In a world full of answers you start your journey by asking the right questions
To break even on the web you need to generate 100 times the traffic. That’s why when we say Analog Dollars = Digital Pennies it means exactly that. Today $1 of revenue offline translates into 1 cent in revenue online.
So how about the mobile web. What’s the story there? How does the iPhone stack up against the established console game sales for the major publishers?
Earlier on this year the market was abuzz with stories of the iPhone Gaming GoldMine (See iPhone games put the heat on Sony, Nintendo, Apple’s iPhone is a developer’s goldmine and Coder’s Half-Million-Dollar Baby Proves iPhone Gold Rush Is Still On). “How to” articles were also very popular at that time. (See GigaOm’s How To Make Money From iPhone Games and HubPages How To Make Money With iPhone Apps and BusinessWeek’s How to Make Money off Free iPhone Games).
The excitement wasn’t limited to the iPhone. (See developers can make money developing games for the Android).
The big advantage of developing games for the iPhone is you don’t need to be a major publisher to break into the market. Compared to the console market the barriers to entry are extremely low. Plus, as David Perry points out in his guest posting for LightSpeed Venture Partners, there are many business models for games developers. Which is great news for the weekend code warriors and small startups who are happy developing one or two hit wonders. But even here you need to watch out because iPhone long tails too.
Last month saw a bit of a revival of the “iGames” GoldMine theme. The Wall St Journal reported Apple Emerges as Nintendo’s Game Rival as Japan Giant’s Lead in Hand-Held Devices Is Under Pressure From iPhone, iPod Touch. While CrunchBased announced iPhone gaming could overtake Nintendo, Sony by 2014 and MobileCrunch followed up with Playmesh Tops the Charts with #1 Game on the iPhone: iFarm downloaded 1 million times in 10 days.
All of which means its easy to see why the market continues to excited about this new mobile games platform and why the industry predictions of growth in iPhone Games $46 million in 2008 to more than $2.8 billion in 2014 have some substance.
What I found most revealing in this last post was the news that “… the top social gaming companies on the iPhone are not the same ones you know of from Facebook and MySpace.”
This news should come as no surprise because, as we are all quickly discovering, the Mobile Web is a very different ecosystem to the Desktop Web.
Success on the Desktop Web is about as much a predictor for successes on the Mobile Web as success on TV or Print was a predictor of success on the Desktop Web.
So is all this excitement warranted or do Analog Dollars = Digital Pennies on the Mobile Web as well? We hear a lot of stories about the weekend code warriors breaking into the big time for a weekend but what about the mainstream games publishers? Is the iPhone a profitable new market for them or is it just cannibalising their existing business?
The problem is trying to gather accurate data to answer the question with any authority.
At the moment Apple doesn’t release the sales figures so it is hard to tell how many copies of the top-selling iPhone game have been downloaded from the App Store. But we do have some new market data released by Venturebeat on the 26-1-2010 (See Pocket God sells 2M units on the iPhone, and claims to be the first paid app to do so) that we can use to find out if the iPhone is a profitable platfrom for the mainstream publishers.
Crash Bandicoot Nitro Cart 3-D was one of the (if not the) most popular paid iPhone Games in the first year of operations at the App Store. Let’s say it sold for $59.90 when it was first released as a Playstation Game in 2003. Today it sells for $3.99 at the App Store. But I seem to remember it retailed for around the $10 mark when it was launched. So let’s average the figure out at $5.99.
So this means the iPhone version of the game is worth about 1/10 the price of the original console game. You can probably see where I’m heading with this but let’s keep going. You may be in for a surprise.
Having established a price let’s now see if we can make an estimate on the number of downloads.
The Crash Bandicoot Series has reportedly sold 40 million copies world-wide as a console game since its release in 1996. So that’s roughly 3 million copies per year on average. So that is our “Analog” benchmark 3 million copies per annum.
So the sales revenue estimates look like this:
What we see immediately is the console game vs. the $0.99 PocketGod iPhone game is a clear case of Analog Dollars = Digital Pennies.
But what about the Crash Bandicoot estimate? Is this also a case of Analog Dollars = Digital Pennies? After all we have sold half the number of copies at 1/10th the price.
Let’s begin by remove the retailing costs from the equation.
The publisher’s margin on retail console and PC games can be anything from 15%-40% of the recommended retail price. It all depends how big the publisher is, how big the retailer is and how much it costs to manufacture, package, distribute and promote the CD. So the publisher’s margin after shipping 3 million console games could be anywhere in between $27 to $72 million.
The advantage the App Store offers over traditional games publishing is you don’t need to worry about replication, packaging, distribution, shipping, returns and other retailing handling issues. So even with Apple’s 30% cut the publishing and retail costs for publishing an iPhone Game are a fraction of costs for publishing a traditional console game.
For example, Venturebeat suggests the cost of promoting an iPhone app to get to the No. 1 spot will cost $250,000.
In this case Apple’s margin is $2.7 Million. This leaves the Publisher with $6.3 Million.
The result calculated here is not quite Analog Dollars = Digital Pennies but it does suggest that established games publishers are only receiving a fraction (i.e. 10%-25%) of the revenues of the original console games when they republish a game on the iPhone platform.
“Traditional publishers are not getting a return on game development investment… The cost for an hour of console and handheld game entertainment (single player games) is about $1 or $2. On World of Warcraft, the massively multiplayer online game, the cost is about 50 cents. And on casual game platforms such as the iPhone, the cost is pennies per hour.” – Venture Beat 11-2-2010
This may change if the population of iPhone owners increases 10 to 20 fold but for now the iPhone remains a niche platform more attune to the revenue expectations of Indie developers than mainstream games publishers.