Apple: At Last, A Gaming Contender

Officially, Apple has no presence at E3, the Electronic Entertainment Expo running through June 4 in Los Angeles. The company isn’t hosting a booth and it’s not taking meetings.

But it’s shadow is everywhere.

Courtesy of Apple IPhone 3G

Three years ago, Apple was a joke in the gaming world. The most popular game on the system, cynics joked, was Photoshop. Today, it’s a significant threat to Microsoft , Sony and Nintendo.

The iPhone and iPod Touch have nearly 11,000 games available via the Apple App Store. And while there are countless ones you’d never consider playing, many show more creativity than anything coming from any of the major video game companies.

In a short time, both devices have become serious challengers to the Nintendo DS and Sony PSP. The hardware is more expensive, but games are cheaper — and a lot easier to get when the mood strikes you.

Nintendo still holds a dominant lead in the portable gaming market, with over 100 million DS units sold. The PSP is second, selling over 50 million — and will likely see a spike when the PSP Go hits shelves later this year. The iPhone/”iTouch” combo is coming on strong, though, with life to date sales currently totaling 37 million units.

Apple’s a threat in more than just the portable field, too. Analysts and industry executives both believe it’s just a matter of time before the company opts to go head to head with the Xbox 360, PlayStation 3 and Wii.

“It’s going to happen,” says Mike Hickey, an analyst with Janco Partners. “I don’t know if they would [create a new console] or if they want to do … something through an existing product, like Apple TV, though.”

Ubisoft’s CEO seems to agree. In a conference call following the company’s earnings announcement last week, Yves Guillemot told analysts:

"What we see for the future is there will … be a big announcement in interfaces. It will not only happen in consoles but also happen on those TV boxes as well. … There's also a new entrant in the business — Apple, with the iPhone. And we don't think they will stop there."

Extending the App store to a set-top box or more traditional console could do more than widen Apple’s customer base, it could also have a dramatic impact on software development.

What has made the App store so unique is its openness to user-contributed material. Suddenly, small development houses  (or one-man bands) can compete with major publishers on even ground. They might not have the experience level, but they also don’t have the overhead.

“Making a game for the 360 or the PS3 costs $20 million to $30 million,” says Hickey. “That really limits and stifles experimentation and creativity. … Apple could take it outside of that and allow people to take their creativity and give [game development] a shot. That’s how you move the industry forward.”

iPhone developers, not surprisingly, echo his comments.

Social Gaming Network has made several titles for the Apple device, including iBowl and a forthcoming fighter jet game, which will allow players to compete against each other in real time, using the iPhone’s 3G connection.

iPhone Links:

• Video: Apps That Can Save You Money
• Opera Passes iPhone in Mobile-Browser Market

CEO Shervin Pishevar says he believes Apple is positioning itself to repeat history.

“I think the iPhone is going to do to the gaming world what the iPod did to the music world,” he says. “When the iPod came out, there were many music players out there, but it went on to dominate the field – and it did that because it amalgamated all the features that people wanted, but didn’t know they wanted. … I would be very surprised if there’s not $1 billion of gaming revenue happening on the iPhone in the next three or four years.”

While hardware manufacturers might have reason to worry about the effects of Apple in the gaming business, third party publishers are in a slightly better position. While they do have to compete against more nimble developers, they have nostalgia on their side.

Taking an existing property and porting it to the iPhone isn’t as hard as you might imagine, according to developers. That opens up enormous catalogs that can be exploited and monetized.

Electronic Arts is already mobilizing on this strategy, with plans to release iPhone versions of “Madden,” “Command and Conquer” and “NBA Live” this year.

Of course, should Apple decide to truly invest itself in the gaming industry, it’s not inconceivable that it could take on game publishers as well.

“Certainly, the music genre is huge for the videogame space and they should be able to take advantage of that,” says Hickey. “Look at ‘Guitar Hero’ and ‘DJ Hero’. They have all the music already through iTunes. If they could create or partner [with Activision on a game like that, they could utilize the player’s existing library.”

More E3 Coverage:

• E3: Microsoft Comes Out Swinging with 'Project Natal'
• Gaming Gets Social: Facebook And XBox 360 Team Up
• Steven Spielberg Helps Launch XBox 360 Technology
• McCartney, Starr Launch Beatles Rock Band Video Game
• Video Games to Take Center Stage at 2009 E3

© 2009 CNBC.com