Saturday, March 5, 2011

Commoditization is hell

In an AP dispatch† from the distant reaches of San Francisco, the San Jose Mercury News today reported that the life of a videogame developer ain’t what it used to be:

Nintendo President Satoru Iwata said in the conference's keynote speech Wednesday morning that "game development is drowning" because of the rise of cheaply made and priced mobile and social games. He expressed concern that those platforms have "no motivation to maintain the value of gaming" and that they lower gamemakers' ability to make a living.
In other words, 99¢ iPhone games have killed the market for $60 console games.

Hmmmm...let’s see. Consumers would rather have a cheap portable way to pass the time rather than an expensive immersive experience that requires they sit in front of a TV all day.

Actually, the concerns of developers are exaggerated. The industry is cyclical, chronically depending on the latest hit console — at a time when the major console developers are stretching out platform life cycles, trying to milk their cash cows for all they’re worth.

The problem seems to be that the industry believed its own hype that it would soon surpass the movie industry in revenues and societal impacts.

There’s no reason to suspect that videogames would be immune from the commoditization pressures facing any other industry.

As with any technology-based industry, the growth of performance eventually slows downs — or efforts to add features no longer increase the value perceived by customers. As Clay Christensen noted, the threat in these cases is that a cheaper technology soon becomes good enough.

Time to face reality: commoditization is not going away. The 99¢ games will become more compelling as the mobile devices become more powerful, siphoning off business from the high end formerly mainstream product.

† Apparently the Merc had to close their San Francisco bureau due to budget cuts, or perhaps they decided to stop covering videogames since ace reporter (and author) Dean Takahashi jumped ship.

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