Summary
Apple’s iPhone has swept the field to become the must-have smartphone. Steve Jobs has now taken aim at the lucrative handheld gaming market. The implications will be profound for Sony and Nintendo who will need to innovate not just to retain market leadership but in order to have a handheld business at all.
Analysis
Apple’s marketing campaign has a new slogan: “next-level fun”. Apple has taken a clear shot at the handheld games console, and it has a lot of advantages.
The iPhone installed base has reach critical mass. There are over 40 million iPhones and iPhone Touches in the market. That compares with 100 million Nintendo DSs and 50 million PSPs. The iPhone is not a dedicated gaming device but it is a capable piece of hardware that 40 million people are carrying. Which makes it both a large market and a direct threat to the dedicated consoles.
From a consumer perspective, iPhone games (which can also be played on an iPod Touch) are have several advantages:
- they are cheap: bestselling titles go for under $2 and few titles cost more than $5. In contrast, PSP and DS titles generally cost $20 or more.
- They are easy to download: the AppStore has changed the way in which consumers discover and purchase content on their handheld devices
- they are plentiful: there are over 21,000 games available for the iPhone, compared with 3,680 for Nintendo’s DS and only 600 or so for the Sony PlayStation Portable (PSP).
The DS and the PSP represent a huge investment for Nintendo and Sony respectively. The iPhone threatens to erode their market position and to cause a permanent drop in the price the public will pay for handheld software.
However, Sony and Nintendo will not go down without a fight. Both companies have a history of innovating with their technical platforms. Sony is working on a PlayStation Portable 2 due in 2011 and expected to have a built-in phone. Nintendo has managed to wrongfoot its competition time and again.
What is inevitable is that the iPhone will force the market leaders to innovate. A change in business models. A shift to digital downloads. A permanent reduction in the average price point for a handheld game. Perhaps even a move to games-as-services rather than games-as-products.
But I wouldn’t write off the current market leaders quite yet.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
