch games. With a few notable exceptions (such as GTA Chinatown Wars and CoD: WoW: Zombies), there is limited overlap between “premium” DS experiences and “premium” iPhone+Touch experiences, and that overlap may shrink if publishers begin to fear that the iPhone cannibalizes too much revenue from other, more profitable platforms. (Also: today, the iPhone+Touch has a big advantage over the DS: no retailer margin! I have to believe that this advantage will be reduced or eliminated when Nintendo releases its next major portable console.)

No… the iPhone+Touch+iPad is a beast all its own. Not a console killer, but something equally impressive. A weird hybrid of some of the best and worst aspects of open and closed platforms, with a touch of crappy retailing thrown in to boot (sorry Apple, but the new gifting feature doesn’t make up for how poorly apps are merchandized.) It’s a place where indies looking to make a buck might find their fortune in the F2P space or with a (rare) 99 cent mega-hit. It’s a place where larger companies might profit from cross-platform F2P games and/or opportunistic use of known IP. It is, to be clear, a remarkable place that anyone serious about the games business has to keep abreast of… but it’s not the be-all and end-all of gaming. And it probably won’t be anytime soon.

PS. Comments on Adobe vs. Apple reserved for a future post. For now, I’ll just say that I’m still pretty excited about the F2P opportunities in the Flash games market.

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