Milestone

I have been looking for a capstone for this blog, and JAMDAT’s recent 10-K filing, and the associated investors’ presentation, provides an excellent opportunity to summarize and to look ahead at mobile game industry.

First, the term “industry” needs a look. We are discussing an industry where the industry leader just completed a $36M year. That makes JAMDAT the big fish in the mobile games pond, and still quite a small fish in the game industry overall. Just as JAMDAT’s S-1 provided a window into the mobile games market at a critical stage of development, we will seek answers to questions about the sustainability and defendability of mobile games as a distinct game publishing market in the 10-K and investor slide deck.

First, the financial numbers:

The investor presentation (http://library.corporate-ir.net/library/18/181/181565/items/141449/InvestorPresentation030805.pdf) is as good a summary of state of the market for mobile applications as currently exists. Because JAMDAT has attained global reach, we can extract from the investor presentation a reasonably accurate picture of total available market and near to middle-term growth prospects. One thing is clear: the market opportunity is still growing rapidly and won’t crest for years to come, due to two fundamentals: First, the penetration of application-capable handsets in the installed base is far from complete. In fact, it is just gathering momentum. Second, the maturing of developing-world markets lags that of Europe, Japan, Korea, and North America. China, India, Brazil, Indonesia, etc. will create a second wave even bigger than the development of the mobile games market in the developed world.

JAMDAT has spent the time and effort to reach the approximately 100 channels – network operators with a “walled garden” market for mobile applications – around the world. These 100 channels have about 1 billion subscribers – about 15% of the population of the planet – which numbers tell you all you need to know about the power of mobile wireless as a distribution system. Without these numbers, mobile games would amount to nothing.

With this astounding reach, what are the prospects for growth? Large, in a word: in 2003, 12% of wireless subscribers could use mobile applications on their handsets. By 2008, that number will be 70% of a still rapidly growing number of subscribers. In 2004, JAMDAT derived only 17% of revenue from international sales. Only 4 channels in the U.S. provided about 80% of JAMDAT’s revenue. With channels already in place, JAMDAT has the seeds in the ground for growing tenfold.

The mobile applications business can be characterized by growth layered on growth, at least through the end of the decade.

Can a target that attractive be defended from companies like Electronic Arts, THQ and other game publishers that grew up in the console and PC games market? For this answer, we need to look back at the trends emerging from last year, and track them over the next few quarters:

Will JAMDAT continue to build up subscription revenue? Here we need to keep a particularly careful watch because new markets will pick up single-player games first, and subscription revenue may, temporarily, become a smaller slice of revenue overall. But the goal remains crucial: If customers are at the distant end of a one-time, anonymous transaction, they could be easily scooped up by a game industry giant barging into mobile games. But if JAMDAT continues to produce sophisticated multiplayer games like their implementation of mobile Scrabble, and attracts communities of subscribers, JAMDAT will be devilishly hard to dislodge.

Will JAMDAT build a mobile brand that helps to keep console publishers at bay? This also seems like a likely bet. JAMDAT is diligently working on this, and it has been a constant in JAMDAT’s history that JAMDAT can execute.

Will handheld consoles ding the mobile games market? I’ll excuse the wiser readers for chuckling, but it had to be asked. Handheld consoles barely ding each other’s numbers, much less those of mobile game publishing. Not this, nor any other apocalyptic outcomes bar JAMDAT’s path.

What about openness? Will openness to out of garden content turn handsets into a medium equivalent to Web casual games, and leave only the Web casual game business model? Among the above challenges, this is the only one that could develop quickly enough that it could be a real threat to the value of JAMDAT, but let’s look at the meaning of “quickly:” Openness to free applications will not come without pressure from VoIP handsets, which will not come before mobile VoIP services challenge the traditional PLMN service providers. And that will not even begin to happen a year, and the challenge will not filter into decision-making about opening content access for at least a year after that, and it also depends on the exact outcome of VoIP handset product formulation, which has not settled on the details of application environments. If JAMDAT stays heads-up about future challenges, branding, community, and subscription revenue will be sufficiently entrenched to overcome even this challenge.

In fact, one reason this is the time to put a capstone on this blog is that JAMDAT’s next two years look like they can be summarized as being the reward for excellent execution thus far. An unknowable is whether mobile games will develop true originality. But they have a long time in which to develop it, and, in the short term, there are more obvious tasks such as incorporating 3d into mobile games.

Still, one can define what originality means: Originality is not just coming up with a new type of game. There are numerous examples in all game media, including mobile, of original but misbegotten games that have no impact at all. Voice games, for example. Originality means coming up with a genre of games, supporting a large number of successful products, that make no sense or have no value in media other than the mobile handset and mobile data network environment. How is that going to happen? It will happen when a successful, fun-to-play mobile game defines a new genre by including unique aspects of the mobile environment. Given that applications of any type that take unique advantage of the mobile environment are thin on the ground, I’d advise against holding your breath waiting for this to happen.

Instead of going for cyanosis, a better way to pass the time waiting for that truly original mobile game is to read my other blogs:

The 4th Screen
Telirati