2017 is upon us, and by some accounts, it should be a great year for mobile game developers: Newzoo estimates that global smartphone and tablet revenues will amount to $42.5BN in 2017, up from $36.9BN in 2016.
The biggest stories in mobile gaming in 2016 were, to my mind, the massive success of Pokemon Go, Apple's reduction of App Store submission review times, Supercell's shrewd (and lucrative) utilization of its Clash of Clans IP value through the release of Clash Royale and its Clash of Clans animated series, the Top 50 grossing staying power of games released by studios based outside of major "technology hubs" through disciplined marketing efforts, continued innovation in the way rewarded video ads are used in mobile games, and, of course, Super Mario Run.
One bizarre trend over 2016 was the amount of vitriol Nintendo drew from various commentators in the video games analysis community. Nintendo made $115MM in profit from Pokemon Go (merely as a license holder) in Q3 2016, and Super Mario Run was downloaded 40MM times in the four days from its release (which was iOS only, excluding China), earning an estimated $14MM in its first three days according to App Annie. If App Annie's estimates are correct (even by ratio), the game saw 1.4MM payers on 37MM downloads for a conversion ratio of 3.8%, which is high by mobile gaming standards, and the company's stock is up nearly 50% from the start of the year, down just 22% from the five-year peak shock it experienced just after Pokemon Go was released:
While it's almost certainly true that Super Mario Run could have made more money with a full free-to-play implementation, it's also a tautologically tedious (games that monetize well make more money than those that don't!) and intellectually empty claim that ignores Nintendo's obvious cautious deliberation and doesn't add anything to the discussion. Given the above, it's irrational to claim that Nintendo is failing on mobile.
That said, onto 2017's predictions:
- The mobile publishing model will undergo a fundamental transformation. 2016 exposed a distance between the venture capital-funded and publisher-assisted models of launching games on mobile that in 2017 very well may present an opportunity. Most publishing arrangements on mobile are borderline punitive: developers give up a massive share of their revenue in exchange for the kinds of things that were important for desktop game developers (QA, business development, PR) but ignore the necessities of success on mobile (user acquisition, analytics, live operations). Services like PollenVC and Game Alliance are disrupting this space at the edges, but 2017 will hopefully see more unscrupulous and unhelpful publishers fall by the wayside while the publishing model evolves to offer comprehensive, mobile-first assistance to developers.
- Zynga bounces back and goes into acquisition mode. Zynga has been trading pretty close to its book value for a while: the company has a strong balance sheet (including about $1BN in current assets), but, despite solid performance from its casino titles, its audience metrics and revenue have stayed relatively flat (with net income declining):
This said, Zynga's NaturalMotion released both CSR2 and Dawn of Titans in 2016, neither of which have to do that well in 2017 to materially impact revenue. This, coupled with a $200MM stock buyback program that Zynga announced in Q3 2016, could drive the company's stock price higher and put it in an acquisitive position.
Rumors swirled in December around Zynga's opening of a Helsinki office, presumably ahead of a forthcoming acquisition announcement. While it seems unlikely that Zynga would undertake an acquisition as large as NaturalMotion again in the near-term future, the company has exhibited a desire to be early on the iMessage games and Facebook Instant Games platforms and could very well become a leader in those emerging spaces through M&A fueled by a higher stock price.
- Alternative App Stores on iOS and Android become serious distribution platforms. The fairly uncomplicated launch of Facebook's Instant Games speaks to a nascent paradigm shift in mobile: "app stores within app stores" might be back, and with them, the distribution power of massive mobile audiences.App stores like Facebook Instant Games and the iMessage App Store could very well become important points of distribution on mobile in 2017. The relatively disappointing performance of the Apple Watch calls into question the idea that the answer for app developers to highly competitive distribution on mobile is shifting away from mobile: smartphones still own people's attention and that's not likely to change. Shifting away from the dominant app stores as the sole point of distribution, especially as the owners of the emerging platforms invest heavily into promoting them, may bear more fruit in 2017.