The Mac App Store And The PC Gamepocalypse [Trends]

The Mac App Store will change everything. It won’t happen overnight, but it will happen, and the results will be very far reaching. App stores change how users think of software, how they pay for it and also how they maintain it. They’re as radical a shift as that which changed mobile gaming from a Java platform to a real gaming system, and with the sort of financial repercussions of the Facebook ecosystem. It’s that significant, and yet almost nobody in games even realises that it’s happening.

The reasons why are these assumptions:

1. Digital distribution of games has already been solved by Steam
2. The Mac is not a viable game platform
3. The PC is not the mobile market
4. Content is valuable

All of which are shaky. Let’s start with the first.

 

App Stores Are Not Steam

Steam may appear to be much the same thing as an app store, but there are three core differences between the two:

Closed vs Curated: The basic philosophy behind Steam is that of the managed shop. To get your game onto a service like Steam, it is not simply a matter of rocking up with your code and shipping it. You have to send your game to the service and have it approved on the basis of whether it’s a good fit for the store. Steam is not interested in having every game that it can possibly handle. Instead, it is interested in managed relationships and individuated products.

The reason for preferred differentiation is that it means the selection on display hits every major category of game with a choice of quality. The belief at the heart of the service is that every good game should have its day in the sun, and Steam actively works to keep its content varied. This makes Steam the equivalent of a select bookstore trying to maintain an appropriate range.

App stores, on the other hand, are like Amazon: They stock everything. The Apple iPhone Store has well over a quarter of a million apps available, and rather than act like a content monitor managing a range, Apple exercises approval rights on a set of ground rules to do with platform integrity. 95% of submitted apps are approved within days, and Apple’s only editorial input is the front page service on iTunes for the apps that it thinks are interesting.

The difference between the two approaches is that the Apple model makes a bet on the Long Tail, but the Steam approach makes a bet on the Short Head. The Apple model is much more manpower-intensive (approving that many apps a day takes staff) but also generates much more revenue over the long term. It is also more of an incentive for developers to publish there because the barrier to entry is a lot simpler to understand.

Optional vs Integrated: The next thing is that app stores are integrated into platforms, but Steam is not. Starting today, Macs all around the world are going to receive software updates that install the Apple store into OSX, and the updated version of OSX also contains it as a mandatory element. This means that it is going to be a feature of all new Macs as well. That’s very powerful.

All software environments have an issue when it comes to visibility for non-default software because many users are simply not motivated enough to go searching for software that’s not in front of their faces. The ability of a platform to bind users into its software is why Microsoft ended up in court over Internet Explorer, but also why Internet Explorer is still the dominant browser worldwide. Default behaviour is also why users often use Google as a navigation tool to find Facebook or Twitter instead of using URLs because it’s just much simpler.

Steam is not integrated. Users have to choose to install it, which means that they have to know it exists and have a reason to care about it. Many don’t, and have never heard of Steam. This means that Steam is more like the arthouse cinema that dedicated viewers go out of their way to find rather than a catch-all solution, and now that the app store is here, it means that Steam will increasingly be relegated.

Price Control: Lastly, Steam is very involved in the pricing of games. They create Steam Sales all the time in order to pull customers back into the service, with massive discounts like 75% off Indie Packs. These sales lead the way for customers to buy full price software, and it’s full price software that publishers like because it retains the perception of value in their content.

In app stores, developers pretty much control their own pricing and business models with very little supervision. On the iPhone this led to a race to the bottom very quickly, with most apps costing $0.99 or $1.99, and even several of the big-name games only managing to charge maybe $5.99 at best. Indeed, Neil Young of ngmoco maintains that anyone even thinking of charging a cent up front in the iPhone App Store is wasting their time, and needs to be thinking about charging on the back end instead (virtual goods etc).

Price control for developers inevitably reduces the price of software down to near zero, and makes the market all about achieving volume rather than high revenue per customer (ARPU). The high ARPU model is the one by which most modern publishing operates because it allows for significant profit margins, whereas the app store model relies on making cents on the million downloads, or revenue from 2% of customers.

That is what the app store is going to bring to desktop software. It’s absolutely fantastic for users because it means that they are going to get their hands on way more cool software than they ever could before in a clean, safe and cheap environment. It is, however, apocalyptic for any game developer whose model has relied on low unit sales with high ARPU.

 

The Mac as Viable Platform

Macs have never been regarded as much of a platform by the games industry. PC game developers traditionally like to push the boat out in terms of graphics especially, and the Mac has always felt about two steps behind the PC in terms of sheer horsepower. Gamers who wanted desktop gaming always bought ninja PCs as a result, so the Mac remained the tool of graphic designers and the like.

At least, that’s how it used to be. In reality, PC graphics plateaued out a couple of years ago. It’s been a long time since anyone could actually notice the difference between one bleeding edge graphics card or another. Secondly, the PC as a platform has been concentrating more on the lower end, like netbooks, or games based in Flash, and there is much less of a demand for super-powered PCs than there used to be. Lastly, many of the big PC developers moved over to console a while ago (citing imaginary concerns over piracy of all things). Long story short, PC gaming has been pretty much stuck for around 3 years, and has become the stronghold of indies and console developers who still publish a PC version of their latest game after the console version has released.

Mac games have always existed, but game stores rarely stocked them. So there has always been something of a weighting against the Mac as a game platform because of a lack of visibility. Of course, the app store solves that, and so Mac gaming will probably become a huge growth area this year. On the iPhone, the app store really turned on the appetite for mobile gaming in a way that no other platform had managed to do simply by making mobile games highly visible and available. The same will happen for the Mac.

But regardless of whether the Mac is or is not a viable game platform, the assumption that that makes the app store irrelevant to PC gaming misses the point. The point, rather, is that Microsoft will have to respond.

Even if Apple does not include the App Store as a part of PC iTunes (I’m betting they won’t), Microsoft will still have to roll their own. What will happen if they don’t is that the Mac will become widely known as the better, simpler and cheaper software platform (“there’s an app for that” etc), leading to more Mac sales and less Windows sales. If they don’t do it then the Windows platform will take a serious, possibly even fatal, hit.

In a similar vein, Google also has to respond. Android is already ahead of the curve by allowing app stores to exist within its environment. Chrome is also now featuring an app store, which doesn’t make a great deal of sense in the browser, but does in the Chrome OS context. Even Amazon is getting into the app store business, putting together an Android store. However they want to exercise control over pricing like they wanted to for Kindle books. That might not be too smart, but the principles aside from that are very sound.

The point? It’s not about Apple. Apple’s store is simply a beach-head. The point that the games industry need to be taking notice of is that app stores are going to be everywhere.

 

The Desktop And The Mobile Market

Another assumption is that the desktop is somehow inherently different to the mobile market, and that this exceptionalism means that the pattern of what happened in mobile will not be repeated.

There are three essential differences between mobile and desktop, and they are screen size, interface restrictions and whether you sit down to use them, or use them on the go. Within those bounds, the use of software is much the same. You can use your mobile to play a game, write an email, compose a document or a blog post. You can use your PC to make phone calls, surf the web or scribble notes.

Barring heavy use cases (Photoshop for example) there isn’t that much difference between the two styles of computing. Certainly for games the gulf is not so wide that consumers would behave in a fundamentally different way. Sitting down to a computer is simply a more concentrated use case, it is not a different use case.

I think that believing the desktop will behave inherently differently is a very dangerous assumption to make. While the desktop PC or Mac certainly have some institutionalised software that is very expensive, there is every indication to suggest that games in particular thrive when they are cheaper.

 

Gamepocalypse Soon

The big difference between soon and now, and the reason why app stores have the potential to be apocalyptic for the desktop, is that the current arrangement (through Steam etc) is vastly over-inflating the price of games. The game consumer wants to pay a lot less for their games because they do not find them as engaging as developers and publishers think they should, and app stores are going to reduce that price significantly.

Many indie games charge $25, and many retail games charge $40 or $50. But there is ample evidence to suggest that the natural price (the price that users want to pay) for games is actually $5. When 2DBoy did an experiment with flexible pricing with World of Goo a couple of years ago, they had players essentially choose what they wanted to pay from across a range. The best balance of revenue versus purchase numbers came in at $5.

When Steam does its 75% off sales on Indie Packs, they most commonly end up valuing the individual games at $5 or less. Whether small, large, indie, retail or back catalogue games, $5 is the natural price. Steam sales sell way more copies of games in these sale packs than individual releases because the price point is right.

I think that what app stores are going to do to the desktop market is bring its pricing into line with where it naturally wants to be. In the process this is going disempower many developers and publishers who believe their business model should be ARPU-based rather than volume-based. It will reduce the number of big-budget games to only a handful, perhaps making those games seem like the ultra-premium Gucci bag game, where most others are simply regular bags.

And yet it will also empower many newer developers.

The upside of the iPhone app store is that it has made many new household names, such as Angry Birds, and spawned a whole new economy. Apocalypses tend to do that because they create new fertile ground where before there was nothing but dense jungle. So the app store era for the desktop is one that should fill many of us with hope, as long as we don’t cling too much to the past. Or our sense of how things should be rather than how they are.

There’s still time to get ready for the changeover, but it won’t hang around forever.

Comments

[Krister]

When I read this I can't help but think of a PC game I enjoy playing which has recently changed its biz model, probably in part to how apps have monetized: Lord Of The Rings Online.

Apparently moving from subscription to freemium was a good move for Turbine.

[Tadhg]

Indeed, as did Puzzle Pirates. And the highest grossing apps on the App Store are more usually games that are free to download.

[Gavinx]

..obliging MS to respond.

You should check out Windows Phone 7 Tadhg. Very viable game platform linked to Xbox Live. Gameplay at or above PSP level. Its an interesting v1.0 with the obligatory app store and tight Facebook integration.

[Krautpleaser]

Thank you very much for this well researched and written article and your interesting conclusions / suggestions.

The arriving of the appstore certainly will shift the gaming landscape for gamers and publishers.

But there are 2 things I am asking myself:

1) Do you really think the usage of desktop computers and mobile computers (in regard of gaming) is such similar?

Think about the amount of time, concentration and privatsphere you need for a whole bunch of videogame genres that don't come in appetizing slices.

The rise of small/one man- studios and their concepts is not coming out of the blue. It's the direct consequence of the demand for a different gaming, not only coz of the smaller screen, but the shorter attention span (oh, the bus is coming, my girlfriend is calling, etc)

2) Do you think the natural habitat for videogame prices really is lying in the 5 $ swamp? Shouldn't we differentiate between what games are worth and people think games are worth (because they want to save as much money as possible)? Isn't the reason, so many people eat really shitty food, that they are not willing (and maybe able) to pay for the fair priced organic stuff, which is more expensive than fast food nevertheless? (I do not want to assume triple A's are fairly priced whatsoever.)

[Tadhg]

Thanks for the comment K

1) The usage is moderately different. The point was rather that the economics of software between the two are a lot closer than people think. I definitely think that we'll see more similar rather than different behavior between the two.

2) The only amount that games are worth is whatever people think they are worth. There is no such thing as inherent value. Part of the reason why organic food sells is because it is more expensive. By being so, it conveys the sense that it is better quality, and quite a lot of consumers want to pay extra for that quality.

I don't think I'd characterise $5 as the swamp by the way. In real terms the amount made to the developer per copy is about the same ($3.50) as it was under old publishing. All that's missing is that publishing and retail layer trying to add its value.

[wilson le]

If deeper, 'quality' games aren't viable on app stores, then the App store and Steam serve two completely different markets. App store games are relegated to low-depth/high addiction time-wasters, and so compete with other similar activities (game flash portals, facebook, facebook-games, web-surfing, social games, etc).

Much of Steam's catalog is made of niche indie titles. How would niche titles (of which whose audiences are small) be viable on the Mac App Store?

[me.yahoo.com/a/iesECzI1lcINIvgG9uQEbdNaQvb0]

Just some comments:

Appstores are not Steam

Closed vs. Curated: What are the terms of service for the app store regarding mature content? Steam does have them. My perception is that the Appstore (at least the iOS one) is far more curated than Steam. There are single man projects in Steam like Garry’s mod but –fortunately- no “fart apps” at all.

Optional vs. Integrated: Maybe the number of PCs with Steam won’t be far from the number of Macs in the market; also add all the other services like Games for Windows or Facebook and the difference will decrease even farther.

Price Control: Digital distribution prices are a delicate subject; Valve, the owners of Steam give some of their games not for $5.00 but for free, maybe the retailer can’t influence much in the final price of the product. Is it really possible to charge the same amount of money for two products with a difference in their development costs of 100s of millions vs. developments of 10s of thousands or less? It’s hard to determine how the prices for games are established, in that regard, the PC Gaming industry has the avant-garde with “free to play games” which are nothing new and stream services like OnLive.

The Mac as Viable Platform

The growth in demand for low end PCs do not cause a decrease on demand for hi-end equipment, it is possible for both markets to grow at the same time. I don’t know of any article which states that the hi-end PC hardware is experiencing low demand; instead I see it grow and diversify. I do agree that Mac is a much more viable platform now (Steam for Mac helped a bit).

Games for Windows, which integrates digital distribution in their service has been around for some time now. That’s technically Microsoft’s response before the Mac Appstore even existed.
As of today, the vast majority of software developers or publishers already have their products in the biggest appstore of all: The Internet. Caothic, but completely unregulated.

The Desktop And The Mobile Market

There is a fourth extremely important deference between mobile and desktop systems: The Input. Most mobile devices relay on analogue sticks, buttons and/or touchscreens, while a desktop has a mouse and keyboard. Almost every interface can be adapted to the later one, but it’s impossible to translate a mouse and keyboard input into a mobile device… at least for now because Razer is working on a mobile mouse and keyboard. (funny how this hi-end PC company keeps innovating huh?)

Gamepocalypse Soon

Why is it assumed that the launch of a product (specially apple products) carry the extinction of another? I’ve never heard: "The new Coke Zero will bring the apocalypse of Diet Pepsi".
And what is exactly a “natural price”? If a lot of people want to buy a Ferrari for $5.00, the natural price of a Ferrari should be $5.00? (sorry for the last “reduction to the absurd” arguments, they are just fun =) )

Taking into account inflation, the price of PC Games has actually decreased in the past decades. The Mac Appstore will be just another way of to distribute iOS and OS X software, and for me that’s the greatest weakness of it (unless the bought applications run in android, windows, etc). Actually on Steam when you buy a game you can download it for PC or Mac indistinctively.

In my opinion the most important contender in this fight will be Facebook, they have an impressive 500 million subscribers, compatibility with almost any system with a browser and very popular exclusives.

Will the Mac Appstore change everything? I highly doubt it.
P.D. Sorry for my English, it’s not my first language.