German outfit Fishlabs is one of the longstanding mobile development studios.

With a reputation for cutting-edge technology in the shape of titles such as Galaxy on Fire and Powerboat Challenge, it's also mixed up its workload in 2009, developing successful free advertising games for the likes of VW, as well as continuing to expand operations with iPhone versions of its existing IP.

We caught up with CEO Michael Schade to get his views on the current App Store situation, as well as the emerging trends in terms of new platforms and business models.

Pocket Gamer: You've just released Rally Master Pro which is doing well on the US App Store even at $5. Does this mean iPhone remains a good opportunity for developers with high quality games?

Michael Schade: We see titles on the App Store being successful at both ends of the games spectrum: very casual for 99c to $2.99, and high-end games that can compete with DS and PSP games at a price tag of $4.99 to $9.99.

Because for production costs reasons, there are many more games on the casual end, I would say it's even a safer bet to be in the premium range. Also the long tail is fairly strong here.

However, you have to find a way to differentiate from your competitors. Although rally racing is not too popular in the US, we are doing pretty well with Rally Master Pro as it is the only proper rally title out there.

With a peak of ten staff working on the game, how worried are you that development budgets will getting so high on iPhone that you won't be able to break-even?

Indeed, 3GS is on par with PSP, if not beyond, and we're competing with the big publishers and some really talented indies with excellent console gaming background. This is a business environment where project budget easily go up by a couple of hundred thousand Euros if you want to compete in the premium segment.

Given the heavy price pressure on the App Store, it is quite a challenge to break-even. One of the biggest issues is that even premium games can't sustain a reasonable price for a long time and if you launch a new title many consumers compare its value with existing games that have been live only for a few months and seen heavy price drops.

Currently, the price tag for a brand new premium game on iPhone is around the same price of a quality Java game but we see price drops within weeks. Some say that developers get a better payout from Apple but this is not a valid argument since the development costs are so much higher on iPhone.

Fishlabs has always done a lot of in-app advertising. Can you still generate reasonable returns on this?

In-app advertising is not the silver bullet in pushing your game, especially when trying to push a paid version. However, we have seen good conversion rates in promoting our Lite versions. In combination with in-app purchases, we can now connect the ad spending with revenues and we expect reasonable results.

How do you think the Google/AdMob deal will affect things?

The acquisition of AdMob demonstrates how important mobile advertisement will become in the future. As stated before, it is still early days but growth in this area will be substantial.

Smartphone penetration is expected to be growing fast over the next few years and the more users who get used to mobile ads the better as the overall conversion rate will improve.

You've also done a lot of free games for other companies. Why is this work for hire important for Fishlabs?

Our development services for other companies have always been a major part in our business. However, the focus has shifted to development, and even publishing, for brands as the margins are much better. Interestingly, brands are much more willing to pay for quality and reliability than games publishers, although the later should know better as it is their core business.

After our tremendous success with the two VW ad games and Barclaycard Waterslide Extreme dominating the charts, we get more and more requests for brands which gives us a great competitive advantage as these projects are fairly low risk compared to launching our own games on the App Store.

What do you think about the potential of in-app purchases?

We believe that for some type of games in-app purchase could really work. For instance, RPG games with great longevity or casual games with addictive gameplay.

However, the challenge will be to pick the right price point and to make the free part interesting enough for players to stick with the game without the developer giving away too much. For some of our existing titles we will update the Lite versions with in-app purchase and extra content to push the titles again.

There's going to be a big push in 2010 for Android, Ovi, WinMo so do you think you'll be shifting resources back to smartphone?

For us it's a great plus point that we have a strong heritage in mobile games especially considering the number of powerful smartphones from Nokia, Samsung, Sony Ericsson, THC, and lately Motorola, which feature OpenGL graphics on large screens, with touch- and tilt controls, and good audio quality.

All these are pretty much within the same range of the iPhone specs and if you have a versatile technology in place as we have with our ABYSS game engine, porting feels like a walk in the park compared to the Java environment.

What about PSP Minis and DSiWare?

We have been following the news on these closely but we haven't seen great success stories yet. We are considering PSP as our portfolio is a better fit with the typical PSP owner than on DS.

However, we are concerned about the competition of the true console ports with huge production budgets, because, as we know from the App Store, consumers are merciless. Even €5 games are expected to deliver full console value. Hence, while casual games on PSP might do well on a budget, console-like games won't necessarily.

Thanks to Michael for his time

You can keep up to date with what's going on at Fishlabs via its website and Twitter.