The third panel session of the mobile stream at GCDC is tackling this area. The panel includes David MacQueen from Strategy Analytics, Alistair Hill of M:Metrics, Kay Gruenwold of Nokia, and Volker Hirsch of Connect 2 Media (the company that just merged with Hands-On Mobile in Europe).
So, are analysts all spouting rubbish then? "It's a difficult question to answer," smiles MacQueen, pointing out that the '3.3 billion mobile devices worldwide' figure on Nokia's posters dotted around the event isn't exactly helpful how many of those can play mobile games, are linked to operators selling games and so on?
"The important piece is that this is an industry that is growing," says Gruenwold. "Whether it's six billion or seven billion isn't so important. This industry is growing at a rate that we haven't seen before in this space, which is gaming."
Now Hirsch, who says that the wild analyst projections show that mobile gaming is an emerging market: "No one has a clue how it works!" he says. He points out that even the biggest companies, like Vodafone and Nokia, have failed or changed strategy with some of their moves: Vodafone Live and N-Gage.
So how can this market be analysed and/or understood? Because developers need to do that if they're going to make games which successfully target that market.
Analysis explained
MacQueen takes this question by explaining the analysis industry, and saying there are two kinds of companies: market research firms which talk to operators, publishers, developers and other people involved in the market to get a sense of its size. Then there's the consumer research firms, like M:Metrics, who survey consumers.
So why the inflated projections? "Some companies are more telco-focused, so they look at that 3.3 billion figure of how many handsets are out there, and say, 'Okay, people will be playing games on those handsets'. That's not an accurate way of looking at this market."
He also says that several companies, like Gartner and Juniper, are known for their bullish forecasts at this point, Hirsch chips in saying, "Gartner is the report you buy when you're wanting to raise money!"
But anyway, MacQueen says you should always examine the background of companies releasing forecasts on the mobile games industry are they from a telco background, or a media background, for example as that'll help you decode why their predictions are as high/low as they are.
M:Metrics' Hill says he used to work for a forecaster, but left "because I realised how wrong they were a lot of the time." He also makes the point that often, the things which change the course of an industry most markedly are often the things that can't be predicted.
That's a great point how many analyst projections for 2008 in the last few years included the assumption that Apple would have an iPhone in the market, with a related App Store that gamers would be going bananas for? Not many.
Gruenwold agrees. "Who predicted social networks? Who predicted Facebook overtaking MySpace? We've got to break out of this pattern of thinking."
The difficulty of accurate analysis
Hirsch now, who refers to what Nielsen does with Soundscan in the US music industry, scanning CDs at tills to get accurate figures on sales. "We don't have that for mobile games," he points out.
Hirsch also has some thoughts on why just taking the numbers served up by analysts isn't a good idea. For example, M:Metrics' research shows that the Arcade Puzzle genre generates lots of downloads, but is under-served by games.
"However, a lot of those sales come from Tetris and Pac-Man," he says. "So unless you have the next Tetris or Pac-Man and believe me, I've seen 2,600 of those you can't expect to succeed."
It's not the pure numbers, in other words, it's how you interpret them.
MacQueen says analysts are learning not least learning not to blindly accept everything that operators and handset makers tell them about how many revenues they're going to make or units they're going to ship.
Onto a more controversial subject: Are developers at fault for the slow growth of the mobile games market, because they're not making innovative enough games? Nobody on the panel wants to say that, of course, but Hirsch says the problem is higher up, with publishers and operators.
"If you look at an operator portal like you would at a supermarket, and imagine you have one big shelf of cereal. There might be this new cereal company and their cornflakes might be better than everyone else's. But shoppers will still be buying Kellogg's or Tetris because it's familiar to them. So retailers may say they'll just stock the popular types."
For digital goods like mobile games, of course, there's inifinite 'shelf' space, so in theory there's room for all types of cereals (sorry, games). But as Hirsch says, "If the innovative new games are stuck back in the warehouse, people won't find them."
The price is right?
How will downward price pressures affect the size of the mobile games market? Prices are coming down on the App Store, and M:Metrics' research shows consumers are actively downloading free games. Are prices coming down faster than volume will go up?
"That is a challenge," says MacQueen. "Everyone's talking about Super Monkey Ball on the App Store, but Apple put some promotion behind that. The number one application is Facebook, which is free. The most popular game [Tap Tap Revenge] is free. To compete with free, and make money, one of the solutions is ad-funding, but there's a long way to go. How do you compete with free is the question, and the market hasn't answered that yet."
Nokia's Gruenworld jumps in, pointing out that Nokia charges higher prices for N-Gage games $8-15 because they are initially made available as free demo downloads. "The successful business model will be ones that include that free element, but lead to a purchase," he says. "I don't have the secret formula for that, and if I did, I wouldn't tell you!"
Hirsch now, saying Hands-On has seen every kind of business model, with Guitar Hero III Mobile selling for $15 on Verizon Wireless in the US, and yet still managed to knock Tetris off the top spot in the charts. Yet Hands-On also once did a promotion with Connect 4 on Orange in the UK, slashing its price, and saw it beat the operator's record for mobile game downloads.
He also thinks that looking beyond the initial game to extra elements means players are more likely to pay for games. He cites Guitar Hero III Mobile's downloadable track packs, and World Poker Tour's multiplayer feature.
Gruenwold says that for N-Gage, "the vast majority of purchases are full-price" rather than more limited subscriptions, showing that if people can try a game for free, they're happy to pay for the full thing. Hirsch agrees that conversion rates for demos embedded on phones are good - "20 per cent is not unusual," he says.
