Portable Gaming is Another Big Mobile Battleground

Apparently Satoru Iwata, President of Nintendo, was giving the keynote at the Game Developer’s Conference at the Moscone Center, basically across the street from the Yerba Buena Center where Apple was announcing iPad 2. While I haven’t heard in detail how much the Apple event impacted attendance at Iwata-san’s talk, I’m sure it had some impact. It was, in some ways, a small vignette in the continuing and growing battleground in portable gaming. I haven’t really dug deeply into the numbers in the portable gaming market, but what data I have seen is telling. The main upshot is that the iPhone has taken a piece out of the market, and away from the Nintendo DS series of portable game consoles and the Sony Playstation Portable line. If you believe some numbers, there are increasing numbers of people playing games on the iPhone and iPod Touch than on the traditional portable game machines, and apparently more game developers are showing interest in iOS devices than Nintendo or Sony.

This battle has been underway the moment the first games were released for iPhone and iPod Touch, but it has only been in the last year or so that iOS has started to take some significant share in the space. This is an important battle, particularly for Nintendo. The DS is a huge platform for gaming, and not just portable gaming, but gaming in general. According to data at VGChartz.com, as of February 19th, the Nintendo DS represents nearly 69% of portable gaming consoles, with 145.5 million units sold since its release. Compare that with the iPhone, which has now sold about 100 million units. Numbers from last September put all iOS device sales at 120 million units (that was combined iPhone, iPod Touch and iPad sales). That data is already 5 months old, so I would expect that iOS device sales have exceeded Nintendo DS sales. Granted, not all of those are used for gaming, but I would expect a significant percentage are, even if only for the occasional casual game like some form of Solitaire.

Okay, that’s interesting, but what does it mean? Gaming in general is a big business, worth billions of dollars in revenue. Sony has other revenue sources, given their broader consumer electronics base, and Microsoft relies on much more than the Xbox 360 for its revenue numbers. But Nintendo relies almost exclusively on game hardware and software sales. What revenue they get that isn’t for gaming gear is from licensed merchandise (like the Pokemon cards, clothes, etc) directly related to gaming. Where Nintendo may be the most vulnerable in the long term is in the casual game market: they pretty much own that in the living room and on the go. Having to compete with devices that, at least at the low end, are comparable or within a reasonable percentage price-wise, and have a large selection of games will be difficult for Nintendo.

However, all is not lost for the gaming companies, because their value really isn’t in the hardware. The real value, and the key to their long-term survival, is in their software and the game franchises. Some of the biggest franchises in gaming belong to Nintendo, Sony and Microsoft. The Pokemon series of games is exclusive to Nintendo, as is the Mario franchise. LittleBigPlanet is a Sony property. Halo is under Microsoft’s umbrella. These franchises, and the others that these companies own could keep them alive by adding support for iOS, Android and other mobile platforms.

I think that it would be foolish, in the medium and long-term, for Sony, Microsoft and Nintendo to try to compete on hardware. As with dedicated devices like eBook readers, they will find that trying to attract people to their platforms will be increasingly difficult over time. Their gameplay may be superior, but to also try to compete on general-purpose functions like web browsing, productivity, social media and other communications, becomes a very, very steep hill to climb. I know that I’m not sure if I will buy the next generation of PSP. I bought the first generation, and then got the PSP Go, and while they have games that I like to play on them that aren’t available on iOS, I’m not sure I want to kick out a few hundred bucks for a machine that I won’t use much, if at all. My PSP Go has stayed on my desk, battery drained, for the better part of a year now. It didn’t go with me on any of the trips I took over the past 12 months. Why bother? It’s another device and another charger I have to drag around. I already bring my iPhone, iPad and a laptop on some trips (and for casual/vacation-type trips, I only bring the iPhone and the iPad). I’ve been trying to bring fewer electronic devices with me, and I am disinclined to add a new PSP back into the mix.

This battle isn’t over by a long-shot, but I’m not confident that dedicated portable game consoles are going to continue to dominate portable gaming. They will probably still exist in some form for a long while. But I suspect general purpose mobile devices like smartphones and tablets will continue to erode their position. Watch for Nintendo to release versions of Mario and Pokemon games for other platforms in the coming years, and for Sony and Microsoft to eventually do something similar. It is their best chance at long-term survival.