The iOS & Android mobile game revenue has jumped from 19% to 58% in 3 years. While these numbers are only percentages and do not reflect an overall growth in the market, it does make one thing very clear: the dedicated handheld gaming devices are losing market share big time. And just as the 3DS has failed to inspire consumers so will in all likelihood the PS Vita.

To me the reason is simple: both devices have seized to be attractive to most consumers because they are purely gaming devices, not multi-purpose run-any-kind-of-app devices like Smartphones. Oh, and you can’t make phone calls with them either.

Given the choice, consumers opt for the sleek multi-purpose devices that offer thousands of apps at very low prices. Compare that to the 3DS and Vita, where most games are sold in the range from $30 to $50. It doesn’t take a genius to figure out that you get 10 to 50 games on a smartphone for the same price. A lot more if you consider all the free games and apps.

It also reminds me of the time when Sega released the Dreamcast and pulled it from the market one year later, to become a pure software developer and publisher. Suddenly, we’ve started seeing their flagship characters like Sonic on other consoles. I expect that Nintendo will eventually budge, quit handheld gaming device production and start to publish their Marios and Zeldas on iOS and Android.

Sony … I kind of expect to just move out of the market altogether. They do not have an exclusive game brand or character that would work on other devices. Uncharted, Metal Gear Solid or God of War on iOS? Never. Little Big Planet? Maybe, but it’s not a very successful brand commercially.

Various sources have stated that the next console generation will also be the last. I believe this is true, and it is starting with the handheld gaming devices.


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2 Responses to “The mobile gaming revolution spells doom for Nintendo 3DS & Sony PS Vita”

  1. stevej says:

    That graph you show is one of the most misleading graphs I’ve seen in years. I understand why Flurry made it so misleading: it’s in their best interest to make the mobile market look better than it really is. It’s their business.

    But I’d like to explain it to your readers before they are mislead about the current state of portable game software revenue.

    1) Never show pie charts over time without also showing the size of the pie.

    For example, from 2010 to 2011, Nintendo and Sony didn’t actually get that much smaller – they dropped $200 million (12.5% decline of revenues). But iOS and Android revenues increased by $800 million (238% increase of revenues). In other words, the pie got a lot bigger. By not showing the size of the pies, Flurry can make it look like Nintendo and Sony got crushed, which isn’t true.

    A study by Parks Associates has confirmed that the mobile phone game market is getting bigger, but not because it is stealing customers from Nintendo and Sony. It is getting bigger because of all the new “casual” players who have never played before. “…the United States gaming population grew from 56 million gamers in 2008 to 135 million in 2011.” (http://bits.blogs.nytimes.com/2011/11/30/nintendo-3ds-sales/).

    2) Always state the primary sources of revenue.

    Games purchased for a Nintendo or Sony handheld cost real money – actual $$$ pulled from the pocket of the consumer. The total revenues from this segment of the market, therefore, can be directly linked to the total spent by consumers.

    In contrast, games “purchased” for an iOS or Android handheld may not have cost the customer any $$$ at all. Instead, the game is likely free with ADVERTISING.

    Why does this matter? It matters because the game developers are also a huge part of the advertisers. This means that one developer’s advertisement expense is another developer’s revenue. In economics, we might call this an “echo chamber”. The economic effect of this is to increase the overall revenues of the industry without increasing the profit. Flurry makes no mention at all of the profitability of the major iOS and Android developers (which appears to be quite bad).

    3) Revenue is not profit

    After subtracting expense from revenue, you get profit. Revenues are great…if you can turn them into profits :)

    But so far, the profitability of iOS and Android games appears to be quite bad. Just look at the financial statements of any publicly traded iOS developer (EA’s Popcap, Glu, etc.) and you’ll see no profits at all. Nothing but losses as far as the eye can see.

    As a final thought, even Zynga is looking ugly these days. They just did their IPO which means they had to publicly release their financials…it’s really not that pretty. Less then 5% of their customers actually earn profits for Zynga…ouch. The market isn’t really impressed either. They Zynga stock has gone straight down since it became available.

    -Steve

  2. 1) That’s what I meant by “numbers are only percentages and do not reflect an overall growth in the market”. Thanks for explaining that in more detail.

    Even though the market is growing, it’s a dangerous situation for Sony & Nintendo’s handheld departments. The reason being that they can not cater to this new demographics, and they don’t get new consumers to buy their devices. That will ultimately make them niche products. They may still be profitable, but both Sony & Nintendo do want to attract some of these new smartphone consumers. So far, they’re failing with their attempts because they apply their old-school thinking, and only marginally improve their existing devices. And in the case of Nintendo, they innovate in the wrong direction because hardly anyone understands why 3D is a good thing to have on such a small screen.

    2 & 3) Agreed, revenue is not profit and therefore a vague statistic. But it can provide a general direction.

    Regarding profits, it’s a double-edged sword. Developers are still trying to understand the new mobile market, and they spend a lot to build teams and technology. On the other side, particularly developing for Nintendo devices isn’t very profitable either (at least it’s very risky market to get into) because of the very strong 1st party games and their fanbase. Also, while big developers struggle to make profits it’s a lot easier for indie and small business developers to make a splash. On Sony & Nintendo devices the indies barely exist at all, which means the big devs happily create their big games without all that competition and can easily stand out from the crowd. On mobile devices it’s not just competition, consumer distraction by sheer quantity may be even a bigger problem for the big developers.

    The real push comes from the fact that developing for mobile devices is a lot less easier and the barrier of entry is extremely low. That’s what makes the mobile market so attractive to all developers and consumers alike. Unless Sony & Nintendo open up their devices, they will be squashed.