Changing the Video Game Industry—One App at a Time

As the iPhone has become a more powerful force in the video game industry, it's not just customers that Apple is stealing away. More and more developers are switching allegiances as well.

Courtesy of Booyah

The flagging fortunes of the traditional game business, along with its increasing reliance on franchises, rather than new intellectual property, has spurred several developers to launch their own studios that focus on Apple’s popular smart phone.

“The console business is transitioning into a very difficult place right now,” says Simon Jeffery, chief publishing officer at ngmoco, a leading iPhone development studio. “It has become a business that’s getting real expensive. The barrier to entry is huge. The cost of failure is huge. And innovation is somewhat being stifled. … The iPhone space is different. It feels like the console space felt like during the days of the (Sega) Genesis and the Super Nintendo. There’s a lot of room for creativity and innovation.”

Jeffery would know. His last job was president and COO of Sega. Last June he made the jump to ngmoco, a studio founded 18 months ago by Neil Young, who left a senior role at Electronic Arts to start the company.

Unlike traditional games, which can take three years and $30 million to create, iPhone games have a fast development cycle. Taking an idea from concept to initial release can happen in just two months — usually at a cost of less than $500,000.

And unlike console games, which are essentially unchangeable once they hit store shelves, iPhone games are expected to evolve. They are, in some ways, like Web sites. They’re released quickly — and then regularly improved.

“It has been a great learning experience,” says Keith Lee, CEO and co-founder of Booyah. “[The games are] not something that have to be perfect and have a grand reveal every three or four years.”

Lee left Blizzard Entertainment, widely considered the best developer in the video game industry, to start Booyah with two partners. Last April, the trio landed $4.5 million in Venture Capital funding from Kleiner Perkins Caulfield & Byers.

The company makes what it calls “real world games” — such as MyTown, which currently has over 500,000 users.

Courtesy of ngmoco

“We wanted to recreate the experience that made people play hundreds of hours in ‘World of Warcraft,’ but do so in a way that would help them achieve things in the real world,” he says.

Most traditional publishers haven’t paid a lot of attention to the iPhone as a gaming platform yet. EA has several games, but others, like Take Two Interactive Software only have a handful of releases. The reason’s simple: Revenues for iPhone games don’t match traditional releases, and therefore don’t move the needle for the company’s earnings.

“Apart from a couple of companies — like EA — most publishers view the mobile space as incidental,” says Jeffrey. “It’s a licensing opportunity, perhaps a way of expanding franchises across multiple platforms. It feels like they’re being opportunistic, rather than strategic, in this space.”

But iPhone developers operate much leaner ships than big publishers. Manufacturing costs are non-existent, since all releases are digital. They don’t have to pay big licensing fees to Microsoft , Sony or Nintendo . And since they both create and publish their titles, they have much more control over pricing — and when to run specials.

In the meantime, they’re all hunting for the one big title that will help them break away from the pack.

“The iPhone is becoming the closet thing most of us have known to a ubiquitous device in the US,” says Jeffery. “If you’re talking to someone who doesn’t have an iPhone, it’s probably because they work for Microsoft or BlackBerry. … [Developing for the platform] feels a little like the fabled gold rush of the 1800s. Everyone knows there’s gold in the hills, but it hasn’t been found yet.”