Monday, May 3, 2004
Why Microsoft Shouldn't Make a Game Boy
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It seems almost everyone now plays games. Games were once ruled by 13-year old boys, but that is old news now. Those same boys, and increasingly girls have grown up and consider games as much a part of their lives as music, movies, TV, and books. As a result almost every home owns a PC for games or a PS2, Xbox, Game Cube, Game Boy or a combination thereof. The average age of game players is 29 and the worldwide market for video gaming is more than $20 BILLION each year.
So what does this have to do with the Pocket PC and more importantly the Smartphone? The answer is simple, these devices and their future generations are why Microsoft may never make their own device to compete with the likes of the Nintendo Game Boy. It is why Microsoft is probably taking a much closer look at the failure of Nokia’s N-gage. It is also why you’ll be seeing a lot more cool games on your phone in the next couple of years.
Here is the premise. Instead of making a competitor to the Game Boy, Microsoft will make its future designs for the Smartphone compelling for gamers. They’ll make them cheap enough to attract consumers and profitable enough for the wireless carriers and phone manufacturers. Your phone will be your Game Boy!
Why is this Microsoft’s best strategy? Let us start with a quick look at how the video game business works and why it has a lot in common with the phone business.
Free Phones and Cheap Consoles
Most of us get a phone for free or for much less than a phone really costs, because we enter into a contract. Carriers buy the phones and are willing to eat part of the phone cost. As cell phone users, we’ll pay carriers $40 or more every month for as long as we remain a subscriber. Wireless carriers make their money from our phone usage, not from the phone purchase.
Consoles are the same. The PS2 and the Xbox are technically fantastic devices and both launched for about $300. Now you can buy an Xbox for $150. How can they afford to sell a device with high-end 3D, a DVD player, hard drive and internet connectivity for less than the cost of a decent 3D video board for the PC? The answer is that they lose money on every unit sold. Where do they make it up? They charge software publishers a licensing fee for every game sold, in the order of $8 per copy. That’s right they make money on every game produced. This is obviously completely different than the PC business where anyone can make games and you don’t pay anyone any licensing fee.
Mass Market Appeal
The benefit lies with the mass market. That is, Sony, Nintendo and Microsoft can sell a lot of video game consoles quickly because they are competitively priced. That’s why Sony has sold more than 100 million Playstation consoles and Nintendo over 100 million Game Boy handhelds. Both companies make all the real money from the software and not the hardware.
What would happen if you produced a gaming phone which enjoyed the carrier phone subsidies and the gaming royalty model? You could create a really powerful gaming phone and sell it very cheaply, perhaps even give it away. It would be your phone and your gaming device (and your MP3 player for that matter!) The carriers would be happy to subsidize this new phone in return for your annual phone contract and a piece of the software sales. Microsoft would be happy to charge less to the manufacturers for the design and OS, because they would make money on every game sold. Developers would happily make games, because they could be looking at a 100 million unit market within three years. Don’t forget over 500 million new phones were sold last year worldwide. That’s a lot of phones!
The next reason why this is Microsoft’s best strategy is that at the heart of it, they are a software company. They make money by either selling software to consumers or licensing it to manufacturers. Microsoft doesn’t really want to be in the hardware business. It is expensive and competitive. Other companies do hardware much better than Microsoft, which is why Microsoft doesn’t build the Xbox in its own factories and doesn’t manufacture its own video chips. Microsoft tried licensing into the video game world with Sega. They licensed Windows CE to Sega for the Dreamcast console. The Dreamcast didn’t make it for a lot of reasons, but if it had sold well I’m not sure if Microsoft would be in the Xbox business today.
Microsoft has the ability to design a phone, as in the Smartphone, license it to manufacturers and let them worry about making it as cheap as possible. Then they create a proprietary system for the sale of games via PC, wireless, and memory cartridges.
It’s The Games, Stupid
Of course, games are the key to the success of any gaming device. Nokia learned this the hard way with their n-gage gaming phone. The n-gage was the closest attempt to date at what I’m describing here. What a disaster! If it could be done wrong, Nokia did it. From making it overpriced, dumb to hold and operate and most importantly, failing to take advantage of the unique features of a mobile wireless device. However, don’t count Nokia out yet. They’ve figured this out and have already released a new model, the QD (Quick Do-over?) and they are promising some games that can be played multiplayer over wireless.
So how does this all evolve? Start with the devices that exist today. Many people, including our company are producing great games for the Pocket PC and Smartphone. We have action, adventure, puzzle and strategy games that are as good, and in some cases better than much of what you will see on the Game Boy Advance today. I invite you to check out the free trial versions at Portable Games and decide for yourself. These games would be even better if the devices were mass market. Our biggest restriction on the quality and innovation of our games is how much we can spend on development. After all, we’re doing this for a living. This is a real business to us and other serious Pocket PC and Smartphone game developers.
If Microsoft sells the Smartphone as a phone that can play games, as an entertainment device, they could quickly create a huge market and we’d be able to create even more compelling games. It’s something of a chicken and egg situation, but in this case the chicken really can go first. Come on Microsoft, we’re ready to innovate! Our company has shown this with the beta of Lands of Shadowgate, a multiplayer strategy game for Smartphone and Pocket PC. Imagine a multiplayer version of our upcoming football management game, Football Director. (That’s soccer to everyone in the US!) Try playing a multiplayer game on any other handheld today. What you’ll see is just an example of the sort of innovations we could explore if there was a real market to support bigger development budgets.
Microsoft innovates along with its hardware partners too. We’re already seeing prototype phones with higher resolution displays, and accelerated 2D and 3D graphics. A phone focused on entertainment could compete with any console or handheld gaming machine that comes along in the next couple of years from Sony or Nintendo. Yes, there will be the likes of the Sony PSP, but at what price? It will probably be a $200-$300 device. This is certainly not for everyone. Nintendo proved with the Game Boy that you don’t have to have the best hardware to own the market.
Microsoft, Don’t Put Another Device In Our Bag
I’m sure not everyone will agree with this hypothesis. We will hear the usual arguments about too many features in one device and why Microsoft has to get their basic phone right first. I agree, but suggest that what I’ve outlined could be their ultimate destination. Microsoft has the patience and money to make it happen.
Phone companies are waking up to games as a major source of revenue and a means of keeping subscribers and making more money from them. I hope someone from Microsoft is listening and hears this among the first of many voices. Maybe the debate will drive Microsoft to pursue the Smartphone as an alternative to creating their own Game Boy competitor.
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