Mobile gaming’s 800-pound gorilla

Steve Palley, former editor Gamespot Mobile and recently reinvented at new-analysts-on-the-block Foci Mobile, recently published an article on how the EA acquisition of Jamdat is finally getting the mobile gaming house in order. It’s an interesting and thoughtful article, although rather US-centric in its view of the mobile industry.

But is it true that now that EA has jumped into mobile with both feet it’s going to win the mobile war no matter what? Certainly, it has cemented EA Mobile at the top of the pile. But mobile gaming is still a very young industry working on an immature technology platform. Today’s industry landscape is likely to change radically as the market becomes more mature.

First of all, let’s look at the EA/Jamdat deal itself. It was an all-cash deal at $27 dollars per share, which valued Jamdat at around $680 million dollars. On the day the news was announced, the EA share price dropped by close to a dollar, probably as a reaction to this being EA’s largest acquisition to date, but with no guarantee that it will significantly add to EA’s bottom line in the short term.

But in the mobile games industry this was seen as a great piece of business. Why? Because not only had EA moved into a highest-growth area of the games industry in a big way, it meant it would be bringing an unrivalled catalogue of established IP into a market where brands have proven to make the real money. Whether EA paid too much for Jamdat is a moot point – the reality is that it bought the only truly profitable mobile company on the scene, with year-on-year revenue growth over 100% since it went public in 2004. A month before the EA acquisition Jamdat posted 3^rd Quarter revenues of $20.2 million – probably equal to the rest of the top 5 mobile publishers combined. With one bold move, EA had bought itself the clear No.1 spot in the industry. And let’s not forget the credibility this move brought to the industry as a whole – as a true blue-chip company, EA effectively showed the financial community that it didn’t think mobile gaming was just a flash in the pan.

 So EA opened its wallet and bought itself the top spot. Does that mean it is game over for the other publishers?

Well, it's always tough to take on an incumbent in any industry, especially one with very deep pockets. Jamdat was a very early entrant into mobile games and therefore had the classic early mover advantage in this new market. Games created for mainly US consumers like Lemonade Tycoon and Jamdat Bowling (which were less successful in EMEA) gave it massive market share compared to other start-ups, many of which were based in Europe and so didn’t have the same US carrier relationships that Mitch Lasky and his team could nurture. Even so, for a while Jamdat didn’t look too special – sure, there were some big brands, but the quality was questionable, and other publishers were starting to have million-plus hits of their own. But in mobile gaming it's a very fine line between profit and loss; essentially it’s based on a product which is low cost, so needs to sell in high volume. Million sellers are no longer a PR milestone, they are essential to success. So in order to mount a serious challenge to EA, publishers are having to spend big to build up a serious portfolio of brands, whilst trying to maintain an edge through quality and innovation.

EA are certainly going to be a hard company to shift from the top spot, as they clearly have dominant market share thanks to Jamdat and a potentially amazing product line-up. But the EA Jamdat deal is still bedding itself in, so perhaps we’ll see a truer picture by the end of the year. Replicating a manpower-heavy console model on mobile, which EA appears to be doing, may not prove be the right move. The same structure has certainly put Gameloft in a strong position (through the use of Ubisoft’s resources) and the economies of scale that being truly global can bring. But building a global sales and marketing network is not a cheap thing to do, and it may affect the swift decision making that has so far separated mobile from console. It would only take a couple of high profile failures to let in some of the more nimble games publishers like Glu, I-Play and DChoc, not forgetting more diversified mobile content companies like InfoSpace and Hands On.

But perhaps the killer aspect of this deal isn’t necessarily about buying the no.1 spot. Forget the money or the IP - what the EA deal brings to Jamdat is a visible and trusted brand. That alone is a key advantage above all other publishers, who are trying to reinvent themselves to generate customer loyalty and awareness as they labour underneath the branded operator decks. Brand trust and loyalty is not something which can be simply bought-unlike IP or billboard space. Brand awareness is something EA has built up over many years of hard work and is something none of the other players in mobile gaming have. Real brand awareness brings the opportunity to challenge even slightly the OpCo hegemony that is currently in place. And through such brand awareness OpCo's will clamour to have EA content on deck, as they run to be associated with the titan of the industry. You could almost say it's a self-fulfilling cycle.

But let's wait and see. This industry is still so young we've yet to see any of the VC's or parent companies cut their losses and run. Talk of EA as no.1 is surely premature while companies like Microsoft and NewsCorp look on from the sidelines. Already some of the OpCo’s have made it clear that they still call the shots – for the time being, at least. So EA may be winning the latest phase of the mobile games industry, but there is plenty of time before we will really know if they are planning for a sprint or a marathon.