Thoughts on Tech, Deals, and Markets

A Disruptive Innovation in Video Games

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I’ve been scouring press releases covering the recent NPD data on December video game sales to confirm this, but it appears that this data doesn’t include video game sales related to the iPhone or iPod Touch.  If you did include iPhone/iPod game revenue, then the video game market actually looks even stronger.  Ironically, the success of the iPhone/iPod is actually a major threat to the rest of the industry.  It’s the most important trend in video games today:  the disruptive innovation represented by the iPhone and iPod Touch as a gaming platform.

Here is a good primer on disruptive innovation, an idea first articulated by Clayton Christensen:

Sustaining vs. Disruptive Innovation

The central theory of Christensen’s work is the dichotomy of sustaining and disruptive innovation. A sustaining innovation hardly results in the downfall of established companies because it improves the performance of existing products along the dimensions that mainstream customers value.

Disruptive innovation, on the other hand, will often have characteristics that traditional customer segments may not want, at least initially. Such innovations will appear as cheaper, simpler and even with inferior quality if compared to existing products, but some marginal or new segment will value it.

Games on the iPhone and iPod Touch, all bought via the App Store, are dramatically cheaper and much simpler than console and PC-based games.

For this platform to be truly disruptive, it will have to cannabalize console and/or PC-based games.  Will that happen? Based on the recent data, it’s clearly not happening now.  The sophistication and performance of legacy systems are so impressive that it’s hard to imagine the iPhone/iPod Touch platform as a replacement.  But I think this will  happen in coming years because:

  • The iPhone/iPod Touch will rapidly improve their computing power, enabling better game play.
  • The growth of the gaming market for the iPhone/iPod will attract more development resources, producing better games.
  • The increasingly social nature of games.  As the iPhone and iPod sell tens of millions of units, the number of potential game players on the iPhone/iPod will dwarf that of other platforms, creating a richer social experience.
  • While PC and console-based games will also continue to improve, the marginal value of that improvement will pale in comparison to the improvement of iPhone/iPod as a gaming platform.

I’m not predicting the end of PC or console-based games and I do think the video game market will continue to grow.  But I also think the iPhone/iPod will rapidly gain video game market share in coming years, eventually becoming the dominant gaming platform.

Written by sandykory

January 16, 2009 at 7:34 am

Posted in Uncategorized

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One Response

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  1. […] They are killing it with the iPhone/iPod Touch platform, which I believe is in the process of disrupting the legacy video game market.  But he’s surrounded by great people and, given the obvious […]

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