Apple Sees iPhone As A Serious Player In Portable Games

Apple (AAPL) isn't playing games when it comes to the iPhone, but its users sure are.

Apple's popular smart phone and its cousin the iPod Touch have become a major mobile video game platform since Apple opened its online App Store last July.

Apple recently passed 1 billion downloads at its App Store, which allows third-party software developers to offer applications for the iPhone. Games have been the top category from the start.
"It certainly has been a game-changer, pardon the pun, in terms of what it does and the bar that it has set," said Brian Jurutka, a vice president of digital audience measuring service ComScore.

Apple's iPhone could become a serious rival to Nintendo's DS and Sony's (SNE) PlayStation Portable game devices, says Alexandre de Rochefort, chief financial officer of Gameloft.

Apple has sold 17 million iPhones and more than 13 million iPod Touches, creating an installed base of more than 30 million devices with the iPhone operating system.

"It's very clear to us that Apple's iPhone is a huge opportunity," de Rochefort said.

Gameloft expects to generate close to $20 million in sales from iPhone games this year. Last year, it raked in nearly $7 million in just six months.

"One month after the launch of the App Store, Apple became our No. 1 client ahead of any other carrier or handset manufacturer," de Rochefort said. And Gameloft had been in the mobile games business for nine years before then.

Paris-based Gameloft has 28 games on the iPhone and gets more than 10% of its revenue from the platform.

But some game developers aren't convinced that the iPhone will be serious competition for dedicated game devices like the DS and PSP.

"When it was launched, the assumption was that the iPhone would be the next big game platform that would compete with the DS and PSP," said Brian Greenstone, chief executive officer of Pangea Software. "But I don't know if that's how it's turned out. We were gearing up for doing these big games and having to compete with giant triple-A titles, but it just hasn't happened."

The most popular games for the iPhone are casual games designed for short play, not long-play immersive games, according to Greenstone.

A Touch Of Difficulty

He says the touch-screen interface that makes games so addictive on the iPhone is a drawback for adventure games, in which a game pad or joystick has traditionally controlled the on-screen action.

Someone might have to develop a game pad accessory that attaches to the iPhone, Greenstone says.

Pangea has been successful selling casual games on the iPhone such as the puzzle-solving game "Enigmo" and the prehistoric race-car simulator "Cro-Mag Rally." The Austin, Texas, company now has seven games available for the iPhone.

Game developers rave about Apple's iPhone software development kit and how easy it is to write programs for the device. They also praise the straightforward nature of Apple's App Store. Application developers get 70% of the revenue from programs sold on the App Store, and Apple keeps 30% for handling the transactions and managing the online store.

But those factors have led to some growing pains for Apple.

The App Store is now "absurdly crowded," Greenstone said. The online store has more than 35,000 applications available for download. As of May 7, games accounted for more than half of the 100 top-selling titles on the site. Games typically sell for 99 cents to $9.99, but some trial versions of games are available for free.

With so many games available for the iPhone, getting noticed can be difficult, says Michael Cai, a video game analyst at Interpret. The creation of new applications for the iPhone, he says, is apt to slow as the less successful developers drop off. The explosion of downloadable programs for the iPhone "can't go on forever."

To get noticed, game developers have to get on one of the lists of top-selling or most-downloaded applications, Cai says. Or they need recognizable franchises like PopCap Games' "Bejeweled," he says.

"Trying to get visibility is still an issue," Greenstone said. "The key is to remain in the top 100 list because that's the main way people find you."

Game developers use trial or light versions of games to get noticed, as well as ads and reviews from gamer Web sites. YouTube videos of games also tend to get a lot of attention, Greenstone says.

When iPhone users like a game title, they're open to buying sequels much sooner than they would be for mobile game platforms like the DS or PSP, says Neil Young, chief executive of NGmoco.

For instance, San Francisco-based NGmoco came out with its hit iPhone puzzle-adventure game "Rolando" in December. It plans to release "Rolando 2" in June, followed by another sequel in December, Young says. Nintendo and Sony might release a sequel every year, but not two in one year.


Volume Business

Consumers are "chewing through software much more voraciously" on the iPhone because of the low pricing of titles, the carry-everywhere nature of the device and the convenience of the App Store, Young says.

"We believe there is tremendous opportunity in this space," he said. "Today there is really nothing that compares and competes with the iPhone."

Young, a former executive at Electronic Arts (ERTS), started NGmoco in 2008 because he saw the iPhone as a disruptive platform that would change how mobile games were sold. Games for the iPhone will grow more sophisticated over time, he says.

This summer, Apple will release the third version of its iPhone software. Among other features, the iPhone OS 3.0 will enable in-game purchases of additional content such as levels and weapons and alerts about new game titles from the iPhone's home screen.