Gaming – In transition and revolution

Part One of Four (Mobile)

I’ve been meaning to put pen to paper for awhile on this topic. In my last blog I was talking about a ‘Spring cleaning’ exercise I did on my contacts database; and made an observation on the volume of companies that have either gone defunct, or underwent massive layoffs since the downturn in the economy. This got me to thinking largely about how or why some ISVs seem to have weathered the storm better than others. Also; I just finished reading an article up on Escapist titled ‘What they say’. This is, in my opinion, a great article that compiles a bunch of ISV anecdotes about all the transitions going on in the industry. There are some great nuggets in that article and largely corroborates a bunch of my thinking, and aligns to most, but not all, of the Games ISVs I’ve spoken to these past three years about all the transitions.

The most interesting transitions occurring, in my opinion, are the ones that are completely disrupting multiple platforms and business models simultaneously. However; while I’ve heard some ISVs complain about the big shifts and transitions, I’ve also heard others discussing how to embrace these shifts as an opportunity. Some platforms seem to be better positioned than others in order to address these changes. It will likely end up being a survival of the fittest exercise when all said and done.

Here’s how I personally view and summarize the biggest macro-shifts impacting the games industries. There are four big standouts for me: 1) Mobile, 2) Format and Business Model Evolutions, 3) Globalization, and 4) Innovation Game Changers

In order to keep this post somewhat manageable I’ll split this blog into 4 sections. I'll post the remainder on a weekly basis. Going down the list we’ll first talk about the largest macro-shifts occurring on devices.

Mobile: It doesn’t matter if we’re talking about a Smart/iPhone, a Slate/iPad, thin & light Laptops, or even gaming handhelds. The key point here is that consumers, and even biz/enterprise customers, seem to love mobile form factors. Can you blame them? It’s fun to be able to game on the go, when and where you want. Mobile form factors and technology advances that allow for more capabilities, with fewer tradeoffs have permanently transformed the gaming industry both on the hardware side; and can significantly impact the software used to power those devices.

Convergence Factor: I believe it’s important to call this out in the mobile section. When you think back on devices such as Sony Walkmans, small point and shoot cameras, maybe Netbooks, & possibly Slates/iPads in the near future. Overly niche devices might be lucrative and last for a little while in the market; but most seem to peter out after three to five years. Especially when a device comes out that combines as good as or better functionality than say two to three devices you might currently be lugging around. My current iPhone is sort of a combination of a cell phone, mini-PC, mini-camera, portable hard drive, Handheld gaming device, GPS device and so on. Whereas my laptop, which gets thinner and thinner over the years, is a combination of my old desktop PC, portable TV, eReader, Console, and workstation.

The other salient things that I love about Mobile - in no particular order:
• Convenience: Can fit in the palm of your hand. Ties in with my convergence & less is more mantra
• Connected: Phone, Web/Cloud, Facebook, etc.
• Cutting the cords-tethers-chains: No cords is just cool
• The thinner, the lighter, the better: Less strain and no more back pain
• Battery Tech /longer life/Quicker Charging: Still needs work but so much better these days
• Multi-functional: Email, Web, Games, GPS, etc. Can also incorporate touch functionality, instant on, sensory functionality and so on.

So how do we tie all this back to Gaming?

From a Mobile Phones perspective they are not necessarily a new phenomenon. Featured phones have been around for over a decade. iPhone definitely reinvigorated the space and now there’s a global ARM’s race going on in the smart phone space. It’s difficult at best to discern where it all ends. What I do know is that from a gaming perspective is that there’s a massive barely tapped oil field-like TAM beginning to emerge. Out of the 6.9b people on the planet there’s a supposed 4-4.4b cell phone users. (A little over a billion cellphone users in just the industrialized nations). Smart Phones seem to be replacing the traditional cell/featured phones selling somewhere around 300m units a year. Even if half of those are replacements of existing Smartphone’s it’s a large growing TAM indeed. Eventually all the existing 4+b cell phone users someday likely be on a Smartphone. This is not an opportunity that I’d want to miss out on if I were a Games ISV. If anyone truly wants to reach a “Billion” users; then it stands to reason that one would factor in, or at least consider, shipping either a stripped down version of their game, a mini-version of it in some fashion to help bolster sales or their portfolio.

From a Mobile PC (Laptop/Slate) perspective. Laptops are increasingly outpacing desktop sales and from what I can tell, by and large replacing them. Something like 100-130m Consumer Portable Laptops sold last year; as compared to something like 55-60m Consumer Desktops. Roughly a quarter to a third of these ship with a discrete GPU used for gaming. Our PCGA Horizon’s data forecast would have placed the number somewhere around 70m desktop and laptop unit sales capable of most gaming. (As compared to ~40m 7th Gen Console unit sales all added together) Starting with Intel’s Sandybridge, and AMD’s Fusion APU’s; the notion of a gaming capable PC would now accelerate into practically any PC being able to handle all but the most graphically intense games. The next bright shiny object emerging in this category will of course be Slates/Tablets which will likely push these numbers up even faster; just be careful to not put all your eggs into one basket. Point being; again we have a massive, barely untapped TAM for gaming. (Exception: Web Gaming) Just because the TAM exists doesn't equate to games ISVs actually shipping games into it - sadly. Instead most of the western hemisphere's ISVs persist in targeting an overly saturated Console TAM – which even if you added all of the 7th Gen Consoles together doesn’t exceed 180mu total sales to date. A relatively small pond indeed as compared to others that is largely over fished IMHO.

In closing – mobile form factors appear to be fast becoming the de-facto standard. Wouldn’t it be better to figure out ways to tap into ALL devices capable of gaming with the same game? I for one think that has amazing potential.
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