Apple’s iPhone Takes Aim at Nintendo, Sony

Apple’s iPhone has enjoyed wild success and has become the top selling phone in America.  Meanwhile, Apple’s App Store business is booming with millions of downloads of the affordable apps found on the site.

At launch, over a third of the applications were games.  And with a rapidly expanding user base — currently at 13 million phones — the handheld is looking to put the heat on Nintendo and Sony’s mobile gaming efforts, an objective that might have been considered laughable when the iPhone first debuted.

Currently 2,000 iPhone games are available with many more on their way. 

Sega Corp. and Id Software Inc. are just a couple of the gaming industry’s power players that are devoting large amounts of money and resources to develop new games for the iPhone.  Drawn to the phone’s touch screen and relatively powerful graphics processor, they’re looking to make the iPhone into a gaming handheld.

One major lure to developers is pure economics.  By directing selling their applications through the App Store, they get a larger cut than they would frequently get going through publishers and retailers for console release.  Also they can develop quick little games which they can sell for a few dollars or give away free in exchange for ad revenue.

Simon Jeffery, the U.S. president of Sega comments, “Games sold via the App Store are the most profitable in terms of any of the formats we work on.”

Sega has sold 500,000 copies of a $10 game called “Super Monkey Ball” for the iPhone and iPod Touch.  The resulting revenue, according to Sega would be equivalent to a rare hit on the Nintendo DS or Sony PSP.  Despite the significantly higher costs of games on these platforms — as much as $30 — Sega is raking in a bigger profit thanks to Apple’s 30-70 cut, which gives 30 percent of revenue to Apple and 70 percent to the developer.

Neil Young, a longtime executive at games publisher Electronic Arts Inc. quit his job to start up Ngmoco Inc., a gaming house dedicated entirely to the iPhone and iPod Touch.  He states, “It feels to me like there’s a real threat to their [Sony’s and Nintendo’s] business from the iPhone.”

Apple CEO Steve Jobs says that roughly 50 million games have been downloaded for the iPhone.  He states, “I think the iPhone and iPod touch may emerge as really viable devices in the mobile games market this holiday season.”

Interestingly, Nintendo does not perceive the competition with Apple as something new.  It says it has long been competing for users’ time with handheld devices.  Says Reggie Fils-Aime, president and chief operating officer of Nintendo’s U.S. division, “Whether you chose to play on your DS or listen to music on your iPod, we’re already in the same competitive space for time.”

Sony on the other hand doesn’t think its competing at all with iPhone.  It scoffs at such comparisons, insisting that the device is only good for quick and frivolous gaming, while its PSP offers in-depth gaming.  John Koller, director of hardware marketing for Sony’s PSP states, “The consumer is using the mobile gaming on the iPhone and iPod Touch as a time waster.”

Perhaps Apple is onto a bit of Nintendo-esque magic, though, in finding a way to reinvent gaming.  Free of the startup costs of cartridge manufacturing and other fees many small start-ups are able to launch games with little previous market experience.  Bart Decrem, a Silicon Valley executive who formed a company called Tapulous Inc. is perhaps the poster child of such efforts.  His game “Tap Tap Revenge” taps into the mojo that made games like Dance Dance Revolution and Guitar Hero popular, by having users tap and shake the phone to various beats as commanded.

Jaguar and Comedy Central are just a couple of the big names to buy advertising on the free ad-supported version.  A $4.99 version has also been released, featuring the band Nine Inch Nails.

John Sims, a bank teller in Denver, who owns both a Nintendo DS and Sony PSP has found his iPhone stealing him away from these competitors.  He states, “I can listen to my iPod and play games at the same time, and when I’m done I can just put it in my pocket.  The short amount of time I’ve had the iPhone, I’ve played more games on that than on my PSP and DS combined.”

Key limitations to the platform include the lack buttons and lack of support.  While Apple has been generous in its distribution setup financially, it has taken a rather indifferent air to its gaming developers.  Many have commented that Steve Jobs and his company “don’t care” about gaming.

Nonetheless drawn to features like the iPhone’s big screen, strong graphics processor, and tilt sensor, more and more game developers are investing in the iPhone.  Whether it can truly pass Nintendo and Sony remains to be seen, but it has already established itself as a competitor.

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