The unexpected winner from Apple's App store success are mobile games — they comprise twenty percent of all app sales on the iPhone and top the best-seller lists. And the unlikely winner among the thousands of mobile games is "Angry Birds."
It's a simple, addictive game, in which you throw fat angry birds at evil pigs — more akin to the early days of Nintendo than the sophisticated graphics in today's console games. And the success of Angry Birdspoints to a huge opportunity for investors — and areas where they should be wary.
Angry Birds has been downloaded 50 million times around the world, making it the most popular paid app in the US.
Unfortunately, this gold mine is an un-investable one: a private Finnish company called Rovio spent $100,000 to build the app. There are no official revenue numbers, but there's no question that the margins are through the roof. The company has generated more than $8 million from downloads of its 99 cent iPhone app. It's $4.99 HD iPad app is the best-selling app on the iPad this year. And the free, ad-supported Angry Birds Android app has been downloaded 30 million times. That should translate easily to $1 million in monthly ad revenue.
How do you invest?
Many of the companies like Rovio, that create mobile apps are private, but of all the public companies Electronic Arts is best positioned to profit from this space. The second most popular paid app in the U.S. is "Cut the Rope," from Chillingo, a developer that focused on iPad and iPhone apps Electronic Arts bought in October of this year. And a year ago Electronic Arts bought Playfish, which is the second largest social gaming company behind 'Zynga.' Its games like "Restaurant City" or "Word Society" are a natural fit for mobile devices. Stern Agee managing director Arvind Bhatia says that Electronic Arts' mobile revenue is just about five percent of their business, but it's growing far faster than the other parts of the company.
Not all video game giants are as invested in mobile games — rival Activision Blizzard isn't investing heavily in stand-alone mobile games as Electronic Arts is. The company is adapting some of its popular titles like 'Guitar Hero,' for the mobile platform, but it isn't betting big on stand-alone games.
But watch out — the public gaming companies including Electronic Arts and Activision Blizzard, along with Ubisoft and Take Two Interactive, could very well snap up some of these private developers like Rovio.
What should you avoid?
Mobile games pose a direct threat to hand-held players like Nintendo's DS and the Sony PSP. Why buy a dedicated gaming device to entertain your kid (or yourself) on a long car ride if you can just use something you already own — your phone — at marginal additional cost?
With the growth of the tablet market next year, and new versions from Apple and the likes of Samsung, we can bet hand-hold gaming devices will feel even more heat. The big question now is whether Nintendo's glasses-free 3-D hand-held player, the Nintendo 3DS, which launches in March, will make a portable game player a must-buy again.
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