Should Apple Become a Game Developer?

In the game industry, Apple AAPL has become a lot of things: a facilitator (the App Store allows virtually anyone to develop and release games for the iPhone), a distributor (the App Store also guarantees that millions of average Joes are exposed to games they wouldn't have otherwise seen), and most of all a disrupter (by changing the way people look at gaming). But one thing Apple is not: a game developer. Should that change? Historically, the most successful hardware manufacturers in the game industry have also designed some (if not all) of their most successful games. From Atari and Sega to Sony SNE, Microsoft MSFT and Nintendo, these companies didn't merely ship a device to retail and expect others to create the entertainment. They all dove headfirst into game development. Philips, on the other hand, manufactured the CD-i without a single thought about who would (or should) make the games. Panasonic took a similar route when manufacturing the 3DO. Consequently, both platforms died on the day they arrived. Had Apple not been careful, the iPhone could have faced a similar demise. But at launch, it wasn't branded as a game-specific device. In fact, it wasn't much of a game player at all. Consumers fell in love with it anyway, thanks to the many other features (in a nutshell, everything you could want in a smartphone and more) the iPhone offered. If all Apple wants to do is sell hardware, the company can sit tight and let the cash roll in. There are more than enough consumers available to keep the iPhone maker in business for another hundred years, with or without video game support. However, Apple has made it clear that it wants to be a major player in the game industry. Since the App Store's launch a few years ago, nearly every iPhone and iPad commercial has included at least one game. Many of them have focused specifically on the games that the App Store offers. That's a good thing, right? Of course it is – if you're one of the developers behind the games that are featured in the ads. With the current approach, Apple makes a large profit selling iPhones, iPads and iPod Touches, but derives only a small percentage of the profits gained from the App Store. If Apple developed its own games, it would keep every penny. As a developer, Apple could easily raise the standards – and the price – of iPhone games. While two-man indie shops are content with developing simple (and often predictable) games that retail for a buck, there isn't much money in that kind of development philosophy. Frankly, it's a pricing gimmick that relies on the continued interest of mainstream buyers. But as Activision ATVI and Electronic Arts ERTS can tell you, the mainstream is a fickle beast. One minute they love Guitar Hero and Rock Band; the next minute they've moved onto something else. With Apple at the helm of a few games, the company could use its own creativity and innovation to produce experiences we never saw coming – experiences that were built from the ground up for the iPhone and the iPad. This is what Nintendo, Sony and Microsoft have done with their respective systems, which is why their games are often the best available. On the App Store, however, it's a free-for-all collection of crap. There are a few gems, to be certain. But it's mostly a wasteland of copycats and, in some cases, games that completely rip-off another studio's work. If Apple has any doubts about developing its own games, the company should peruse Nintendo's annual sales figures. Not the overall profit, but the sales of individual games. In 2010 alone, Nintendo sold 4.2 million copies of Donkey Kong Country Returns, 6.15 million copies of Super Mario Galaxy 2, 6.58 million copies of NEW Super Mario Bros. Wii, and 10.21 million copies of Wii Sports Resort – all at fifty bucks a pop. The latter game retailed for $10 more, actually, due to the inclusion of the MotionPlus peripheral (which is required to play Wii Sports Resort). Thus, if you were in charge of Apple, which scenario would be more appealing: (A) Create and sell five million copies of a $50 game (and keep all of the profits), or (B) Sell one million copies of a $1 game that someone else made – someone that will take the majority of the profits? Game development isn't easy. It is a very challenging medium with impeccable competition from publishers and developers that have been in the industry for more than 20 years. But if there's one thing Apple proved with the iPhone, it's that it isn't a company that runs away from a fight. And when Apple fights, don't you just love the results?