GDC Mobile: The Rise and Fall of the Carrier Deck?

As part of his presentation at GDC Mobile, Kristian Segerstrale, CEO of Playfish discussed the future evolution of the retail environment, and how it would effect the kind of mobile games that will be developed and the future growth of the mobile games industry. After introducing himself briefly, Segerstrale began by defining why the audience should care about the changes in the carrier deck. "Carriers define your product today," Segerstrale claimed; "they impact your game far more than hardware does." Segerstrale argued that on average, developers work specifically on projects that they think carriers will buy and that then customers will purchase on the basis of the carrier deck, developing the scope and features of the project entirely based on that, as they are tied to creating games that work in the already established business model. "So let's talk a little about economics," Segerstrale continued. "Economics is a science of systems: Economists create models, test them and use them. What if we looked at mobile games as an economist?" Segerstrale looked at the levels of the industry: Competitive development, Ogopolistic publishers, but monopolistic retail: "If you are a Verizon customer you can only buy games from Verizon." Although there off-deck game portals, they do have a high barrier to entry, such as a high customer acquisition cost (the cost of getting customers to visit your portal in the first place, and then use it) Why does this matter? In terms of impact on a day-to-day business, they lead to a high price, and low choice. Over time Segerstrale noted something interesting, that in the early stages of a market, growth is accelerated, as investment in a new monopoly genuinely guarantees return. However, they cause stagnation when persistent. Segerstrale showed an example of this: the early innovation of the new carrier game decks, such as Vodaphone Live, but the slow in growth leading to some carriers, such as O2, offering services arguably worse than some of the earlierst. However, Segerstrale notes that the browsing user interface may no longer be an adequate excuse, with, for example, the iPhone offering a much better interface than was available five years ago. Segerstrale asked if billing would remain a barrier, noting that in 2004 that the return of investment was very poor, with a cost of 30-40% for billing, but noted that, for example, Google and Paypal now offer billing across mobile that only costs 2-3% (plus 30 cents). So what will happen if the market becomes competitive, Segerstrale asked? He argued that this would lead to an increase in innovation and growth, plus an increase in consumer choice. This is bad news for the currently monopolistic carriers, as historically when monopolies become competitive, the incumbents market share drops quickly, and they become minority players after an adjustment period. The crux of Segerstrale's presentation was that the new internet business models mean changes for mobile, requiring all involved to reinvent their customer relationships, porting plans ("Who says you need to support a thousand handsets straight off? Why not just support ten and see what happens?") even how games are played. "I think there are a lot of reasons to be optimistic as a developer," Segerstrale said, "I've heard a lot of doom and gloom about how developers could even possibly make money with publishers barely making any, but I think the coming changes give a lot of reasons to be optimistic about growth: innovation is going to become important again." The bottom line for carriers can, similarly, be optimistic in a competitive marketplace if they challenge themselves: "why not open up and sell to everyone? Why not truly become a digital retailer? Sure, offer your customers bonuses, but sell to everyone else." A new marketplace also allows carriers to focus on enabling services and be able to take advantage of targeted advertising and competitive billing. "2008 is a great year to think about what's coming next. Don't think about what happened last year. Think about what will be happening in two or three years. I invite you to use this opportunity to come up with our own category defining product. Don't just look at the games industry: don't try and create our own Lara Croft: try and create our YouTube. Use the internet as your inspiration."