And why the real battle in the mobile world has nothing to do with the operators.
The idea of 'games as a service' isn't new. It describes the model where games are launched, and then constantly refined with tweaks and new features, building a loyal base of players.
Massively multiplayer online (MMO) games have been doing it for years to drive monthly subscriptions, while the new breed of social games firms like Zynga and Playfish are making big money from a free-to-play model, funded by virtual item sales and advertising.
Games as a service in mobile? It's a nascent model, seen most clearly in iPhone games like Pocket God getting regular updates. Initially free, those extra features can now be monetised using in-app payments, but it's early days.
Tim Chang, principal of VC firm Norwest Venture Partners, tracks all these areas. ME sat down with him at Mobile World Congress to pick his brains on those, and the wider mobile industry.
“There's a state of war in the iPhone market, with people like ngmoco and OfferPal selling installs from 25 cents to 50 cents,” he says. “Developers are so hungry to get installs, they're willing to buy them – you might launch yourself into the Top 20 on the App Store and get visibility.”
However, he thinks that some of the smarter iPhone publishers are trying to move away from the hit-based thinking that currently dominates the App Store – which is where games as a service comes in.
“People are trying to get away from that hit-based model. You might only have 10,000 daily active users, but can you get them profitable? It's approaching the model of Zynga, or the subscription-based models. And it's a whole new skillset that many traditional casual game publishers don't have.”
One issue with the games as a service model on iPhone is the challenge of making the kind of constant iterative improvements that characterises online social gaming. Apple has sped up its approval process, but there's still no question of, say, updating a game every hour.
Chang thinks this is where cloud-based games come in, with people playing them through their smartphone browser rather than as a native app.
“The only issue is Flash support,” he says. “What the heck happens with Flash support natively on Apple and Google? Apple will allow it over their dead bodies, as it reduces the need for custom apps. And Google say they support it, but they're not pushing it – it's more about consuming Flash video, not Flash gaming.”
As a result, he thinks the next 12 months will continue to see the dominance of native games on iPhone and Android, although looking further ahead, he thinks server-based web games will be much more important.
In his role at Norwest, Chang says he sees less startups focusing purely on iPhone games now. “The paid download model has too much friction, so we see less startups chasing the App Store. Even the social games companies are quite different in their characters.
“Companies like Zynga, Playfish and Playdom have more or less locked up distribution on Facebook. Most pitches I get are people wanting to be the Zynga of Poland, Russia or China, though. Social networks are opening up their app platforms there, and some of these markets will never be penetrated by Facebook.”
What about the Zyngas and Playfishes moving to iPhone? They've been notably cautious so far, which is something Chang puts down to the fact that there aren't the same kind of viral communication and distribution channels on the App Store. This may change, however.
“Apple has been slow to adopt social stuff, but it's front of mind now,” he says. “But the big question is how will Apple and Google support subscription-based business models? I'm seeing much moer interest in that model, which is recurring and predictable. By contrast, virtual goods are directly dependent on your DAU count – revenues will fall if your DAU count goes down.”
It's interesting to hear Chang's perspective on Mobile World Congress itself – a show still dominated by the traditional carrier-OEM ecosystem. He points out that the likes of Apple, Google and Facebook are present as speakers and attendees, but they're not rushing to book enormous stands to show off their wares.
“It's the carriers and the handset companies that are falling behind who are here,” he says. “Apple has huge installs, Google is ramping up new installs, but if you look at the big stories of the show, it's 'defenders' like Nokia and Intel teaming up. In many ways, Intel has had the least penetration for mobile chipsets, and Nokia is losing market share for smartphones. It's two defenders.”
He cites Facebook as an example of a company whose presence pervades the show without the company itself making a big splash.
“You see Facebook everywhere, in handsets and services – they're here without being here,” he says. “They're so dominant because of the social graph – everybody needs to go to them. That's the nature of Mobile World Congress: YouTube, Facebook and the rest don't need to have a booth here. A lot of power has shifted back to developers, and they're all doing their thing in Silicon Valley.”
If people like Chang are questioning the relevance of Mobile World Congress, it's because they don't see the big fight on mobile as involving the traditional handset makers or the operators.
“Five years ago, the battle was the carriers versus Nokia, but the warfare right now is Apple versus Google, and I see Facebook getting in the mix too. Google comes from the web, Apple dominates devices, and Facebook has the social graph – but they will all need to play in each other's space.”
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