JAN 17, 2009 • When it comes down to it, despite coming in a prettier package, the Apple iPhone is just another mobile phone among the sea of choices flooding consumers. So why are content creators, and the game industry in particular, so excited about the potential of the iPhone? The answer is largely due to the track record of Apple trying to find legitimate ways to satisfy consumer demand through industrial design. When you get down to it the iPod was just a premium priced digital music player in what could have been a commodity business. But Apple made the iPod something special. Can they do the same with devices to play portable games?

In the cell phone market, hardware manufacturers, wittingly or not, managed to hamper the usage of phones as multimedia devices. Phones have been able to play games for years, but the industry has been too busy raking in money from fat service contracts to pay much attention to the comparatively small potatoes game business. However, in an increasingly commodity-like business, games and entertainment content can give a device a great deal of “sex appeal.” Cell phone manufacturers have been surprisingly unable to distinguish their products as cool and unique and this has left the door wide open for an outsider like Apple. Furthermore, Apple has proven themselves before when they took the music industry by storm with the iPod and iTouch.

The parallels to the music industry are obvious. With the of the CD medium, music sales exploded in the mid-1980s, nearly tripling in just a decade. With the new format, the industry was able to raise the price paid by consumers. Competing formats like the cassette and vinyl album were killed off, along with the concept of being able to buy individual songs as a single. Basically, the only way for consumers to purchase music was to buy a full CD of songs for around $15 to $20.

However, while the music industry was getting fat and happy, the Internet was starting to take off. Napster and MP3 came along to offer consumers the choice they had been denied by the official industry. The music business tried its best to file lawsuits and get legislation passed to stop digital distribution. Of course, these efforts were doomed. In the end, it was Apple that came along and found a legitimate way to satisfy consumer demand with the iPod and iTunes. Apple’s fortunes soared, while the traditional music industry is still trying to figure out what happened.

To get a better idea of how the game industry feels about the opportunity with the iPhone we interviewed two leaders in the casual game industry, John Welch the co-founder and CEO of PlayFirst and Andrew Stein, the director of mobile business development for PopCap. These two companies have the type of properties that should benefit the most from a growth in the mobile game business.

It is important to note that the iPhone is just getting started. Sales didn’t really takeoff until the release of the iPhone 3G in July 2008. Apple advertises the iPhone 3G as three devices in one, a mobile phone, a widescreen iPod, and a mobile Internet device that features 3G networking, built-in GPS mapping and access to Apple’s AppStore. By the end of 2008, the AppStore had over 10,000 applications and consumers had downloaded more than 300 million applications. Sales exploded with the iPhone 3G. For the fourth quarter of 2008 (ending 9/30) iPhone sales were 6.89 million, more than the previous five quarters combined. , by the end of 2008, the iPhone was available in 70 countries. This was up from the initial six countries in which the iPhone launched in 2007. Even though sales slowed slightly in the first quarter of fiscal 2009 (ending 12/31/08), clearly the iPhone is a system that is just getting started.

DFC: Consumers have had mobile phones with the ability to play games for years now. Why is everyone so excited about the iPhone and its ability to play games?

Andrew: There are several reasons why the iPhone has been so successful with games. First, the beautiful screen and fantastic touch-sensitivity literally invite the user to interact with the device. Second, Apple has done a tremendous job in promoting the availability of content with iTunes and the AppStore so consumers know that there is great content out there and that content is extremely easy to browse and download (and purchase, if needed, with everything tied back to a credit card already on file so purchase is one-click easy). Third, the device itself is very powerful and delivers an excellent gaming experience with intuitive touch and tilt controls (for well-designed games) that are perfect for quick on-thego play sessions. All these elements, combined with the iPhone’s sheer cool factor, have created the first mobile phone that just cries out for games to be played on it.

John: Apple has effected profound market change with the combination of a powerful, stylish little computer and the AppStore, which enables developers to unleash their creativity directly to a global market for the first time without ‘permission’ from the mobile carriers. This is the opportunity we have been waiting for in mobile – the device is a perfect match for PlayFirst content, a “just right” ecosystem in which to deliver our innovative catalog of casual games.

As the head of an entertainment company, iPhone is particularly exciting to me because it allows us to offer our awardwinning titles as they were meant to be played.

DFC: A big issue with mobile games has been a flood of products resulting in limited sales per product. It seems that this flood may be occurring with the iPhone. Do you see this as a potential danger? What can be done to make an individual product standout?

Andrew: Apple’s openness with the AppStore has advantages and disadvantages – there is an incredible variety of software, including games, with lots of innovative and high-quality products. But there’s also a flood of cheap, copycat products and it can be very difficult to find the gems among the refuse.

Any tracking of the top sellers lists clearly shows that there’s very high churn – a new game will come in, sell well for a few days or weeks and then start to fall down the charts. It is definitely challenging to make a long-lasting hit, particularly for games that didn’t get a jump on the competition by launching in the first few weeks of the AppStore. This has also led to the serious pricing erosion as publishers try to build volume for a declining title by slashing the price – the AppStore is one of the very few mobile marketplaces where publishers can directly set the price paid by the end-user and this control has definitely encouraged a ‘race for the bottom.’

We’re very fortunate in that Bejeweled 2 has been among the Top 10 best-selling apps since release so we have been, so far at least, less affected by the sheer number of games released. Additionally, we anecdotally find that many customers find our games through the robust ‘search’ features of the AppStore in addition to browsing and finding it in the various categories. We also benefit by being one of the few casual games publishers that has its top 6-plus games on a wide variety of platforms from consoles to PCs, Macs and mobile phones; pre-awareness or familiarity with a game is often key in a consumer’s decision to purchase that same game or another of our titles for their latest device, such as iPhone.

To make a game standout, it definitely helps to have a strong brand attached to the game but the most important requirement is to make a great game. The ability for iPhone and iPod Touch customers to provide instant ratings and feedback in the AppStore puts huge pressure on publishers to make a great game because a mediocre title will quickly disappear under the weight of 1or 2star ratings and poor review comments.

Beyond that, a publisher should be taking advantage of the ability to link directly to a title in the AppStore from both the iPhone/Touch browser and the desktop browser to take customers directly to their product – this allows interested customers to immediately find the app without having to search for it and it also helps reduce the risk that an interested customer gets side-tracked by another product.

John: As with any other product, the key is quality. Consumers will always find their way to the high quality products and those will be the products that last in their marketplace when others fall away.

PlayFirst’s award-winning titles like Diner Dash, Chocolatier and Dream Chronicles have enormous brand equity that consumers recognize across all devices. It’s easier for a consumer to trust a product when they’ve had other positive experiences with the brand because they know they’ll be paying for a high-quality product. We rely heavily on that brand recognition and marketing to increase our visibility on the iPhone.

DFC: There has been some criticism of the AppStore. Do you feel that there are changes that can be made to the AppStore that could help drive game sales? If so what are those changes?

John: Apple has done an incredible job serving music publishers and making new music easily discoverable for consumers. We’re confident that as games becomes a core part of their offering, advances in their interface and tools for app and game publishers will also advance. Apple is a great partner, and as such we certainly feed back our requests for continued innovation in content discovery features and better access to data as to what’s working.

My main concern is the ordering of the top paid apps list by downloads rather than sales dollars, as it provides too much incentive to cut price, which will result in lower quality content – something that will sink all ships. Software is not music, and $0.99 isn’t a great price for applications if you want a healthy ecosystem for content.

Andrew: We’ve been very pleased with the AppStore so far. Our initial concerns have been largely addressed by Apple’s recent update (better, more intuitive merchandising when browsing on device and reviews limited to purchasing customers) and Apple’s changes in policy to allow upsell from demos to paid versions. We’d still like to see support for subscriptions (monthly recurring charge) and micro-transactions. We’d also like to see support for video in the AppStore merchandising as it’s so much easier to anticipate what a game will be like from a brief video than from several static screen shots. Finally, we’d like to see top sellers ranked by total revenue instead of units – that will help the higher priced apps and possibly reduce some of the pressure for price erosion.

DFC: Are there ways that the iPhone could integrate with the PC/Mac to enhance a product? Are consumers looking for that type of integration?

John: Convergence between mobile and PC/Mac platforms opens a new door for consumers to engage with our content. One of the things I think would be cool is if I could be playing Diner Dash on my PC, then grab my iPhone and pick up right where I left off. That would really deliver on the promise of full portability – I could be on the move, using any number of platforms, and have my entertainment come with me.

What we’re considering now is a way to integrate the portable gaming experience with some of the community features on our site. For example, do users want to play Diner Dash on their iPhone and then upload high scores to their PlayFirst online profile?

Andrew: We’re exploring ways to integrate iPhone games with other platforms. This could be as simple as cross-platform leaderboards or achievements and as complex as cross-platform multiplayer gaming. We think consumers are looking for a great game experience – if linking platforms can enhance the game, then we expect that consumers will take advantage of that (and perhaps even start looking for these types of experiences). However, if integration with a PC/Mac or even a web browser doesn’t enhance the gameplay, then it shouldn’t be incorporated into the game.

DFC: How difficult is it to develop a product for the iPhone versus other platforms? Do you need to focus on making your application unique to the iPhone as a platform?

Andrew: We’ve been pleasantly surprised by the ease of development for the iPhone, particularly as the SDK has matured. We’ve found it quite straightforward to port our Mac code to the iPhone and have spent most of our efforts modifying to the specifics of the iPhone device. We are starting to look much more aggressively at creating new features specific to the iPhone and leveraging the unique aspects of that platform (multi-touch, accelerometer, connectivity) and we think those features will ultimately take the most development work.

John: We’re fortunate in that we’ve been simultaneously releasing PC and Mac versions of our games for a long time. Our cross-platform Playground SDK allows us to easily ship games on multiple platforms – I was surprised at how fast we were able to extend it to cover iPhone. The challenge for any particular game is simply optimizing the UI for the touch screen, not in getting the game to work – we start development with a functional game. We are very pleased with the experience we are able to deliver on the device – I can see this becoming the platform of choice for many of our loyal fans.

DFC: Apple has never had a big focus on games for their platforms. Do you feel this is changing? Are there any specific things that you see Apple doing right? Anything you feel they could improve on?

John: Apple has always been known for creativity and leadership in bringing sophisticated tools and diverse entertainment into the everyday for the masses. Now that video games are becoming recognized as an important main stream form of entertainment, you’ll see games becoming standard applications in more and more places. Despite their history, I’m not at all surprised to see Apple emerging as a leader here. It’s not as if they were historically a music company either, and look at what they have done there!

Andrew: Apple has been a great partner for us. They definitely seem to realize that, overall, games are the bestselling category of content and there is a huge amount of revenue potential there. They’ve consistently supported games aggressively (from running all-games TV commercials for the iPod Touch to dedicating much of the iTunes banner space to games) and are very interested in improving the depth and strength of the games catalog for the AppStore. Apple has been great at modifying some of their overly restrictive policies to allow developers to release demo versions of apps with up-sell to the full content – this is obviously a great model for games and is one which PopCap helped pioneer in the casual space.

DFC: How do the demographics of the iPhone match up with the demographics of your user base?

Andrew: We see the demographics as a great fit and that’s why Bejewled 2 has been a Top 10 best-selling application since it was released. Our games are quick, simple fun and are perfect for on-the-go gaming where the user doesn’t have to spend a lot of time learning how to play the game or struggling against complicated controls. Our games appeal to the masses and the masses seem to be buying iPhones and iPod Touches.

John: Currently, the iPhone has a male skew to their audience. While we make games appealing to everyone, our audience is more female than male. Still, we have been very pleased with the success of Diner Dash on the iPhone. As iPhone penetration expands, we expect to see their audience become more mainstream and sync more closely to ours, which will expand the opportunities available to both iPhone and PlayFirst.