Will Third Party Games Make or Break the iPhone?

A recent article on Bloomberg.com reports that Blake Krikorian, co-founder of Sling Media Inc., recently traded his iPhone for a Palm Pre. Three days later he switched back to the iPhone. The reason, according to Krikorian, is because the Pre didn’t have Tiger Woods PGA Tour.

Aside from Krikorian’s fickle taste, the article raises a very relevant point when consumers consider purchasing a new phone in today’s market: Which apps are available? For some, this will mean games–games published by third parties, the developers who can help make or break platforms.

Take the Sega Dreamcast, for example. On Sept. 9, 1999, Sega’s last foray into the console market was met with brisk sales in America. Selling 1.5 million units in a four-month span, it looked as if Sega was setting the stage for home console dominance reminiscent of its Genesis-era in the mid-1990s. Then, on Jan. 31, 2001, Sega announced the discontinuation of Dreamcast hardware beginning March 2001, citing its intentions to focus on creating software titles for other platforms. A mere 17 months after its introduction to the US, the Dreamcast was no more.

So what led to the Dreamcast’s early demise? Many blame lack of third-party support. In an article on Fox Business, Don Reisinger, a columnist at CNET.com, stated, “Sega ostracized its developers and the retail chain. And this is not a business where they don’t remember things.”

Reisinger is referring to the infamous launch of the Sega Saturn, where Sega had set the Saturn’s initial retail date to Sept. 2, 1995, only to announce at the E3 summit in May that the Saturn would be available on May 11, 1995. Sega was aiming to get a jump start on Playstation sales, but failed to inform both retail channels and developers that the Saturn was launching almost five months before planned. This meant early third party developers would have one of two choices: release their products unfinished or release their products well after the Saturn’s launch. Either prospect meant reduced sales and lost revenue.

The result was a tarnished business relationship for Sega with its third party developers, which would haunt it a full four years later when the Dreamcast made its American debut. The Dreamcast’s lack of major third party support (both EA and Square were absent, two of the biggest publishers in the business at the time), and limited retail availability spelled death to an otherwise revered game machine.

So far, Apple hasn’t had problems garnering third party support for the iPhone or retaining it. In fact, it seems like they have the opposite problem. As of July 14, 2009, an estimated 65,000 apps are available. So why does Apple have such an easy time courting sometimes elusive third party developers?

Perhaps it’s because of the iPhone SDK. The absence of thousand-dollar licensing costs and specialized development kits are likely major factors. Aside from a nominal developer fee ($100 for individuals, $299 for enterprise), Apple positions the iPhone SDK as a freely available development kit that developers can use to create games and apps. While Apple takes a 30-percent cut of every software sale made, this reduction in profit is nowhere near the barrier of up-front licensing costs traditional console manufacturers incur or the pricey development kits that console manufacturers require developers to buy.

There’s also no need for traditional brick-and-mortar retail shelf space, a costly expense, according to a March 2009 blog posting titled Video Gamer Makers Seeing Red from New York Times Editor Matt Ritchell. In it, Ritchell writes, “One of their major expenses, obviously, is distribution through retail outlets. More broadly, game makers have an increasingly strained relationship with brick-and-mortar retailers.”

In addition to these reasons, it seems one lucrative advantage to any developer, whether mega-publisher or garage coder, is the inability for consumers to buy and sell used copies of App Store games. Since apps bought on the App Store are bound to a user’s account, the inability of users to resell their applications seems like an enticing prospect for publishers and developers alike. Used video game sales’ impact has only seemingly grown more prolific as a stifling US economy has dragged down an otherwise cash earning industry.

With the iPhone’s popularity among consumers and developers, it’s no question that the stage has been set for further success. But this success didn’t happen simply by chance. Apple crafted a system that works (for the most part) for game developers who are the bread and butter of any platform’s viability. The App Store is hugely successful because of them, and as long as Apple continues to garner their trust and earn sales, they could continue to gain market share.