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Opinion: Is The iPhone A Major Opportunity For Game Innovation?

Opinion: Is The iPhone A Major Opportunity For Game Innovation?

June 10, 2008 | By Keith Boesky

June 10, 2008 | By Keith Boesky

[Following Apple's newest iPhone announcements, industry veteran and former Eidos president Keith Boesky has been analyzing why game publishers may be slow to adopt the platform, suggesting Apple's device may be bringing openness and innovation back to handhelds.]

As the 3G iPhone launches and Apple's application store readies for launch, I was thinking about who is making games for the platform. The installed base for iPhones is expected to reach about 10 million by the end of this year, 20 million by 2009, and 30 million by 2010, and this does not include iPod Touch, which can run the same applications.

The subject came up a few times in the past few weeks, and it sounds like some significant players may choose to pass on the opportunity.

I sat in the audience of the LA Games Conference listening to Cindy Cook, chief strategy officer for Vivendi Games, talk about the future of the industry. One of the more interesting insights came out when a member of the audience asked about the iPhone and whether the company would be making games for the platform. Cindy said the installed base was not large enough to justify production yet, but if it grows, they would consider it.

Then, a couple days ago, I was in a meeting with an executive from one of the top mobile publishers in the world who explained there are 2.5 billion handsets in the world, and the iPhone was was not even on the radar yet. It will certainly not be a focus in the near future. (I included Cindy's name and not the other guy because Cindy's statement was made in a public forum and the other guy was speaking privately in a meeting.) Both are sadly wrong, and both are missing out on significant revenue, it doesn't mean we should, too.

Let's take a look at Vivendi first. Cindy says the platform does not have a large enough installed base, but it is actually larger than some of the platforms they develop for today, and considering investment per installed unit, the opportunity is exponentially larger than any other platform today.

Vivendi was willing to invest tens of millions of dollars into PS3 and 360 titles while those platforms had an aggregate installed based in the single digit millions of units. They launched into an installed base in the high six figures. They were investing based on promise of future platform growth.

The iPhone installed base is growing faster. Today, the industry average investment per console titles is equal to about USD .50 per installed unit (the top sellers are closer to a USD 1) worldwide and about USD 1 per user in the United States.

I understand the corporate position of not wanting to be a mercenary, and waiting for the market to figure something out, but we are only talking about a five or six figure investment, on the order USD .01 or less per installed unit.

Money is money, and they may not want to spend it, but one more data point makes it a bit odd. We are talking about a five or six-figure investment for the world's largest music platform from the sister company of the world's largest music label. Cindy explained the relationship as a strong one, but both companies stood on the sidelines as Activision and EA created a whole new category of music driven games.

We have seen the two work together with 50 Cent, and despite reports of tension between Apple and UMG, we know people are downloading more music into their iPhones and iPods than any other digital player. I may be flaunting my brilliant grasp of the obvious here, but it kind of feels like opportunity is knocking on the door and no one is opening it.

Looking at Mr. Mobile Executive, he too says the base is too small to make sense to him. There are 2.5 billion mobile not iPhones out there, and of them, about 2% of the people actually download applications. So, his installed base is about 50 million people.

One could argue iPhone is 20% of his market. This would be true on a pure platform basis. However, his investment per title per user is about .002 per installed user on the high end. Sure there are some licenses which add cost, but for the most part, the investment is minimal. Moreover, he develops to the lowest common denominator, to make those applications portable across hundreds of different device types.

If he makes an application for the iPhone, one of the most advanced phones on the market, he has an application for the iPhone, and nothing else. True, but does it matter? His applications must be portable because there is no single, robust platform with a homogeneous installed base of 10 million units.

By creating applications to the lowest common denominator, they are just not good or compelling, and they don't cater to any unique attributes of any phone. If he took the same effort and put it into a focused platform, he would be selling into a smaller installed base, but one with a much higher tie ratio.

Some publishers are playing with the model and looking at how to port arcade or old titles to the platform. It's a nice thought, but they should really be looking at how to make iPhone's Tetris. When we propose original development, it is just not something they are willing to do. There are no games out there for them to benchmark, so they can't forecast performance. Building on gut does not fit into Excel.

All of these publishers are looking at iPhone as an extension of the mobile business. I guess the word "phone" in the name of the platform throws them off. The iPhone is not the mobile business, it is a handheld without Nintendo or Sony. Mobile applications are sold into disparate platforms through intermediaries who operate best in monopoly or oligopoly positions.

Most applications in the States are distributed via the carrier or through agreements with the carrier. Meaning, you can get the application which is offered by your carrier and works on your phone type. Kind of like walking into Blockbuster and only being able to rent a Sony movie for your Sony DVD player.

iPhone allows the publisher to develop for a single platform and reach customers directly. Through the iTunes store, and perhaps directly to the phone, the publisher can reach the consumer directly, without involvement from AT&T or any other carrier around the world. This is when mobile applications will really break out.

The platform also signals a return to the old days. When a lot of us started in the business game schedules were measured in months and budgets only had as many zeros as they do today if they were paid in pesos. Publishing decisions were made by gut and risks were taken.

People said these days were coming back with mobile and then Xbox Live and PSN, but they really haven't yet. Those applications are less expensive to make, success is menu driven, menus are dictated by the carriers or platforms, and no one is really paying for them yet. Things may be changing soon, but not yet.

iPhone games can be built in the garage, the platform has enough features to allocate USPs even to the smallest games, and developers can get them out to the world easily. The difference today is other people are paying for those games to be developed.

When Jordan Mechner made Karateka for the Apple II he sold 500,000 units, a very big number. Those numbers will be exciting and profitable on the iPhone and perhaps, then, everyone can relax and have fun making games again. So Cindy, Mr. Mobile Executive, you are right, maybe you should sit this one out for a while.

[Keith Boesky has been active in the content and technology communities as an attorney, a senior executive, an agent and now as principal of Boesky & Company. Boesky & Company closed more intellectual property and game development deals, making more money for its clients, than any other agency in the world. The Company’s clients include The Robert Ludlum Estate, Clive Barker, Spark Unlimited, Liquid Entertainment, Riot Games and GDH. The company also provided guidance regarding the structure of the game industry to Morgan Stanley and Thomas Weisel Partners.

Mr. Boesky draws upon his experience as an attorney in intellectual property and public and private finance where he represented Qualcomm, Angel Studios, Presto Studios, Rebellion, The Neverhood and The Upper Deck Company; as president of Eidos Interactive where he expanded the Tomb Raider franchise from games to other media; and as an agent with International Creative Management where he worked with talent and properties like Peter Jackson’s King Kong and Jordan Mechner’'s Prince of Persia, to bring value to the company’s clients.]

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