Apple declares itself winner of handheld gaming

“There are three kinds of lies: lies, damned lies, and statistics.” So goes a common saying warning us about the ease with which statistical data can be manipulated to arrive at just about any conclusion one could desire. According to an article on CNBC, it appears that Steve Jobs’ infamous reality distortion field was in full swing at Apple’s Wednesday tech conference and new product unveiling. Jobs has claimed victory for the iPod Touch in the portable gaming market, boldly stating that it is “the number one portable game player in the world” and that the device “outsells Nintendo and Sony’s portable game players combined.” To wit, CNBC reports that 1.5 billion game and entertainment apps have been downloaded for iPod Touch alone. But does this really mean that Sony or Nintendo have been beaten at their own game in any meaningful way? Much like Microsoft’s recent amusing abuse of fuzzy math to claim that the Kinect is cheaper than either a Wii or a Move-equipped PS3, the audacious boasting and trotting out of impressive numbers are effective strategies for glossing over the details of the situation.

Yes, 1.5 billion downloads is no small feat, and Apple has made serious headway towards making their presence known as a major player in the gaming market. However, it bears mentioning that Apple didn’t specify whether those were 1.5 billion paid downloads. I’d be willing to bet that a sizable chunk of those downloads were from the app store’s selection of free games. Furthermore, the average iPhone game costs $1.24, while most DS and PSP titles carry an MSRP between $19.99 – $39.99, which means the 1.5 billion downloads are not all necessarily generating that much money for Apple. And while 1.5 billion sounds huge, market research has found that most iPhone users abandon downloaded applications after the first use, with only one percent of total downloads resulting in a long-term audience. While it’s valuable to establish the iPod and other iPhone OS devices as a gaming brand, all those free downloads are not generating revenue for Apple, and it’s questionable how many long-term customers these apps are actually bringing into the fold. Which brings us to the central question: Isn’t the point of dominating any given market to make money?

To investigate this question, I looked at market research data which sheds some light on the all-important issue of how the actual revenue of the market is divided. As shown by the estimates represented in Flurry Analytics’ pie charts, following the money tells a very different story about which portable platform is the current 500 pound gorilla. The charts tell us that according to estimates based on the most recent NPD Group figures from 2009, iPhone OS software (a.k.a. games purchased from the app store and played on the iPad, iPod Touch, and iPhone) generated 19% of total US portable game software revenue, beating out the PSP’s share, which was 11%. But the Nintendo DS came away with the lion’s share, claiming 70% of the total revenue. Flurry estimates that portable gaming generated $2.55 billion in 2009, and the 19% of that going into Apple’s pocket sure isn’t chump change, but I contend that Apple going ahead and declaring themselves the winners at this juncture is jumping the gun and intentionally misleading.

When scrutinizing the finer details, we must also consider that in the gaming industry, immediate profits are sometimes considered a bonus, not an essential step, while a company focuses on establishing its brand. For evidence of this, one need only look at Microsoft’s championing of the loss-leader model with their original Xbox platform. Forbes magazine stated in 2005 that the Xbox cost Microsoft $4 billion dollars, indicating that this represented an investment in a business venture that could become profitable in the future. Finally, just two years ago, Xbox’s game division reported its very first profitable year. Only companies such as Microsoft and Apple with billions of dollars collecting dust in their coffers could afford to take the risk of an initially unprofitable business venture, and that is precisely what they’ve done. The lesson here is that there is a delicate balance to be struck when investing in a product’s long-term success, and that accepting low profits or dips into the red now can lead to eventual success later, however we choose to define it. This could spell good news for Apple as it challenges Nintendo and Sony for a bigger slice of the pie. Remember: the GameCube, with its inexpensive hardware, was profitable over the course of its life to Nintendo. But would anyone truly consider it the victor of the last-gen console wars? Did Nintendo succeed in capturing the attention of worldwide audiences and boosting the popularity of their brand during that time? All but the most diehard fans would have to concede that sometimes, simply turning a profit doesn’t mean everything. The Xbox narrowly beat out the GameCube in hardware sales around the world (with the notable exception of Japan, where the Xbox floundered), and the PS2 handily trounced them both.

In short, Microsoft took a hit to nurture the Xbox, and while they are not close to beating Nintendo in hardware sales this generation, they are finally turning a profit and squeaking ahead of the PS3 in worldwide sales numbers – a complete reversal from their initial foray into the console market. Nintendo kept manufacturing costs low to ensure they made money with the GameCube, but it was still largely overshadowed by the PS2’s staggering 145 million+ hardware sales. So how does Apple’s handheld offering shape up in comparison to the existing industry giants? They have surpassed the PSP in revenue, but can’t yet touch the DS. So they point to the hardware sales, conveniently ignoring the fact that the DS and PSP are marketed primarily as gaming devices, while most people seem to buy iPhones, iPods and iPads for making calls, listening to music, and browsing the web, with game purchases resulting as an afterthought. Case in point: I have yet to see an iPod Touch for sale at my local GameStop, but there are DS and PSP systems and titles lining the aisles in spades. As such, Apple’s attempt to swoop in and claim domination of the portable market by virtue of the fact that consumers are buying phones and music players that just so happen to play games seems a little sketchy.

Then there is the pricing structure to consider. Console price can be a huge barrier of entry, especially for casual gamers. Some purely anecdotal ramblings here: I own and love both a DS Lite and a 32 GB 2nd gen iPod Touch. I bought the former to play games, and the latter to play music, and both were purchased at launch. To date I have downloaded five gaming apps for my Touch, and have not paid one cent for any of them (they were all free games). Having spent much more for my iPod ($399) than my DS ($129), I am having a hard time justifying spending any more money for downloadable content when I only really bought the iPod to play my existing music collection. I can only imagine this point being more significant for iPhone owners, who must contend with ongoing bills for the data plan on top of the cost of the phone. Given an average DS game price of $30, I could buy 9 DS games in addition to a new DS Lite before I had spent $399 for an iPod with zero games. And based strictly on my opinion as a hardcore gamer, I’d take a handful of games designed for a device that was created from the ground up as a gaming system, and which include all the franchises I love, over the current most inexpensive model of iPod Touch ($229) and the overwhelmingly huge app store with its litany of casual games and distinct lack of original IPs any day.

Some thoughts to swish around: Would you buy an iPhone OS device primarily as a gaming system? Do you play games on your iPhone, iPod, or iPad more often than your DS or PSP? Which device do you actually spend the most money on for games? Do you consider the iPhone OS family to be true handheld gaming devices? And finally, do you think Steve Jobs is right to claim the title of “number one portable game player” for the iPod Touch for its hardware sales, or should number one status be reserved for the company with the biggest sales of gaming software?

24 Responses to Apple declares itself winner of handheld gaming

  1. I’d also like to know whether or not that includes paid downloads. I have well over 50 games on my iPhone, and I only paid for 10 of them (or less). The rest were free through promotional programs like OpenFeint and FreeAppADay.

  2. gamecollector44 says:

    Wow… um… they’re full of it. T-T

  3. _oMeGa_ says:

    Yes, because who doesn’t love missing the nonexistent buttons half the time in games that are either half-assed ports or original games that are rarely better than your average shovelware.

  4. mrredstuff says:

    i havent played my ds in ages, though i love it when i play it, but just haven’t, i have my ipod touch on me everywhere, and iv only ever brought one game, angry birds for 59p aha and have a bunch of free stuff otherwise.
    so yes iv spent alot more on my ds, ipod touch games are great for whipping out when board, but cant compare to the depth of most ds games. and the touch is just smaller, cooler and has everything id ever need on it (part from camera but have proper one for that aha).

    so the 3ds looks all wicked and stuff, but unless it gets small enough to have in my pockets without it being uncomfortable and having a big square in my jeans every where i go, i wont take it everywhere like my ipod. i might take it to college sometimes and holidays but id love to have a nintendo handheld with everything i need with me all the time to replace my touch, just for the quality of the games

  5. Xelpud says:

    Good article, but there’s also another important bit I noticed, they claim that because the iPod Touch has outsold the DS, it is therefor the number one portable gaming system. What they fail to mention is how many people actually use it AS a portable gaming system. While I know many people whom own an iPod Touch, the majority of them either don’t play any games on them, electing to use the system primarily as a media player, or as you mentioned, play very few games, with most of them being free ones.

    Well, just a little food for thought.

  6. EdEN says:

    Sorry Steve Jobs, but this is complete bull. I’m betting they count all the free, lite, demo or beta downloads of games released in the app store as part of that number. I do my portable gaming on my DS and not having buttons is a big no-no for gaming on the iPad/iPod/iPhone.

  7. Eolirin says:

    You would never by the iPod Touch or an iPhone as a primary gaming device.

    Unfortunately for the market, whether a device is purchased primarily for a task or not isn’t entirely relevant. You don’t sign up to Facebook for the games either, but that doesn’t mean you won’t play them, and potentially a lot. This shouldn’t be viewed in terms of market share or revenues, but in terms of the ability for the iPod Touch and iPhone to act as ways to deny access to market segments.

    The DS’s expansion relied a lot on casual and non-gamers. The iPod and iPhone are great gateways to small cheap gaming for non-gamers, that have actual utility. Someone who has a reason to buy an iPod or an iPhone will do so for *that* reason, and then all of a sudden they have access to games. To reverse your barrier to entry comment: If you own a 400 dollar iPhone, which you got to use as a phone, are you going to spend another 150 dollars for a DSi and then 30-40 dollars a game, or are you going to simply buy a few 2 dollar games from the AppStore? If you’re not primarily a gamer the math for dedicated gaming systems doesn’t even remotely make sense.

    In the end, Apple may end up simply blocking Nintendo’s access to new markets. Given the increasing costs of bigger games, that’ll very likely result in market contraction. Apple got the direction on this one right; while it’s generally not particularly useful to add multi-media functions into a dedicated game platform (though the 3ds may dodge that due to the 3d display) because the core audience is interested in gaming and not that likely to want to use their systems for music or movies (and the form factor doesn’t help), doing it the other way around makes a *lot* of sense, since most people aren’t really that interested in gaming in the first place. It becomes a trojan horse, getting gaming into the hands of more people that wouldn’t otherwise be interested. But the real kicker is that those sorts of people aren’t necessarily looking for big complex experiences, so there’s no bridge to the other systems; all it does is bottle up that part of the market and deny it to the dedicated hardware developers.

    Apple wins by containing Nintendo, preventing growth, until Nintendo cannot continue to afford it’s market.

  8. Eolirin says:

    Oh, to clarify, I find what I just wrote incredibly depressing, especially since Apple’s foray into gaming was more accident than anything else.

    But dedicated gaming hardware isn’t a winning proposition. Especially as devices become increasingly connected to the internet all the time.

  9. Toadofsky says:

    Just Jobs throwing meat to the apple fanboys in the audience…

  10. Verius says:

    The iPod Touch may be a contender in the future, but for now, its just for bite sized games to fill up the 15 minutes between classes or the 5 minute wait for the bus to arrive. I don’t own an iPod touch but most of the people I know use it as a media player and rarely do they use it for games (besides the odd game or two to fill up the 10-20 minutes they were waiting for someone)

    I’d rather be playing my games on a dedicated gaming handheld that has all my favourite franchises and have a dedicated media player that compliments it on the side. In my opinion, something that does the Jack-of-all-trades thing usually doesn’t do to well at the different things it has to offer. Specialization in one thing and it will do well in what it was designed for.

  11. Lance says:

    I play more games on my DS and buy more games for my DS and gaming consoles. I buy my products for their primary use. I didn’t buy my Xbox 360 to be a DVD player. I would buy an iPhone mainly for music and calling people. Sure I’ll get a couple of games, primarily Zenonia (Don’t know if I spelled that right, good game too.) but that would be for use while on break at work. Don’t want to risk breaking my DS. However, I’m curious about one fact. They are comparing their sales total to the DS. Which DS are they talking about. They got four different DS types to compare to, or is it altogether?

    Either way, DS has Zelda, Mario, and Metroid. iPhone doesn’t really have anything memorable, other than Zenonia.

  12. Eolirin says:

    @Verius, “The iPod Touch may be a contender in the future, but for now, its just for bite sized games to fill up the 15 minutes between classes or the 5 minute wait for the bus to arrive. I don’t own an iPod touch but most of the people I know use it as a media player and rarely do they use it for games (besides the odd game or two to fill up the 10-20 minutes they were waiting for someone)”

    This assumes that the market for bite sized games isn’t drastically larger than the market for longer more complicated games. All signs point toward the bite sized market segment being te one to bet on though. The iPod is a contender not because it’ll ever create an experience that’s anywhere near traditional gaming, but because it’ll render traditional gaming utterly irrelevant to the markets.

    Also, specialization doesn’t really matter for gaming when your audience doesn’t really care about gaming, but uses it to fill dead time. You specialize for the music or the phone or the web; the games are an obvious afterthought but that doesn’t matter, because they’re there, and they’re “good enough” for the group that buys into your product. And that group is legion. Not everyone games, or sees gaming as intrinsically valuable, or cares about deep, long, complex, story driven, or immersive games. The market for time wasters is much larger than the market for RPGs. Or platformers. Or strategy games. Or whatever. And your barrier to entry is significantly lower, even when your prices are higher, because everyone uses a phone, everyone listens to music, everyone watches movies. Selling a phone or a media player is easy; having gaming on it only adds value, especially because your audience doesn’t really care about gaming. But only dedicated gamers buy game machines; it’s a hard sell outside that market.

  13. Verius says:

    @Eolirin Most people I know that own an iOS device buy it not for the games but for the phone/music function. And most of them also own a handheld gaming console for the sole reason of gaming.

  14. ac says:

    well, there’s no doubt apple games are getting better and better as time goes on. did anyone see the demo of project sword? i have no doubt they will be a player eventually in the portable market. however, the twisting of the numbers is just plain wrong.

  15. ac says:

    @lance, there’s quite a bit more than ‘zenonia’. you just aren’t in the know it appears. here’s just a few ‘deep’ games for you to try:

    myst
    highborn
    epic citadel
    seed 1
    fighting fantasy (warlock on firetop mountain)
    nethack
    the quest
    undercroft
    uniwar
    catacombs
    medieval
    warlords
    streetfighter 4
    space invaders infinity gene
    shining force
    canabalt
    helsing’s fire
    dragon’s lair
    dungeons & dice
    megaman II
    ghosts & goblins gold knights
    civilization revolution
    clue

    while on the surface, all there seems to just are 5 minute time waster games……there are actually a significant amount of deeper games if you know where to look. and it improves by the week.

  16. llaffer says:

    I have had at least one model of every DS released, an iPod Touch gen1, and recently an Andriod 2.1 phone.

    Do they play games, yes. Would I call the latter two gaming machines? No.

    I’ve not played a game on my iPod in months (thanks DQIX for taking that time away 🙂

    I have found a few things that I would play on my Andriod phone (NES/SNES emulators mainly) but playing on the virtual and slide-out keypads are just annoying.

    I’m waiting for the software that will allow a Wii Remote to connect to my phone so I can use that as a controller, then I’ll be able to play games a little easier than trying to use the current controlls. This software exists today, but meant for older phones. The author hasn’t yet put out an update that will work with the newer phones yet.

  17. Marcus says:

    @ac: I’m a major fan of Myst, and of the Riven port which will soon be coming to the iPhone/Pod/Pad store.

    On topic, for Jobs to say he’s “dominating” the “handheld gaming” market should mean that they dominate all aspects of it. Not just in bit-sized micro-games, but in deep RPGs, first-person shooters, everything.

    If he wants to “dominate” the market, he should dominate the entire market. To say otherwise is to terribly twist words and numbers. That’d be like saying that a movie is now the #1 best-selling movie in the world just because it brought in more revenue, but didn’t sell a greater quantity of tickets. The idea of “best selling” implies that you not only beat out other movies in income, but in number of sales as well. (See what I did there? 50$ to whoever caught the reference.)

  18. Mohan says:

    Ahh nothing like crowing yourself! Stupid Apple!

  19. BlueRocks says:

    I am with @llaffer on this one. Especially the DQIX comment. I just finished the main story and would like to continue questing/alchemizing/battling but my son wants his turn at it. I played it for over 100 hours.

    I have three free games on my ipod touch (I did just get it last month). I haven’t played any of those three after the initial try.

    My wife asked why I wanted the ipod touch when I already had a Blackberry Bold that can play music. I asked her why she has an electric mixer when a fork would do the same job.

    Just because something can perform a task doesn’t mean it should. I’ll keep the ipod touch for the music/photos/apps, my Blackberry Bold for the phone/email/internet, and my DSi for ALL THINGS GAMING.

  20. Rob says:

    An story: My mother likes hidden object games and wanted to buy a DS after she played Mystery Case files on my DS. She also wanted a music player. I told her to skip the DS and buy and iPod Touch. Why? Well I could only think of a few hidden object games for the DS and I didn’t see anymore in the upcoming lists of future releases. The iTunes store seems to have new ones every week or so. If she got a DS, it would be collecting dust. She plays on her iPod Touch almost every day.

    Steve Jobs might have been boasting, but I wonder if the game developers agree with him. In this economy, where developers are closing or merging, will they prefer the iTunes store where they can cheaply distribute games on their own schedule, versus whatever it is they have to do to get a game cartridge into Walmart or Gamestop?

    Now Apple is adding social gaming to the mix, and Sony is rumored to be merging the PSP with a cell phone. And what is Nintendo’s response? A DS that does 3D. Big whoop. Way to not get the point guys!

  21. Josh says:

    While I love the DS and there are so many amazing and deep games for it, the fact of the matter is that I never play it anymore. I have my iPhone with me at all times, and for that reason alone, I play games on it all the time too. Here is what I’m currently playing:

    Shining Force (super convenient, instantly loads where you left off)
    Sim City
    Final Fantasy
    Words with Friends (scrabble clone)
    Peggle
    Civilization
    Phantasy Star II
    Doom

    Final Fantasy Tactics and Secret of Mana are coming out soon…

    It’s only going to get worse for Nintendo. Luckily, the 3DS looks really awesome. They have to get people excited again so they can overcome the convenience factor that is Apple’s download service.

  22. bananaoomarang says:

    whataever Steve Jobs says, the iphone is no threat to handheld gaming. The market is COMPLETLY different. There is not a single ‘quality’ psp or ds level game on the app store. what makes the app store money is things like angry birds (which I have played alot), incredibly addictive ‘mini games’, not a real replacement for LoZ:OoT is it? Square have made some good ones but I certainly wouldn’t call any of them ‘console level’. However Nintendo should tap into the app store idea by making it MUCH easier to get a dev kit and license currently, all there aren’t many ‘normal people’ indie devs for wiiware and dsiware and nintendo’s online support is TERRIBLE. copy xbox live, they’ve got the innovation, just not the good online experience. I wish Iwata would actually realise that not everywhere is like Japan, where everywhere is a wifi hotspot and people play games in the streets.

  23. srkelley says:

    I need the new 32 Gig iPod touch. Needs it badly. Need it and a very good Advance Wars clone.

  24. james braselton says:

    hi there srkelley you say you need the new 32 ipod touch what about a 64 gb ipod touch

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