Apple Didn't Take Video Game Market Share; the iPhone Expanded It

Last Updated Mar 23, 2010 2:21 PM EDT

Smartphone apps analytics company Flurry said yesterday that Apple (AAPL) has taken US portable game market share from traditional specialized vendors Sony (SNE) and Nintendo in the US. But looking at the company's data and arguments, I think it's more likely that the iPhone and iPod Touch expanded the mobile gaming market rather than cannabalized it.

You could summarize Flurry's argument this way:

  1. NDP Group numbers show that US console and portable game sales as a category shrunk by 10 percent from 2008 to 2009.
  2. Flurry estimates peg iPhone and iPod Touch game revenue at $115 million in 2008 and $500 million in 2009.
  3. The Apple mobile ecosystem market share gain came at the expense of traditional gaming vendors.
I see a number of assumptions that don't bear up. First issue is quoting NDP numbers, which are in dollars. Yes, spending was sharply down from 2008 to 2009, but not just because of the economy. The gaming industry saw significant vendor price cuts last year, particularly as the holiday season closed in. You'd have to see hardware and software unit sales down to talk about a real market share loss. Instead, we saw a market value decline. Flurry continued:
More interesting to us than iPhone's impact on U.S. gaming was its impact on the portable category, which we estimate totaled $2.25 billion and $2.55 billion in 2008 and 2009, respectively. Michael Pachter, managing director at Wedbush Morgan Securities and a prominent video game analyst, suggests "iPod touch is the most dangerous thing that ever happened" to game publishers. As prices come down for the iPod Touch, and games sold through the App Store continue to have lower price points, more of the young gaming generation may switch to Apple devices over Sony (SNE) PSP and Nintendo DS for gaming. Further, Apple has squarely positioned the iPod Touch as a gaming machine. Check out a TV spot here to get an idea.
Given that the favorite portable console titles still require the matching hardware (unless you hack your iPhone and install something like a Nintendo emulator), I find it hard to believe that users have walked away from these games. Far more likely, I suspect, is that a different and older crowd is doing much of the gaming on iPhones. Different games, different users -- that's expanding the market, not taking a share from someone else. That's why, as Flurry noted, "more than one third of iPhone game developers come from the traditional gaming industry." Why not? It's an additional market and expands their reach.

Image: Flickr user Incase Designs, CC 2.0.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.