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The long-rumored Apple console, free-to-play games, and the future of the living room

I've never worked in the games business, and I have no major reason to have opinions about it. But I've been thinking about this one for a really long time and I don't see it being fully explained anywhere. So here's my thesis about what's going to happen with console gaming.

One day, Apple will expand Apple TV into an iOS device that can support third-party apps, perhaps renaming it in the process. The biggest reason they have to take this step is the rise of free-to-play (F2P) games. F2P games have made major inroads in mobile and PC gaming, but nobody has taken them into the living room. Apple will be the company to do this, beating Sony, Microsoft, Nintendo, and Valve to the punch. It will give the company a major footprint in the living room, strengthen its position as a distributor of streaming entertainment, and grow Apple TV into a massive new product line.

Free-to-play gaming is a tidal wave

Give this a try: Find good free games for your iPhone or iPad. Find them on the App Store, or even better, through gaming blogs like Kotaku. Download every single one, play it for as long you enjoy it. Don't spend any money. When you get bored, find another one. Repeat until you run out of good free games.

You can't actually do this, right? There's simply too much out there. There are so many good and even great games for free that to do this you would sacrifice your job, your family, and your social life.

Free-to-play games are, like any freemium good, one part marketing and one part for-sale product. The games business has always been incredibly competitive, but in the past you still had to charge for games because there was no other way to get paid. But once companies like Apple and Valve made it easy to embed payment opportunities inside the game after the download, that created an immense downward pressure on purchase price. That pressure has now brought the price all the way down to zero.

There are holdouts, to be sure. And they have good reasons, arguing that F2P dynamics ruin games. I think that's a respectable position, but I also think it's not a position that most studios will be able to afford.

Imagine a world where almost every restaurant let you try the first five bites of any dish for free. How many people would try the restaurant that made you pay up front? Wouldn't almost everybody walk up and down the street at dinner time, eating five bites at a time until they were full?

We have met the enemy, and he is currently downloading Flappy Bird

Now is probably the time to say that I don't think restauranteurs should offer five free bites: Their lives are hard enough as it is. And I don't at all think that F2P is all great for everybody all the time.

But it's interesting to compare mobile F2P and PC F2P, which are starkly different in terms of game quality. In mobile, F2P brings out the worst in app economics, with crippleware, shameless ripoffs, misleading names, ratings scammers, and everything else. But on the PC side, F2P is a done deal, and if you check out Steam's list of F2P games you'll find successful and critically respectable entries in a wide range of genres. If you want a team-based shooter, go for Team Fortress 2 or Loadout. If you want a grindy RPG, try Path of Exile. You can be a superhero in Marvel Heroes, or a mechanized war machine in Hawken.

And then there's League of Legends, the biggest e-sports game today. You probably couldn't find a player base more concerned with game balance, and yet LoL is F2P too. If it's harmed the game, the fans don't seem to care: For last year's world championships, Riot Games booked the Staples Center and then sold every last ticket.

So I guess, generally, I consider F2P a classic disruption that will be very noisy for a while but generally better for consumers. And I think when F2P hits the living room, it may look like the current mobile F2P at first, but as it gets bigger it will get a bit more mature, looking like the more sensible PC F2P scene.

(If you're curious: I play mostly console games with a few PC games on the side, with a leaning towards intense shooters and games that are grim in a novel way. Recent faves include the Dark Souls series, Battlefield 3, Don't Starve, Spec Ops: The Line, and Hotline Miami. I think Titanfall lives up to the hype. I'm trying to not suck at League of Legends.)

Who loses?

Once you call something a "classic disruption", you need to enumerate who's going to end up on what side when all the dust is settled. As I've written before, "disruptive" is often a synonym for "somebody's going to lose their job". Vote Democrat, kids.

AAA Game Studios

There are a handful of studios still launching $60 titles for consoles and PC. But as much as I'm enjoying Titanfall, I think that perch is going to get really precarious over the next few years. Some of those studios will figure out how to make the games they want with a blend of lower purchase prices and more in-game purchasing. Maybe a few will be able to justify their high purchase price with a high reputation for quality. (I'd probably pay $100 for Half-Life 3 at this point.) And some won't make the transition at all.

Microsoft and Sony

The Xbox and Playstation product lines are fairly expensive machines whose main selling point is the ability to power AAA titles. If all you want to play is AAA games, those consoles offer strong value, but as F2P games improve that value only gets weaker.

So even if they see F2P coming at them, it's hard to know how Microsoft and Sony would even maneuver. They're joined at the hip to the AAA studios, and the right console exclusive can drive a lot of hardware sales: Personally I bought my Xbox One bundled with Titanfall. Serious moves to make these consoles more F2P-friendly would likely erode the strength of the AAA studios, leading to a lot of stressful conference calls.

And, yes, Microsoft and Sony keep making noises about their consoles working as general entertainment hubs, but that's a secondary point at best when Roku and Chromecast cost less than $50. Nobody buys an Xbox One to watch Netflix. That'd be like buying a car because you need a cup holder.

Nintendo

Business schools will be picking over the bones of this one for decades to come: A game company with a string of hardware hits and a stable of beloved characters, failing because it couldn't see that F2P would catastrophically erode its hold among its casual, price-sensitive customers. F2P needs social dynamics and in-game payments, but Nintendo has not seriously invested in either. And while they can honestly say they provide a safer gaming environment for kids than Apple or anyone else, that will be scant consolation when they're looking like the next Sega, making one Mario game a year to release on other people's hardware.

Next stop: The living room

As for Apple, I believe they're headed to the living room to take on console makers Sony and Microsoft. It might go something like this:

One day—maybe tomorrow, maybe in a year—Apple will release an iOS console that integrates with your TV and supports iOS apps. This will make the iOS Controller API ten times more important than before, and iOS game developers everywhere will rush to update their existing titles for controller use. As soon as they're done with that enhancement they'll start work on new games, the kind that work better on a big flatscreen TV.

The reaction of the hardcore gaming community will be far more negative than positive. They'll call Apple console users "casuals" and worse. But it won't matter, because Apple isn't selling to them. Slashdot commenters complained that the iPod was expensive on a per-megabyte basis, and that turned out to be irrelevant too.

Instead, Apple will market to its existing customers, with a tagline something like: "$199. 10,000 free games." And then they'll have a foothold.

The first generation of this device will support fairly low-powered games, only a bit more graphically intensive than an iPad game, but as time goes on Apple will push up into bigger hardware, and some of their iOS developer base will follow. Before long Sony and Microsoft will lose some of their top-notch studios to this platform. And soon after that hardcore gamers will have fewer and fewer reasons to buy a box from Sony or Microsoft.

What about Valve?

Gabe Newell sees this coming. He needs to be a little paranoid, because Valve is also pushing into the living room with their Steam Machine initiative, in which third-party manufacturers sell PCs designed as under-the-TV game consoles with Steam pre-installed.

Valve and Apple resemble each other more than a little: They're both demanding, high-performing technology organizations founded by leaders with a perfectionist streak and a knack for playing a few steps ahead of their competitors. They might meet in the living room, and if that competition heats up it will be fascinating to watch.

However, I'm not sure it'll come to that. Valve might not connect with the mass-market audience that Apple is shooting for. Steam Machine might appeal to PC gamers who are willing to pay more for well-designed hardware, but the reliance on third-party vendors will fragment the brand and intimidate casual customers.

And even Valve themselves have been serving PC gamers for so long that they may not be capable of, or interested in, connecting with a broader audience. I'm a happy Steam user, but I also think it's a perfect example of the company's gamer-centric mindset. Everything about its design—from the dark color scheme to the lousy social features to the tiny fonts—just screams out that it was designed for 18-year-olds who are sitting too close to their monitors.

Predictions

This post would hardly qualify as tech-pundit windbaggery if I didn't make specific claims, would it? How else are you going to tease me when it turns out I'm wrong?

So, here are some things I'm predicting about the games business in five years:

In five years, Apple gaming in the living room will be mainstream

The new Apple console will be a mainstream success, far bigger than Apple TV is now. Over time the iOS gaming library will come to resemble that of the libraries for Xbox and Playstation, with major entries in genres such as FPS, racing, fighting games, etc. Most but not all of these games will be free-to-play.

The only major limitations of the Apple console library will be the same as of Xbox and Playstation: Nobody will be playing an RTS like Starcraft or a MOBA like League of Legends. Because nobody, not even Apple, can make mainstream consumers use a keyboard while sitting on a couch.

In five years, Valve's Steam Machines will be a respectable but minor niche in the console category

These will be quality products that allow Steam to extends its reach without embarrassing Gabe Newell, but they won't break out of the niche PC gaming audience.

In five years, either Sony or Microsoft will retire its console line

My guess is that there will be enough space for one console dependent on AAA titles. Sony or Microsoft will stare at each other for a long time, and then one side will blink.

I'm really not sure which side this will be. The needs of adjacent business units would favor Sony staying in the game: It's a full-fledged entertainment company. Meanwhile, a Microsoft run by Satya Nadella will likely be focusing around its enterprise and cloud offerings, making Xbox look like a red-headed stepchild inside of its own company.

But from the point of view of the developer ecosystem, Microsoft has a much easier time than Sony encouraging developers to make Xbox games, since Windows game programming is so similar. So while I think one of them will bow out, it's very hard to guess which one it'll be.

In five years, Nintendo will be done in the hardware business

Sorry, guys. It was a good run while it lasted.

What does disruption feel like?

I'm generally quite skeptical of tech business books, but I find myself recommending Clayton Christensen's The Innovator's Dilemma all the time. It's almost 20 years old, but it feels like it was written yesterday. And it defines disruptive innovation so precisely and so persuasively that sometimes I feel like you shouldn't be able to use the word "disruptive" without having read it.

One of the things Christensen talks about is "value networks": How new technologies don't just succeed or fail on their technical merits alone, but on the incentives of the various participants positioned around those technologies. You may have permission to work on some new kind of hard drive, but you're never going to get a salesperson to sell them if they have the same commission structure as the older models with a well-defined market. You will fail if you try selling new backhoes to the construction contractors who need the power of an older steam shovel, but maybe you can get the attention of groundskeepers and start from there.

I think one of the tricky parts about spotting a disruptive innovation is that while the old value network is established and easy to describe, the new value network doesn't exist yet. It has yet to be built out of unmet desires and interests that are diffused throughout the world, and watching for its formation is like watching sugar water crystallize into rock candy.

But I believe that this network will take shape, because there are a diffuse set of interests whose desires will be met more precisely by it. Consumers who want to try before they buy. Developers who love making games so much that they're willing to give away a lot of their work. Writers and web programmers who want to help people choose between good and bad in a world flooded with new games. Publishers and investors who understand that the power-law economics of social games means there's money to be made by having the deep pockets to fund twenty games only to see one succeed.

As for whether it'll be good for games, I think generally yes. I'd like to think for every shitty, deceptive piece of crippleware, we'll see two new entries that are sharp and imaginative. Of course, I work in tech, and maybe I'm predisposed to that optimism.

But I also don't think my optimism doesn't matter that much. We're headed there either way.

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