3DS, PSP2 May Lose To Smartphones

This is not a picture of the 3DS.

Here's the proof of what I've been saying... the smartphones are taking over the handheld gaming market.


Money quote: "The report, "The Phone Gaming Revolution: Do the DS and PSP Stand a Chance?," found that 43.8% of the phone/DS/PSP gaming market plays games on phones, which represents a significant 53.2% increase over the past year. At the same time, Interpret says that the proportion of those who play on the DS or PSP has fallen by 13%." 

Interpret also said "Gamers appear to be defecting from their handheld gaming devices to phones to get their gaming kicks: a full 27.2% of consumers who indicate that they play games on their phones only (and not on the DS/PSP) actually own a DS or PSP, but do not actively use the device(s)."

So even people who own a handheld gaming device as well as a smartphone are spending more time playing games on the smartphone and leaving the handheld alone. It makes sense; how many portable devices do you want to lug around? You're always going to make sure you have your phone... so the DS gets left behind. As we've seen before, the multifunction device beats the single-purpose device. The PDA got eaten by the cell phone (or what was previously called a smartphone). Who carries a calculator these days? Phones do it. Cell phones are even taking away market share from point-and-shoot cameras... as the cameras in smartphones get better and better. Why carry a camera or a video camera when your phone does a pretty good job?

The prospects for the 3DS and the PSP2 look dimmer. Not that the hardware won't be powerful; the latest reports on the PSP2 indicate it may have almost half the processing power of a PS3. And while the 3DS may have a fairly low-res screen, the 3D without glasses is a neat trick. The difficulty is both of these devices will likely only play games. So you're going to leave it behind if you only have room for one device when you go out, because you always want to take your phone so you can stay in touch.

Another problem for the 3DS and the PSP2 is the parent problem. When the parental units are considering what to buy for their young techlings, the 3DS and the PSP2 will be in the range of $250 to $300. OK, an iPod Touch is $225... and it also plays music, videos, is a high-powered camera and video camera, it surfs the web, sends email, can even make Skype calls. Or for $99 they can get an older iPhone model and make it a full phone, with the data plan. Oh, and games for the 3DS or PSP2 will be at least $30, maybe even more. Versus thousands of free games or games that cost a few dollars.

So it's not about hardware specs; it's about multifunctionality and the business model.  Downloading and installing new software instantly, for free or a few dollars, is far more attractive than having to find a game store and spend $30 and then remember to keep the cartridge around with you at all times.

One more hidden problem: We already know the 3DS will require higher development costs for publishers than a DS, and if the PSP2 has near PS3 level graphics, you can bet development costs will be much higher than for the PSP. Which makes it even harder for publishers to make money, which will make them warier of developing for those platforms, which means not as much software, which means the platforms are even less compelling to buy.

Even at the rosiest assumptions, how many 3DS or PSP2 units would be selling a month? 1 million units would be amazing at those price points... yet iPhones are already cruising at north of 4 million units per month, and Android phones at 6 million per month. And newer, more powerful versions are introduced every few months.

This is a race that does not look good for the dedicated gaming machines.

How could they compete? By opening up to multiple applications and allowing developers to create software as easily as they can for iOS or Android. Have a killer online store for downloading everything, including the latest full game titles you can find in the stores. Have a 3G option to include phone service. Will either Sony or Nintendo do that? Highly unlikely... too difficult and painful for them. I suspect they'll continue to say everything is fine, no cause for alarm, and hope that a massive asteroid strike destroys Apple and Google in one blow.