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Sony shows it doesn’t yet understand the smartphone threat

By on June 11, 2012
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In an interview with Gamasutra, Sony Worldwide Studios president Shuhei Yoshida says that working with small games and indies will be vital to the success of Vita.

“We’ve seen lots of small games sold digitally through the app stores of each device, and that’s something we thought is a great addition to the whole offering of video games to the consumers… It’s true that many casual people already own smartphones, and spending a dollar for a game is a very easy thing to do… We do it for the love of it, almost,” he says. “It’s not like small games sell $100 million revenues.”

These statements show how little Sony understand of the free-to-play revolution and why the PlayStation Vitawill struggle against smartphones and tablets.

The first big mistake is in thinking that because a game is cheap, it is small or shallow. Plants versus Zombies (£0.69) is a game that has provided me with hours of fun. As has Temple Run (free). As has Tiny Tower (free). As has Undercroft (free). A cheap game doesn’t have to be a rubbish game.

The second mistake is thinking that spending a dollar is easy. You know what is easy? Downloading something that is free. As you add a price – any price – it becomes a much bigger deal. Dan Ariely makes the point superbly in Predictably Irrational, showing how the difference between being offered something for free or something for a single cent changes our perception dramatically.

The third mistake is in imagining that “small” games can’t make meaningful revenues. Maybe $100 million is a stretch, but I estimate that at least 9 games made $30 million on iOS in 2011. Maybe some of them got to $100 million, but even if they didn’t, they got 1/3 of the way there.

The fourth mistake is the big one. Sony is treating a digital platform like a physical one. It believes that it is selling “products” where every consumer buys the same product for the same price (or in a sale). The measure of success is sales volume.

In fact, smartphone games don’t thrive on volume. They thrive on understanding what their customers want, and offering them ways to pay for it. They offer their customers a range of things to spend, and, on average, those who choose to buy something spend $14 per transaction. In fact, 51% of revenue comes from people who spend over $20and 30% of revenue comes from people spending $50 or more.

That is the problem that Sony and other AAA publishers are struggling with. Consumers are spending more on a single IAP transaction in a “small” game than they are prepared to spend on Call on Duty. That does not compute.

The Vita’s problem is not that it doesn’t have small games on it. It is that it has no mechanism for those small games to make money at anywhere near the scale that they could on iOS or Android.

As long as Sony thinks that the only way to make meaningful money for a handheld game is to spend a lot on development and charge a fixed price for an upfront purchase, it will continue to be bemused by the rapid growth of handheld gaming at the expense of handheld gaming.

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
  • I don’t agree. If you read the full post, it’s clear that in this statement at least, the view is that indie games = cheap games (both in terms of dev cost and in terms of price).

    If that is the model that Sony will follow, they won’t be able to catch up with the games coming out of  the free-to-play model. Those games will iterate faster, and make more money.

    The dreck doesn’t matter. This is a different model – a “filtered” approach, not a “curated” approach”. Filtering quality after launch allows more rapid innovation. It’s why I believe open platforms will win over closed platforms.

    And it is enormously different to the Atari issue. The physical cost of inventory was a large part of what sunk the E.T project. That is what has changed. Apple has adapted business models to reflect the new reality; Sony hasn’t.

  • still just passin by

    I’m getting the feeling that you’re arguing using a strawman here.  I don’t see anywhere in the linked article where he says that Sony won’t let you do free-to-play on the Vita.  In fact, he only seems to be saying that Sony wants the indies to develop for the Vita, but that they don’t want crap games.

    I concede that iOS/Android is a definite threat to the old-line companies, but I’m not completely sold on how big the threat will eventually be.

    Sure, right now, there’s a ton of excitement in the iOS space and it *seems* like a tidal change for the industry, but take a step back and look at the dreck that’s getting pumped out there.  For every Cut The Rope, there’s probably 500 inferior clones right next to it, not to mention 50,000 fart apps that you need to wade through to get there.

    How is this different from Atari pumping out E.T. for the 2600?

    There will definitely be a day of reckoning coming in the iOS gaming space within the next 3 to 5 years. 

    Now, whether Sony is one of the companies to come out of the mess, I don’t know, but at the same time, I think that their committment to trying to put out quality games gives them a leg up over some of the others…*cough*zynga*cough*

  •  I’m afraid I deleted that previous comment.

    I don’t agree with you that $30 million is chump change for Vita. To generate that much revenue from a handheld game would require in the region of 1m sales. Probably nearer 1.5 million sales after the costs of manufacturing and distributing the game and perhaps 2 million or more after the retailer’s share.

    That’s more than the current installed base of Vita. In contrast it has proven possible (not easy, but possible) to make several million in revenue from an installed base of less than half a million users with a free to play model.

    My point in this article is that Sony is claiming that it wants the platform to support independent developers without making it possible for those developers to use the well-established, proven model for niche games to make meaningful revenue. They are telling them that they have to make a game with a fixed price, preferably a low fixed price, on a platform where that business model is highly unlikely to work.

    I see no reason why a company can’t support hundreds of developers and still be free-to-play. See Kixeye, Kabam, Wargaming.net, ngMoco (before it was bought), Zynga, etc, etc.

    I accept that there is a balancing point. Sony’s view above shows that they don’t understand the competitive threat. That is my point.

  • Just passin’ by

    I think the previous poster has a bit of a point, although he has a very crude way of expressing it.

    I’m not saying that you’re wrong, but your thinking on the industry skews to the small scale of development.

    Do you not think that Sony has people looking at this problem?  Of course they do.

    But, what you’re not considering is that a $30m REVENUE game (shoot, even nine $30m games) is chump change that wouldn’t even keep the lights on at a huge company like Sony.

    Do you suggest that they fire hundreds and hundreds of developers and depend on Joe Blow in his basement to make games?  I don’t know about you, but I would much rather see a games industry where I can pay $60 for a mind-blowing experience like Uncharted than flick birds at pigs for “free”.

    There’s a balancing point between the Apple view of the world (we make the platform, you make the software) and the Sony view of the world (we make the platform, we provide a ton of the software, and you make some of it too) that needs to be found, and I really think that’s somewhere north of “free”.

  •  Actually, I ws just responding to the comments from a senior Sony exec, rather than making a general point about handhelds

  • Sik

    Surprised you didn’t also mention Nintendo (since it’s about handhelds vs. mobile), but I suppose one could argue that Nintendo’s public is the kind that would prefer to pay premium rather than play F2P games. Sony doesn’t have much of a stronghold on handheld (if at all), on the other hand…

  • ChrisBateman

    I wholeheartedly agree with most of your assessment here, Nick. The barrier between free and any cost is psychologically gigantic (especially the first time a consumer purchases and has to provide payment details). I can’t see how Vita can carve out a viable niche – but I’m not yet sure what to think about the home console situation. 

    Sony are (slowly) recognizing that service is the way to go, and it’s going to be interesting to see how they approach this in terms of a new home console announcement (whenever that finally happens). Expect to see the cloud mentioned more and more in connection with Sony entertainment in the months to follow. *waves*

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  •  Can you be a little more specific as to why you think this shows the opposite. So far, I think that PlayStation Suite is a technical solution which doesn’t address the business model issues, but I’m happy to be proven wrong if you can show me otherwise.

  • The recently renamed Playstation Mobile (was Playstation Suite) kinda indicates the opposite, being that it is for anyone to make games for smartphones _and_ the Vita and sell them through their storefront.

    Also while a very tiny percentage of games make a fortune on smartphone app stores, most make multiple orders of magnitude less than that.