Neil Young (not the Canadian grunge musician) is a man who knows what he is doing. Like me he was involved in the Sinclair Spectrum game industry in Britain in the early 1980. This was a creative and commercial hothouse where much that we now take for granted about the game industry was invented. He subsequently spent 11 years at Electronic Arts rising to Group General Manager of the EA|Blueprint Studio group. And now he is the founder and CEO of ngmoco, one of the leading publishers of mobile phone games.
One thing he has always said is that the iPhone / AppStore gaming market is just like the Sinclair Spectrum market was. And here are a few reasons why this is so:
- Very low barriers to entry. Download the SDK and you are away. This is a huge contrast to the established platform holders like Nintendo, Microsoft and Sony who make you jump through lots of hoops and invest in expensive hardware development kits.
- Huge flowering of creativity. Anyone can have an idea, no matter how oddball, and realise it. Then (theoretically) in the Darwinian world of the AppStore the fittest succeed. New genres of game are being created without anyone realising it. It will take historians to unpick because so much has happened so quickly.
- Equally huge upsurge in new game publishing companies. I bet that more new game publishers were set up last 18 months than in the preceding 18 years. The problem here is that a publisher has three main functions 1) Editorial control 2) Finance 3) Marketing. Most of these new publishers don’t realise this yet. The ones that survive will be the ones that do.
So far all a reader will be seeing here is a rosy story. But the reality is that, just like the Sinclair Spectrum market before it, the AppStore business model is largely broken (as I predicted would happen in 2008), and for much the same reasons.
- Piracy. People will mainly steal a game if they think they won’t get caught. The barriers to stealing iPhone games are very low. So more are stolen than bought.
- The collapse of prices. Inexperienced marketeers use the price mechanism to gain competitive advantage. Experienced marketeers use the price mechanism to beat the game thieves. Together they drag prices down so there is no budget for marketing. This creates a downwards spiral so there is no money for development.
- Imperfect market knowledge. The AppStore has happened so fast that the mechanisms are not in place to inform people properly what is on it. So a total gem of a product can be hidden from view because of all the dross that surrounds it. This is partially Apple’s fault for having an inadequate front end to the AppStore. It is partially the fault of the news media who are not reporting sufficiently in depth, the volume has overwhelmed them. And it is partially the fault of the users who mostly take a very casual attitude to their downloads and who would be massively rewarded if they did more research.
So the net effect is that you are lucky if someone finds your game, even if they do you have to sell it to them at an uneconomically low price. But even then they are most likely to just steal it from you.
Which brings us back to Neil Young. He has given up selling games on AppStore. Now they are free. Really he had no option, because of the broken business model. So instead he charges for in game stuff with micro transactions. And it works. He has already had two successes with Touch Dogs and Eliminate Pro. Both of these allow a daily amount of play time, over which you have to pay.
A measure of just how broken the pay before you play business model is on the AppStore is that Neil Young has just cancelled the latest iteration of one of his biggest properties, Rolando 3. It was just not worth throwing good money after bad. The IP isn’t dead though, obviously, it will just appear in a new micropayment form.
So the lesson here is that the AppStore is a broken business model for selling Apps. But you can still make money and do good business on iPhone, it is just a matter of selling a service instead of a product. This is a very big and very serious lesson for the whole future of gaming.