Did Apple know what the future held when CEO Steve Jobs introduced the iPhone during his Macworld Expo keynote in January 2007? They probably had some sense of it, but they likely had no idea that games would become such a big part of the platform, especially considering the outsider status of gaming on the Mac. The company is clearly ready to take full advantage of the current situation, however, as evidenced by the recent iPod touch ad that focuses solely on games.

"In looking at Apple's game sales on the App Store in general, there are a few cases where Apple's monthly sales have surpassed certain carrier sales for the same period," Travis Boatman, Electronic Arts' (EA) Vice-President of Worldwide Studios, told me. He also noted that more than 70% of the titles on Apple's Top Paid Apps list are games, although others I interviewed expressed concern over being able to stand out in a crowded marketplace that already features more than 10,000 apps, around 2,000 of which are games.

"Some of [the games] are just terrible so while there are almost 2,000 games, some are barely a game. But of the good ones it is hard to stand out," said Bruce Morrison, a producer at Freeverse. "That's why we are focusing on making our games with that extra bit of shine and polish. Really focusing on gameplay and look. And then listening to the users to get their requests implemented right away." Freeverse has already issued updates to several of its games, including Burning Monkey Casino, Flick Fishing, and Flick Bowling.

Are Ratings Enough to Stand Out?

Mr. Morrison wasn't alone in praising the App Store's rating system, which allows developers to quickly get feedback and implement changes to their titles. "With the comments forum on the App Store, you get instantaneous feedback on whether a game is well-received or not," noted Gonzague de Vallois, Sr. Vice-President of Publishing at Gameloft. "There's no sleek marketing campaign that you can do if the game is a bad, since the consumers will comment on it, thus highlighting the importance of quality."

Unfortunately, even with a feedback system, the wide-open nature of the App Store can make it difficult to catch users' eyes, said Glenda Adams, director of internal development at Aspyr Media. And that has led to issues with pricing, where some publishers, even such large ones as Gameloft and EA, have resorted to cutting prices to attract more sales. "The price points of iPhone games have dropped rapidly over the first three to four months," she told me, "so now most of the top games are selling for 99 cents or $1.99. That can make it hard to have much of a development budget. Even if you have a hit, and sell 30K to 50K units, selling at 99 cents doesn't generate a lot of revenue compared to $39 or $49 PC or Mac games."

She added: "The good news is that iPhone users are generally looking for smaller titles they can play for a bit and move on. They don't need 20 hours of gameplay like a big PC/Mac or console game. I really see iPhone games as a market of consumables -- a 99-cent game is like buying a candy bar. If you have fun and play with it a couple days, you aren't disappointed."

Of Encroaching on Sony and Nintendo

While many games are of a casual nature, however, some developers are pushing the envelope with games that can take a while to play through and offer a high level of replay value. As the iPhone games market matures, comparisons with the Nintendo DS and Sony PSP handhelds are inevitable, although they can be of an apples-to-oranges nature, according to Mr. Boatman: "The iPhone has some similar game capabilities as platforms like the DS and PSP, but is unique because it is not a dedicated gaming device. So we expect to see consumers of the DS and PSP clearly prioritize games over consumers who purchase an iPhone. Given that, we're seeing different usage patterns, and product consumption for each platform, and we are crafting our product offering accordingly."

"I don't think the iPhone will compete with the DS or PSP, but everyone forgets the iPod Touch," said Mr. Morrison. "That's Apple's flagship iPod. It's clear all new iPods are going to be based on the Touch in some way. In a few years, the iPod Touches will probably outnumber the DS and PSP combined, 10-to-1. That will be the platform to completely dominate the handheld market. This Christmas, parents are not probably buying too many iPhones, but you had better believe they are buying Touches."

Digital Legends CEO Xavier Carillo Costa, whose company distributes Kroll through the App Store, compared development of iPhone games to DS and PSP development -- "It requires a greater amount of skill sets from your team," he said -- and noted that the new platform has the potential to rival the others. "There is space for all platforms in the market," he said. "They have a proven ecosystem already with success stories today, and are learning a lot in order to make a more solid ecosystem in the near future for all of us."

"Throughout the next year, we anticipate seeing titles with more in-depth gameplay, in addition to licensed games that have been traditionally available for console," said Mr. de Vallois. "As more games become available on the App Store, the iPhone will be a strong competitor with its multi-purpose functionality and entertainment capabilities. However, the Nintendo DS, today, undoubtedly remains the strongest handheld gaming platform that offers innovative gameplay and titles."

Ms. Adams, who said the iPhone install base "is going to be huge" and who thinks "the iPhone will rival the PSP and DS," compared Apple's handheld to something else: "The iPhone is the Wii of handheld gaming devices. It has such unique input systems, and just enough different focus to stand out from the traditional systems. Like how the Wii has turned into the console 'for the rest of us' (my mother-in-law plays Wii Bowling when we're together for the holidays!), the iPhone and iPod Touch are the handheld gaming systems for people who wouldn't consider buying a DS. And any core gamer that does own a DS or PSP is probably going to get an iPhone if they don't already have one."