Digital Chocolate: The rise and fall – and rise – of mobile gaming

This post is part of a series leading up to an upcoming Connected Planet feature story on open mobile. Road to Open: Read part 1 HERE, part 2 HERE and part 3 HERE.

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Application stores have created interesting dynamics for the mobile gaming market, according to Trip Hawkins, CEO of social gaming pioneer Digital Chocolate. When Apple (NASDAQ:AAPL) introduced the first iPhone, there was no app store. It killed the game business for AT&T (NYSE:T), he said, because the customers who had been buying games through MEdia Mall had nowhere to go. When the iPhone App Store launched, gaming came back with a vengeance, but for Apple, not AT&T.

“There still needed to be a recovery for AT&T for the re-growth of their ability to sell games to non-Apple customers,” Hawkins said. “We noticed a transition where, when iPhone shipped, AT&T went into the toilet for over a year. Late last year it started to grow again, because whoever was an AT&T customer who didn’t get the iPhone, got a better device on their own with MEdia Mall, and they started to consume games because of the halo of the iPhone. Previously they were asleep.”

The iPhone and subsequent rise of app stores, meanwhile, has brought tremendous success to Digital Chocolate, according to Hawkins. The company is platform agnostic, but as a relatively small developer of 80 games, it has had to pick and choose where to focus its efforts. Currently, Digital Chocolate is partnered with Verizon, AT&T, Vodafone, Google, Nokia, Samsung and Sony Ericsson. While its leading competitors include Electronic Arts, Gameloft, I-Play and Glu Mobile, it is also up against thousands of other games currently offered in app stores.

“If there’s a fixed amount of retail shelf space and there’s a reason why a big company with big brands has the ability to push the smaller and more innovative companies out of the way for more space, that is going to limit the growth and evolution of the market,” Hawkins said. “Since we are one of the smaller and more innovative companies that will discriminate against us. We don’t care for that model.”

Hawkins drew the analogy of Wal-mart versus a mini-mart. The mini-mart offers some candy bars, soft drinks, magazines, etc, but they are not trying to be a Wal-Mart. Even if they were, there would still be preferred companies that would get better placement in their store, and customers are simply not willing to peruse the entire store. They will continue to be influenced by what they see up front and at the cash register. As soon as the model shifts away from a real store where a big guy with big brands can dominate to a virtual environment with a lot more products and no systematic way to force customers to only see the ones a big brand ones, it becomes clear that the big brands are not that powerful, Hawkins said.

“A company like that was thinking the reason they did so well in Wal-Mart was because the public wants their brands,” Hawkins said. “The reality is that Wal-Mart thought the public wanted the brands, so Wal-Mart had a bias to giving better merchandising to the brands, so it became a self-fulfilling prophecy, because that is what the public stumbled into. As soon as they get into a virtual environment where the cream could rise to the top and the methods of discovery are more like the web, it turns out the public didn’t value the brands that highly, there was just a distribution bias.”

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