Friday Slide: The Crucible

How many new games appeared on the App Store today? Forty-nine, according to appshopper.com, which has a good reputation for accuracy. Granted, that number is a bit misleading, because some of these were “lite” versions of existing games… but still, iPhone gamers got access to forty or so truly new games in the last twenty-four hours. “Only” 11 were released yesterday, but the daily average over the past week has been just under 31, if my basic math is to be trusted.

Think about it for a second. This is completely insane. What’s even crazier is that this number has been on the rise from month to month. Appshopper doesn’t track individual days more than a week out, but we sampled a random week each from January, December, and November. Based on our selections, January averaged 28 games a day, December averaged 25, and November averaged about 18. This is just rough, back-of-the-envelope calculation, but the trend here has held up for four months in a row.

It’s amazing to think that Apple has managed to play and approve so many games, week in and week out. But then again, many of the developers I’ve talked to say that the approval process is growing longer and longer, which suggests that it may be past capacity and backlogged. Only Apple knows how many iPhone games are really being produced these days. We might be seeing some fraction of the real total!

Sooner or later, every successful market hits a saturation point–the point at which consumers have simply had their fill, demand slows, and new products can’t find buyers. Despite all appearances to the contrary, the App Store is no different. I think that two things are disguising this saturation point for iPhone games. The first factor is organic expansion: newly minted iPhone owners are jumping onto the App Store every day, and they have seven and a half blank App pages to fill up.

The second is obsolescence, or as one STP commenter recently put it, “disposability.” Extremely cheap games have been turned into commodities, meaning that customers buy and replace them in bulk, so there’s always room for more cheap games. That’s not to say that some cheap games aren’t better than others, or that some customers aren’t more discerning than others (STP readers, for instance), but neither the majority of customers nor the majority of developers are really behaving like it matters. There’s just too much volume. One of the big problems with this situation is that it can turn into a vicious cycle–the more games there are on sale, the more games developers feel compelled to release to improve their chances in the commodity rush, and the less time and resources they can afford to spend on each one. Gamers’ quality expectations steadily decrease under these circumstances.

Luckily, there’s an easy (if somewhat counter-intuitive) way out of this mess, and it looks like some developers have started to figure it out. It’s based on something called the Veblen effect. Demand for a Veblen good increases as its price rises, because consumers assume that they’re going to get a more desirable product. That hasn’t always been the right assumption to make on the App Store, obviously; in fact, developers dramatically cutting the cost of superior games to gain market share is what destroyed price expectations in the first place.

But the upwards movement is clearly there. Ever so gradually, we are starting to see developers raise the price on their existing games (usually under the guise of adding new features in an update), and they are introducing new games at higher prices as well. By doing this, they are disassociating themselves from the commodity stream of 99 cent and free games, and building an entirely new market segment aimed at customers who don’t want to buy their games in bulk (and who read professional reviews, cough cough). When Apple introduces its Premium Games section, it will split the market into three: one sub-market each for high-, middle-, and low-end customers. Ultimately, this is going to make everyone more money… and full-time developers might actually be able to make iPhone games for a living!

I think we can all agree that there’s never, ever been a games platform remotely like the App Store. It’s really something to watch the crucible of competition, however imperfect it may be, work its magic.

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