Why the mobile gaming puzzle is so hard to solve

By all accounts, mobile gaming has never been bigger. More than half of all U.S. mobile users will play games on their phones this year, according to estimates from eMarketer, generating $1.78 billion in revenues. Recent figures from Microsoft indicate the worldwide mobile gaming market is now worth roughly $10 billion a year. The mobile app data firm App Annie has reported that Android and iOS games actually rang up more in revenues than games on Nintendo and Sony portable gadgets, and Frank N. Magid Associates said this week that more people are regularly playing games on their phones than on game consoles.

Somehow, though, all that activity isn’t exactly lining the pockets of the most notable developers in the industry. Zynga has famously struggled to expand beyond PCs into mobile and last week confirmed it will lay off nearly one-fifth of its workforce. EA has had similar problems capitalizing on the rise of mobile and has made substantial job cuts of its own despite owning perhaps the most impressive portfolio of IP in the overall gaming market. And Glu Mobile, one of the oldest pure-play game developers in the world, has consistently posted disappointing earnings as the mobile gaming market has taken off.

Who’s making money – and why

Instead, some of the most successful titles in mobile gaming over the last few years have been created by smaller developers, many of which didn’t exist when Apple launched the iPhone in 2007. Supercell, a Finland-based outfit founded in 2010, boasts 8.5 million regular players who generate about $2.4 million in revenues every day. Rovio, another Finnish developer, owns perhaps the most iconic franchise in mobile gaming in Angry Birds. OMGPOP’s Draw Something was seeing nearly 11 million active daily users when the developer was acquired by Zynga for $180 million in March 2012.

Those smaller game makers have demonstrated impressive talents for creating games that minimize the hazards and limited controls of touchscreens, and that are simple enough to pick up and play but also offer the complexity to enable gamers to play time and again. And it’s worth noting that some successful developers have focused on building games specifically for tablets rather than trying to address the much-broader “mobile” market.

But the success of those developers has largely been built on very limited libraries. Supercell, for instance, currently offers only two titles. Rovio has done a great job building out its Angry Birds franchise, but it has yet to produce a hit outside that brand. Zynga’s attempt to cash in on a sequel to Draw Something seems to have stalled after bolting out of the gate. The fact is we simply have yet to see the emergence of a developer or publisher who can build a sustainable business in mobile gaming based on multiple titles or franchises.

Mobile = different business models, different use cases, different form factors

The success stories illustrate how different the mobile game industry is from the PC or console markets.  An App Annie survey from a year ago found that most top “short-term” games were free and successful “long-term” games averaged only $4.08 – price points that are a far cry from the $50 or more a top console title can fetch. Those lower margins mean mobile developers can’t invest as heavily to create their games, and they can’t spend vast sums for marketing to attract attention to their titles amid the vast ocean of offerings in Apple’s App Store and Google Play. And the smaller screens and limited controls of mobile make it extremely difficult for traditional publishers to simply port console or PC games to phones.

And while some developers have made plenty of money in mobile gaming, we have yet to see any of them prove they can build a sustainable business with multiple games solely for tablets and smartphones.  Until that happens, we’ll continue to see plenty of experimenting with various business models, from premium to freemium to ad-supported and in-game transactions. We’ll continue to see a string of developers jump to the top of the charts with ingenious mobile games that generate a fortune and may even evolve into legitimate franchises. And we’ll see well-known publishers from more traditional platforms struggle as they try to elbow their way into the space with familiar franchises and cross-promotional campaigns. The challenge for every developer is not only in creating great games but also finding the most effective ways to market and monetize each individual title.