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The digital transition–Who is a hero and who is a Zero

By on November 10, 2011

If you’re reading this as it is posted, I should be taking the stage at the London Games Conference to convince 200 gaming industry bigwigs of the companies that I think are going to be winners or losers as digital outstrips physical as the primary way we distribute and experience games.

Here’s my list. Once the conference is over, I’ll update GAMESbrief with whether I was able to convince the audience of my points of view

Zynga – ZERO

It may have been a poster-child for free-to-play and social games, but its continuing cynical approach to retention and monetisation makes Zynga a zero in my mind. It saw an opportunity, exploited it ruthlessly but I feel a tipping point coming.

Time for Zynga to start caring about its customers, or it will realise that no amount of marketing spend can make up for the fact that you have burned through the entire Facebook user base several times.

PlayStation Home – HERO

PlayStation Home is a unsung asset at Sony. Too many, it is a place where brands can advertise to gamers, an unloved, unsung, unused Second Life. To me, it is a console-quality virtual world with an easy purchase system and users who are prepared to spend money on game-related content.

For PlayStation Home to become a hero requires a change of mindset amongst senior SCE executives. If that happens, Home becomes the stealth free-to-play engine of the PlayStation business.

Nimblebit – HERO

The developers of Pocket Frogs and Tiny Tower are making, conservatively, three million bucks from their perfectly-executed free-to-play smartphone strategy. If you have an interest in how to make great, engaging, freemium games, you should check them out.

They’re in my hero list not just for themselves, but as representatives of the opportunity for indie developers to create games that appeal to particular audiences and to make lots of money from them.

Subscription MMOs – ZERO

Subscriptions used to be a holy grail for game publishers. Moving from being able to get one payment of $50 from a customer to getting that upfront payment PLUS $15 a month seemed like an amazing result.

But the truth is that a subscription fee is a cap on revenue. It means that people who barely like your game are paying the same amount as those who love it to bits and pay every day. It means that you can’t offer people the opportunity to pay for different things that they value. It is a limit on the amount of money that you can make, and it is only suited to the most mass-market of products.

There have been recent successes, notably Rift, but subscription MMOs are going the way of the dodo. The flexibility of free-to-play will win.

Handhelds – ZERO

The PS Vita? The 3DS? The iPhone? The iPad? Which do you think is a more generally desirable product.

The handhelds are threatened by ubiquitous, powerful machines that are flexible, do lots of things well, and are sold for massive discounts to people who are paying for mobile phone subscriptions.

The tragedy for handhelds is that some people still want them. Publishers want them because they allow publishers to keep software prices high. Some consumers want them because they are better gaming platforms.

“Some” isn’t enough. It doesn’t take everyone to abandon handhelds, it just takes “enough”. How much is enough? 20%? 30%? The exact figure is unclear, but the portents are frightening.

We’ve seen the last generation of dedicated handhelds.

Gaikai – HERO

image

The future of gaming is through cloud-distribution, not expensive pieces of DRM-enforcing plastic sitting underneath our plasma screens.

I remain deeply sceptical of OnLive’s consumer-facing business model, but Gaikai is building a platform to help companies bring games to consumers instantly.

That makes it a hero in my book.

THQ – ZERO

It feels a little unfair to single out THQ, but they are representative of the “squeezed middle.” I believe that the two options for games are to go big or go niche. THQ is trapped inbetween. I can’t think of a single must-have IP that THQ own. They are competing with the big boys on unequal terms.

I’ve argued before that there is room for 5-7 players at the top table of AAA publishers. I struggle to see THQ earning a place there.

Amazon – HERO

Amazon is responsible for the massive growth in Internet startups through its Amazon Web Services. It has become one of the largest retailers in the world. Its Kindle has begun the transformation of the book publishing market and the Kindle Fire looks like a credible, Android-based competitor to the iPad.

Amazon may not be the sexiest company on the list but it has the broadest view of the opportunities in the market.

4 heroes, 4 zeroes

That’s my list. Do you agree? Who would you add? Who doesn’t deserve to be on the list.

Tell me below.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • Rudders8577

    And who are YOU…ZERO!

  • http://www.gamesbrief.com Nicholas Lovell

    But you came here and read my blog :-)

  • Morfane

    What about Steam?

  • http://www.vindicia.com Sanjay Sarathy

    Nicholas – is your characterization of Amazon specifically based on its role in gaming or based on its overall capability as a content and service enabler?

  • http://twitter.com/UnSubject UnknownSubject

    If handhelds are a zero, what do you think about the next generation of consoles?

  • Mario R Rizzo

    Hey Nicholas, any thoughts on the other major “packaged goods” publishers moving to digital such as EA, Activision Blizzard, Ubisoft, etc…?

  • Phil Driver

    Great presentation last night Nicholas

  • Rob Stevenson

    have to agree with Phil – as always an entertaining presentation delivered with passion and a lot of fun… it will be interesting to see who indeed is a hero or zero – in the fullness of time – but as your last slide said – nothing is written in stone and the zeroes could be be heroes… and vice versa… 

    rob

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  • http://www.gamesbrief.com Nicholas Lovell

    this wasn’t intended to be an exhaustive list. I was highlighting for companies on either side of the digital transition. You can see what I think about steam at  http://www.gamesbrief.com/2010/05/five-reasons-why-steam-will-destroy-the-pc-games-industry/

  • http://www.gamesbrief.com Nicholas Lovell

    I selected Amazon partially as the enormously successful retailer of physical goods on the web, partially because Amazon Web services power so many innovative companies on the web, and partially because the Kindle fire is potentially all that stands between us and the dominant tyranny of Apple. so much more than gaming

  • http://www.gamesbrief.com Nicholas Lovell

    I’m pretty negative about the next generation of consoles, and more so about the one after that. See http://www.gamesbrief.com/2009/12/the-death-of-the-console-a-book-proposal-part-1-of-4/

  • http://www.gamesbrief.com Nicholas Lovell
  • http://www.gamesbrief.com Nicholas Lovell

    thank you. I was decidedly nervous at several bits of it.

  • http://twitter.com/jansensan Mat Janson Blanchet

    About handhelds: your analysis is right, but caters to only one part of the market: adults. I’m no parent, but I know if I had kids I much rather buy them a handheld with games than a phone! It’s also sturdier, I mean try and drop that iPod Touch or iPhone on the floor. That market will remain, even if it will shrink.

    Also, there is a specific type of games that are better on handhelds, those that require controls. I don’t mean to belittle touch screen games, they are awesome, but for the life of me I still don’t like sidescrollers on a touch screen. Jokes have been flying around about Nintendo doing an add-on for the iPhone, but somehow I actually see this as an awesome move forward! Imagine if Apple were to partner with Nintendo, etc. Just like the iCade, Nintendo could provide an SDK and still retain some sort of control. 

    One point where handhelds failed badly is providing cheap and easy to get online content, that we have to give them a zero for that.

    By no means am I saying that that handhelds are the future, but there is a lot of games and learnings from handhelds that should not be simply thrown away.

  • http://www.gamesbrief.com Nicholas Lovell

    I have a one-year-old and a three-year-old. At this stage, they can interact with my iPhone but couldn’t use a DS or PSP. Right now I can’t imagine buying a handheld for a child instead of a touchscreen. We’ll see whetherthat changes as my kids grow older.

  • Ben Board (Xbox)

    Still, we avoided the bottom four… on your blog that’s quite a coup :)

  • Ben Board (Xbox)

    Quite so.  A touchscreen game can keep the back of your car quieter from an earlier age than one that needs d-pads, sticks and buttons.  They’ll work that stuff out later (and enjoy all the wondrous, often richer and deeper games that controllers bring) but controller-less design can be far simpler, intuitive and accessible than when a game’s inputs are channelled through a generic and relatively complex interface.  (As I shall discuss in my Game Connection talk on Kinect design, conference fans.)

    You’ll hear many stories from parents of how young their kids were when they could work their phones.  It’s a tribute to those interface designers.

  • Richard

    As the owner and manager of a couple of 7 year olds, they may want a phone but that doesn’t mean they will have one. They love games on smartphones and aspire to owning one, but for the moment dad is more comfortable with them on the DS. From a sample of families with similar aged children, this is representative. The time for a phone is later (always later) so I would hazard that there will probably remain a period where a dedicated gaming console (robust and unbreakable and without telephone capabilities) remains an attractive option to parents.