And that means not only a surge in video games played and developed for the iPhone -- and similar phones such as those being built on Google's Android platform -- but also more potential for in-game advertising.
A whole new playing field
How hard would it be to create a similar network for in-game ads on mobile phones? Google, which recently rolled out the G1 smartphone, already has an in-game ad network. Microsoft, which owns in-game ad firm Massive, is oft-rumored to be working on its own phone. Sony, which has the handheld PSP and Sony-Ericsson phone under its corporate roof, is also rumored to be working on a PSP phone with suspect patents already filed, and it too has embraced in-game advertising with its own in-house team while also partnering with ad networks such as IGA.
"The thing with casual gaming is that it hits a much bigger demographic than console games that just tend to attract younger men, so now with mobile gaming you have an even greater potential for generating ad revenue, more than PC games ever could. More people have phones than PCs, and they're using them more often and with more [downtime and] opportunities for gaming," said Rob Enderle, principal of the Enderle Group.
The speedy growth of Apple's iPhone, and its potential effect on the video gaming industry, was evident in two NPD studies this week.
The first revealed that the iPhone 3G jumped ahead of Motorola's Razr in sales for the first time in the third quarter and knocked Razr from the No. 1 spot for the first time in 12 quarters. The second NPD study on portable entertainment found that smartphone users play games more often than they use the business-related applications on their devices. Among iPhone users specifically, playing games was the most increased use of the phone over the past three months.
Friend or foe?
While industry watchers believe that the iPhone as a gaming device could put pressure on reigning handheld champs Nintendo DS and Sony PSP, it is more likely that the iPhone and its smartphone competition will actually broaden the entire portable-video-game market.
"Smartphones have the potential of introducing a whole new group of consumers to the joys of video gaming, especially the iPhone, which with its sleek form factor and large LCD screen is well-positioned to capture the attention of anyone even remotely interested in video games," said NPD analyst David Riley.
Electronic Arts, which recently announced a slate of more than 10 video games built specifically for the iPhone, agreed. A spokesman said EA believes there is plenty of room in the market for both the iPhone and other game-only devices.
The other reasons Nintendo and Sony may not be too worried, at least so far, is that battery life is still an issue for mobile game players, as well as the lack of physical buttons to press, which inhibits the iPhone as a serious gaming device.
"People don't like to sacrifice cellphone battery life for gaming, especially when they know the phone is potentially a safety device," said Ted Pollak, analyst with Jon Peddie Research.
Seeing how it plays out
Still, Sony and Nintendo will likely keep tabs on just how successful the iPhone and the other smartphones become as gaming devices.
"In the short term, DS and PSP still have a lot larger installed bases and more significant developer support," said Michael Cai, analyst with Parks Associates. "But going into the future when consumers are ready to replace their portable gaming devices, are they going to consider an iPhone instead? Yes, I'd bet a certain percentage will."