Endeavour Partners - Blog

It seems that Sony Ericsson’s adoption of the make.believe tag line has prompted at least some commentators to call again for it to release a PSP Phone:

But Sony Ericsson’s only real hope for the long-term may be a PSP-branded phone that leverages Sony’s traction in the video game space. While the market for gaming-centric phones is questionable — see Nokia’s history with the Ngage — such a device could prove popular with a young, data-hungry mobile set. And it would be a better investment than a branding facelift.

There’s clearly potential, as one of my colleagues, Brad Hagedorn noted a couple of months ago:

The potential for a PSP phone is clear when we compare the iPhone & iPod Touch’s growth with early sales of the PSP

Global growth of the iPhone, iPod Touch and PSP

Calling the iPod Touch a comparable, if less gaming centric, match to the PSP we see that their early growth is quite similar.  What is interesting though, is the gap between iPod Touch and iPhone + iPod Touch sales, which represents sales of iPhones.  Since the iPhone is essentially a Touch with phone capabilities, this gap is the oppotunity that Sony may be missing out by having a PSP, without having a PSP phone.

Fans of the PSP have long been speculating as to the development of a PSP phone, but with Engadget Mobile reporting that Sony plans to assemble a team charged with creating a PSP and Sony Ericsson handset hybrid, speculation suddenly seems more like reality.  The potential for a PSP phone is clear when we compare the iPhone & iPod Touch’s growth with early sales of the PSP.

Global growth of the iPhone, iPod Touch and PSP

Calling the iPod Touch a comparable, if less gaming centric, match to the PSP we see that their early growth is quite similar.  What is interesting though, is the gap between iPod Touch and iPhone + iPod Touch sales, which represents sales of iPhones.  Since the iPhone is essentially a Touch with phone capabilities, this gap is the oppotunity that Sony may be missing out by having a PSP, without having a PSP phone.

But has Sony missed the boat on a gaming/phone hybrid?

As I see it, this is most likely the case due to three severe short comings of the PSP.

1. No touch screen
2. No accelerometer
3. No App Store

Hardcore gamers may spit out statistics on the PSP’s superior graphics and the iPhones lack of “real” buttons for a gaming platform, but as recent developments show, this means less and less.  Just look at the Nintendo Wii, which has crushed the PS3 in terms of sales using a graphics card that looks like a Vespa compared to the PS3’s Ducati-like hardware.

Everything is about user experience now, not refresh rates and polygon counts.  That’s where the touch screen and accelerometer differentiate the iPhone.  And the 3GS’s beefed up processor and graphics are starting to level the technical playing field.

Plus, the PSP is still based on the distribution model of customers buying hard copies of games, whereas the iPhone has moved on to the App Store model.  Who wants to take the time to go to a store to purchase a game when it can simply download to your device and never be lost?  (Though the PSP Go could change this).

While Sony may not have seen the omens until now, its traditional software developers have.  Namco entered the iPhone market back in 2007, and even gaming gaint Blizzard is stepping into the arena.

So Sony, that development team may be a stopgap to bleeding customers to the iPhone as a game platform, but it is not a long term solution.  You’ll need a major overhaul of both hardware and software distribution systems to remain relevant in a converged mobile gaming world.

Two items this morning caught my attention, both reflecting on the potential of smartphones as ‘controllers:

• NetworkWorld has a piece of commentary on why the iPhone can’t be killed
• there are now pictures available of the new controller from Sonos

Carolina Milani of Gartner manages to both get it completely right, and completely wrong in NetworkWorld. First, what she got right:

Gartner analyst Carolina Milanesi says that the iPhone’s continued success in the smartphone market has as much to do with its relationship to other Apple devices and software as it does with its own capabilities.

“From technological perspective, there are devices out there that might have higher specs than iPhone,” she says. “But there’s nothing on the market today that pulls everything together to give the superior user experience that you get with the iPhone.” (our emphasis added)

Then I believe that she gets it completely wrong when it comes to the potential appeal of smartphones as a gaming platform:

“I think a lot of gamers would rather go for a full PlayStation [Portable] than a phone-based as a video game system,” she says. “At the end of day you have enough phones that do voice and they are small enough for you to carry a second device that does only video games. I’m not sure that a video game phone would bring much to Sony, to be honest.“

Completely missing the point. If your phone is a smartphone, with a responsive and powerful user interface, and motion sensing and haptics, then it’s an insanely great gaming controller. Two games on the iPhone illustrate this incredibly well:

• X-Plane -the amazing flight simulator
• Flight Control – the completely addictive casual game

X-Plane exploits the graphics capability and the motion sensors as a controller. Flight Control exploits the touch screen and the peer-to-peer networking. Both of them rock, and illustrate just how good a smartphone can be as a games controller.

In fact I was thinking of a post called the ‘Flight Control’ test; for other smartphones, can you imagine playing the game on them. In particular, it’s where the Nokia N97 currently falls short (I’ll update after the update); there’s just no way that it’d work for Flight Control.

On the other hand, the growing importance of interfaces like Facebook may mean that it’s home screen is a better answer than either iPhone or WebOS.

I’m even dubious about the Pre; sometimes it just lags in its responses to touch input, and that’d cause a major (virtual) mid-air collision.

We are already seeing a lot of investment in games for smartphones, and the iPhone in particular. If games developers like id Software are in love with it, as John Carmack said in an interview with VentureBeat:

Carmack’s endorsement means Apple has one of the leading game developers in the whole industry on its side.

“I love the iPhone,” Carmack said in an interview. “It’s a real game platform, not a tiny little toy.”

It would make a lot of sense for Sony [Ericsson?] to launch a great gaming smartphone that leverages the PSP franchise, and unsurprisingly there are recent rumours to this effect again.

The Sonos news is interesting; as any of you with both an iPhone and a Sonos music system will already know, the Sonos app for the iPhone is in many ways a better controller than the dedicated controller. In response, they’re launching a new touchscreen controller:

Sonos CR200 controller

This is important, because it represents another big application area for smartphones: home control.

Apple has its great Remote application which now has gesture control, and now almost all of the major home automation companies already have apps for the iPhone: AMX and Crestron, for example.

What’s more, the value and competitive importance means that other platform players are also targeting this; even Nokia through its home control technology and There venture.

Perhaps one of the interesting ways to think about smartphones that deliver great user experience is as ‘life controllers’.

So, one of the most interesting questions about the smartphone marketplace is what will Microsoft do? WinMo is weak and late. OK, some the hardware is sexy, such as Sony Ericsson’s X1, but this won’t be enough to enable it to remain relevant in the face of the onslaught from Apple and RIM and Android. Possibilities abound:

• launch its own device?
• overhaul WinMo completely?
• buy a device company (HTC or Microsoft or Palm)?
• buy a platform players (Palm or RIM)?

Recent rumors suggest it may do its own device; and that this is what the Danger, Inc. team have been up to Microsoft Moves Office to JWT From McCann

There’s a lot of buzz about apps for smartphones. Not all apps are created equal, however, particularly when it comes to making money from them as a developer.

And that matters to platform players (Apple, RIM, Android, Nokia/Symbian/Ovi, MSFT/WinMo and Palm/WebOS) and device vendors (Apple, RIM, Nokia, Samsung, Sony Ericsson, LG, HTC and Motorola) because apps matter to consumers, and the choices that developers make will play a big part in which platforms win.

For the core apps like mail, messaging and browsing, their importance and economics means that platform players or device vendors have to deliver a great experience, they’ll be prepared to spend $/€ millions to do so, and they’ll give them away for free. That’ll make it difficult or impossible to compete against them. The world does not need another mobile browser company.

There’s a related category where other big businesses will also seek a presence on a platform, such as the iPhone, because of the payoff to their wider online or offline business, through for example increased brand awareness or reach. Think Amazon, Barnes & Noble or BA Flights (Yes, I’m a transatlantic bibliophile).

At the other end of the scale there will be a gazillion applets or widgets. It’ll be really hard to make money from these, because customers expect them to be free, and they’re often the fruit of individual developers scratching their own (sometimes idiosyncratic or even idiotic) itch. Maybe a little advertising money, but on a small screen, even a smartphone’s high resolution version, there’s a limited window for this. Perhaps if contextual information about who and where and what can be used, the value of a click-through can be raised, if privacy concerns can be addressed effectively.

In the middle, there seem to be two possibilities:

1. focused apps targeting a well-defined and stable job that people want to get done, and whose utility and usability is high enough that people will pay a few $/€ for them, but which are not so universal that they get bundled into the core and given away for free
2. infotainment apps, that can be renewed and replaced, fueling our insatiable appetite for amusement, such as games

There’s some really interesting analysis by ChubbyBrain (The iPhone Inspired 2nd Economy: Over $100 Million Goes from VCs to iPhone Startups) which estimates that $100 million in venture funding has already gone to iPhone apps insurgents in the middle of the spectrum. These are business for whom the apps are the core of their business rather than a complement to it, between established businesses that can fund iPhone app development themselves, and individual developers.

The three biggest categories, both by numbers of companies, and by amount invested:

• gaming and entertainment
• information provider
• social networking

Yup, it’s all about amusing ourselves.

Interestingly, this is also why the economics of video are so different from the economics of music.

With the dawn of the superphone, where is Microsoft? – FierceWireless

In a post on FierceWireless about smartphones (which he tags superphones), Stephen Drake poses the question that many of us are wondering about – what is Microsoft going to do?

It seems to me, however, that although it’s the right question, he’s missing the point, focusing on aesthetics and hardware, rather than on ease of use and software.

He characterizes these smartphones (or ’superphones’) as a:

“…high-end device class characterized by its ‘wow factor,’ a real or perceived buying frenzy, or an otherwise stylish, functional and pretty-to-look-at device…”.

While aesthetics matter, as hardware features, functions and form factor continue to be difficult but do not any longer differentiate, he completely misses the single most important factor: the user experience.

Talking about the Pre, he focuses on its: “…multi-touch capabilities and beautiful interface…”, hardware and aesthetics, when what matters about the Pre is WebOS. And the apps. Or lack of them.

When he comes to Microsoft, he asks where is “… the iconic, shiny device that users have coveted….” There are iconic, shiny devices: Sony Ericsson’s Xperia X1 for example, but WinMo just isn’t there.

Yes, aesthetics matter, but much less so than first ease of use, then the ecosystem (apps and content), both of which outweigh elegance.

Unless and until Microsoft can deliver the usability that customers are coming to expect from Apple, Android and Palm, it will remain uncompetitive.

Tragically, although this should have been apparent since before the launch of the iPhone, as Andy Lees put it at the announcement in Barcelona in February of the forthcoming 6.5 release:

“…[the user interface] seemed less important…”