App Store, a nuclear bomb hits the game industry

It is strange how the game industry has evolved over the years, taking unexpected twists and turns. Who would have thought, for instance, that text based fantasy games would evolve from their niche pre computer form to the MMOs we have today, played by tens of millions of people all around the world?

And one of these revolutionary twist is happening right now. It is one of the biggest ever to hit the industry, positively seismic in fact. And it all came from the humble MP3 format.

The Motion Picture (hence MP) industry in the early ’90s brought together a number of techniques to compress digital music to about a tenth of the file size. This then made it very practical to transmit music around the web using the slow dial up modems of the time. Which meant that the business model of the music industry was broken. Portable MP3 players entered the market and fairly quickly replaced the old Walkman devices.

The next step in this chain of events was for Apple to see an opportunity here and to thus bring out the iPod. They then brought about one of the biggest revolutions in publishing in the history of mankind. What they did was to go to the record companies and offer to sell their music on line for them. If it hadn’t been for the high level of piracy the music industry would have told Apple to get lost. In fact some companies did, to start with. But once the business model proved viable they had no option but to join. So in January 2001 iTunes was unleashed on the world.

It is very easy to underestimate how revolutionary iTunes was. For the first time we had instant mass market distribution to the whole world. An artist could create a work and just minutes later it could be in the hands of millions. And because of the business model the artist was rewarded for their endeavour. As ever with enabling new technology it takes a while for the effects to be felt. But sure enough iTunes brought about a number of revolutions:

  • No need for plastic and cardboard to publish and distribute IP. This is massive. From the days of cave paintings through the Caxton printing press publishing has always needed a physical medium. Now it was gone.
  • Explosion in diversity. To distribute a song costs Apple nearly nothing, it is just a small file on a hard drive. So they can maintain an infinite catalogue. They can make available every piece of music ever recorded. Which makes the physical stock in the world’s biggest music store look pathetic in comparison.
  • Total globalisation. A song can be recorded in Lithuania one day and be listened to in Western Samoa the same day. The whole world has access to the whole world’s music. A defining moment for the global village.
  • A fair and workable business model for everyone involved. Apple, the artist and the customer all benefit massively from iTunes.
  • No need for publishers. When iTunes started 100% of its content came from publishers. With the passage of time that percentage has steadily reduced. The artist can reach the entire world market without needing a publisher.

Then, just a year ago, Apple decided that the iPod/iPhone was powerful enough to run applications. They decided to copy the distribution model they had used for MP3. The App Store was born. And the App Store has exactly the same advantages that I have listed above for iTunes.

What followed was the biggest and most successful uptake of a new platform in the whole history of the video game industry. More a nuclear explosion than a revolution. 1.5 billion downloads in the first year.

So the business models of the big three console manufacturers, Sony, Nintendo and Microsoft are under threat. The reality is that they are just about as relevant as the cave paintings mentioned earlier. It is only content availability and momentum that is keeping them going. And if Apple produce a home console repeating the same business model as the App Store then the established players will be in big trouble. And they are half way there with Apple TV.

The AppStore idea is so brilliant that it has been very quickly copied. By Google for Android, by Sony for the PSP, by Nokia for Symbian and also by LG, Samsung, Blackberry and Pre. Everyone is at it. And quite rightly too, the AppStore is currently the optimum method for distributing IP to its users.

A year ago nobody would have predicted this. The video game industry has been hit with the biggest revolution in its entire history. And it is massively to our benefit. Our IP will increase enormously in diversity and reach far more people than was possible before. It is making us truly mainstream.

4 comments ↓

#1 Tex Pine on 07.24.09 at 12:08 pm

Yeah, iTunes is great. Too bad it doesn’t work in Brazil and many other countries. Even if you are willing to pay for MP3s they won’t allow Brazilian and other IPs to buy. So the globalization is quite relative and does not apply to the “global village”.

#2 Robin on 07.25.09 at 2:00 am

I’m as big a proponent of digital distribution as anyone but this is a bit oversimplified.

Physical sales of music, movies, books and games still persist in spite of all the obvious advantages of digital sales that you list. This is because there are circumstances where the physical item is more convenient:

CDs – as a gift item, or with bonus materials (admittedly CDs are on the shakiest ground)
DVDs – the above, plus convenient portability between devices/users, plus the value of ownership rather than rental.
Books – the above, plus no need for an e-book reader.

Downloading a game on the App Store is one thing, but downloading a multi-gigabyte game for PC or console is a different matter, especially for most of Europe and North America, outside of urban hubs, where very fast broadband with no usage caps or other gotchas isn’t available at all.

You’ve not even considered discoverability. To achieve high volume sales on iTunes absolutely needs a publisher with the ability to advertise in the mainstream media. Games on the App Store do not benefit from impulse purchases on the high street, or a specialist media framework anything like as mature as that which has grown up around PC/console games.

And then there is the price issue. There is undoubtedly a market for iPhone games as complex as high-end handheld and console games, but it is impossible for anyone to deliver them as the de facto $0.99 means they would never recoup their development costs.

#3 Gary on 07.25.09 at 12:27 pm

“From the days of cave paintings through the Caxton printing press publishing has always needed a physical medium.”.

Yes, and it still does- electrons, silicon, plastic, glass, metal- still physical.

#4 Devin on 07.26.09 at 10:39 pm

“And if Apple produce a home console repeating the same business model as the App Store then the established players will be in big trouble.”

I have two issues with that statement: first, all the established players are two steps ahead of Apple (Microsoft, Sony and Nintendo each have an established console, and an online marketplace for it).

Second, since there aren’t any viable alternative cell phones that let you run (or write) aribtrary applications people are willing to pay (small amounts) for applications with the very low production values typical of PC freeware, and that doesn’t seem to be the case with consoles (OTOH, the consoles currently appear to be better at delivering indie games with mid-range production values, e.g. Braid, or Geometry Wars at $200k and $100k respectively).

So, if Apple used the iTunes App store model in a console environment, creating a “moderated but mostly free-for-all” publication environment on a console where it wouldn’t provide anything better than download.com already provides for personal computers, I think that console-iTunes App Store marketplace wouldn’t be as big a draw for the Apple console as it is for the iPhone.

You might feel the console vendors are missing a major opportunity by not providing a marketplace of the iTunes App store sort, but by enforcing high production values in their environments they may feel that they are maintaining the repuation of their console while also avoiding cannibalizing an attractive ROI for 3rd party developers by avoiding a race to the bottom with prices as has arguably happened in the iTunes App store as noted above by Robin, and echoed across the net.

But, do people really want to play shareware quality games on their console system?

We have a limited example of a free marketplace on a console: a soft-modded Wii can play Wii freeware (called “Homebrew applications” in that community), but freeware Wii applications (pirate wii games excluded) and content aren’t drawing customers to the Wii, mostly, I imagine, because Wii owners would rather use their Wii to play games with production values.

Remembering the VHS vs BetaMax outcome, the quality of content may eventually drive people away from the iPhone, although it seems more likely that the quality of applications will improve with changes to the marketplace software, and possibly the establishment of other channels (e.g. credits sold in walmart).

If Apple continues on the path to cellphone market saturation, then TV ads for specific, higher-priced, iphone apps would be realistic — perhaps they are realistic already, since there appear to be around as many iPhones as Playstation 3′s deployed in the US, and I occasionally see a PS3 game advert on TV.

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